Hobsonville Point, one of Auckland's property hot-spots in recent years. Photo / Dean Purcell.
OPINION:
Will a booming housing market force the Reserve Bank to change tack on a policy that currently has New Zealand headed for negative interest rates?
So far there's been to nothing in the bank's messaging to suggest it will pull back from deploying unconventional policy tools to push rates lower - despite data pointing to a surprise housing boom.
The RBNZ still sees the pandemic crisis and the economic damage it is causing as the biggest issue New Zealand is facing right now.
That's not a small thing that we can just put behind us.
With community transmission of the virus eliminated and life returning to some kind of normal for most Kiwis, it is easy to forget that we are still in the grip of a global economic crisis that has no immediate end in sight.
The RBNZ leadership - from Governor Adrian Orr to assistant governor Christian Hawkesby and chief economist Yuong Ha - has been consistent in its focus on taking "the path of least regrets".
Could they regret going too hard or too early with monetary stimulatory policy stimulus.
Yes of course, that is clearly acknowledged in this strategy.
But history suggests that it much harder to bring an economy back to life if it gets trapped in a spiral of recession or stagnation, than it is to slow it down if it starts to overheat.
The RBNZ cooled the housing market once before with Loan to Value Restrictions and still has those tools available to deploy if and when it deems them necessary.
One suspects that Orr and his team will be feeling some frustration at the speed with which some commentators have put the recession behind them.
But housing is a big problem in this country.
Younger first home buyers who thought the silver lining in this crisis might be a price slump are also feeling justifiably aggrieved.
It's not an easy balancing act.
The Reserve Bank has argued that monetary policy shouldn't shoulder all the responsibility for the housing market.
It isn't specifically part of its brief - unless it starts to drive debt to financially destabilising levels.
And there have been many other factors at play - not least lack of supply, as new construction has failed to keep up with population growth.
Some economists argue that we're now in a forced housing market experiment right now - one that adds weight to the view that interest rates are the primary driver.
"Circumstances have delivered a natural experiment that should help settle the debate about what is the most important driver of house prices," says Westpac chief economist Dominick Stephens - in a report headlined Party like it's 2007.
"Physical supply and demand factors are currently aligned in the direction of falling house prices, while interest rates are aligned towards rising house prices."
He notes net migration - long blamed for causing a housing shortage - has plunged from record highs to near zero.
"Anybody focusing on physical supply and demand would predict house price declines," he says.
"The economic recession also points in the direction of weak house prices. Yet prices have actually risen, because of the dominant role played by interest rates."
BNZ chief economist Stephen Toplis agrees but notes that this is exactly what the Reserve Bank wants.
"There is no doubt in our minds that falling interest rates are having a big impact on house prices," he says.
"Equally, there is no doubt the RBNZ is happy with what it sees and wants to see more of it."
All the bank economists still expect to see the RBNZ cut rates in to negative territory early next year
This is expected to be done in tandem with a new tool - Funding for Lending (FLP) - a mechanism for the RBNZ to lend cash directly to commercial banks at special rates.
There is still time for the bank to change course but at this point it would take some fairly dramatic positive events - like a vaccine.
"Meanwhile, the RBNZ is well aware of the financial stability implications of soaring house prices," says Toplis.
While it clearly sees high unemployment as a bigger risk than that of an overvalued
housing market it will need to be cautious that prices don't head into bubble territory.
With that in mind Kiwibank economist Jarrod Kerr is picking the RBNZ will reinstate LVR restrictions next year.
"The RBNZ has made it clear that for now the biggest risk to financial stability is the fragility of the economy," he says.
LVRs could slow the recovery "so, don't expect to see LVR restrictions return anytime soon".
But next year might be a different story, he says.
If the housing market continues to outperform and debt accumulates among higher risk investors and first home buyers then the RBNZ will most likely bring them back.
"Give with the one hand [lower mortgage rates], and take a little back with the other [tighter lending standards]."