KEY POINTS:
Homeowners should not be the "fall guys" in the anticipated lift by the Reserve Bank in the Official Cash Rate on Thursday, according to the Real Estate Institute of New Zealand (REINZ).
Instead the government should look at its own expenditure and its impact on inflation and interest
rates, said REINZ.
But rising housing prices would inevitably receive the blame for inflationary pressure resulting in the OCR increase and further pressure on the exchange rate, according to REINZ National President Murray Cleland.
Mr Cleland says that housing isn't the culprit; it is just one of many factors that have contributed to inflationary pressure and shouldn't be singled out for undue attention.
"A strong housing market is not the only driver of inflation, and the consequent pressure on the exchange rate, and the Reserve Bank should consider other factors over which the Government has more control, rather than relying solely upon the OCR to quell inflation.
"The Reserve Bank has a choice; it can either continue to demonise home owners or it can put pressure on the Government, both central and local, to rein in their expenditure. Having raised the OCR, at a cost to exporters, the productive sector and home buyers, we'd like to see the Reserve Bank focus on the contribution of a growing public sector in the OCR announcement on Thursday," Mr Cleland said.
"Houses are worth what people are prepared to pay for them. The housing market is strong because we have high net immigration, good job security, easy access to finance, and the cost of building new houses and acquiring the land for them have all increased markedly in recent years.
"The role of the public sector in fuelling the increase in house prices should not be underestimated. Local authority policies aimed at limiting urban sprawl have driven up land prices by reducing the availability of land for housing. Council levies and developer contributions, ostensibly to fund local infrastructure, can easily reach $30-40,000 by the time additional costs of resource consents for the actual properties are added."
In Wellington's central business district, public sector occupation has increased 27 per cent since December 2001 with further significant expansion expected to accommodate the ever-growing number of state sector bureaucrats. In 1987, Crown related agencies accounted for some 20 per cent of the space available; now they occupy almost 40 per cent.
REINZ also notes that a leading bank economist recently suggested that the introduction of the 39 per cent tax rate increased the incentive to pursue capital gains as opposed to income, thereby driving investor preference towards housing and away from managed funds and term deposits.
"A further increase in the OCR will not benefit anyone. It will cause more pain for the productive sector, dash the hopes of aspiring first home buyers and result in lower economic growth. We would rather the Reserve Bank turned its attention to the public sector and begged them to stop spending other people's money," Mr Cleland said.
