Finance Minister Grant Robertson has taken a significant step in the Government's quest to address soaring house prices by lobbying the Reserve Bank to change its mandate.
He has also asked the Treasury for advice on how current measures – such as the brightline test and the ring fencing of rental losses – are working, with a view to possibly expanding them.
Robertson announced today that he has written to the Governor of the Reserve Bank, Adrian Orr, asking him if the bank would take a more active role in cooling New Zealand's overheated housing market.
The move, Robertson hopes, will help bring about a period of "sustained moderation" to New Zealand's housing market.
At the unveiling of the Government's updated books this afternoon, Robertson said New Zealand's stronger-than-expected economic performance has forced house prices up.
REINZ has reported that there has been a 20 per cent year-on-year increase in house prices and the Government has come under enormous pressure to cool the market down.
Today, Robertson took the significant step of writing to Reserve Bank Governor Adrian Orr, asking the central bank to consider expanding its remit to include the stability of the housing market in its job description.
"I am concerned that the recent rapid escalation in house prices, and forecasts for this to continue, are affecting the Government's ability to meet the economic objectives set out in the Remit," he said in the letter.
In a separate press release, he said that given the extended period of low interest rates, "now is the time to consider how the Reserve Bank may contribute to a stable housing market".
The Reserve Bank acts independently, meaning it does not take its instructions from the Government.
In its agreement with the Government, the Reserve Bank's job is to control inflation, employment and financial stability.
Robertson has asked Orr to add "stability in the house prices" to the Reserve Bank's remit.
"I want to be clear," Robertson said, "I am not proposing any changes to the mandate or the independence of the Reserve Bank," he said.
The ball is now in Orr's court – it's up to him and his committee to decide if he will take up the Government's call.
In his letter, Robertson made it clear he wants an answer from Orr soon – "would request that you give it your earliest possible consideration".
As well as dropping the official cash rate (OCR) to help stimulate the economy throughout Covid-19, the Reserve Bank has been pumping tens of billions of dollars into the economy through the buying back of bonds – this is often called quantitative easing, or money printing.
Economists have pointed to both these forms of stimulus as the main reasons house prices have been soaring, while the rest of the economy is in recession.
Despite this, Robertson said he was not blaming the Reserve Bank for the rapid house price inflation and said the central bank has served New Zealanders "incredibly well".
The Government has largely focused on the demand-side of the housing equation, saying it was looking into change its rules around first home buyer subsidies.
Robertson said today that the Government was looking at "everything we can" when it comes to the supply of houses.
For example, he has asked the Treasury to provide him with advice around extending the bright line test, which at the moment means people have to play tax on a dwelling if it's sold within five years of its purchase.
Meanwhile, the Crown accounts show the amount of debt the Government has taken on to combat the pandemic is $750 million lower than expected, while the tax take is $172m higher than had been forecast.
The numbers show an updated version of the Government's books, compared to the Pre-Economic Fiscal and Economic Update (PREFU).
Given the nature of the economic environment, the Treasury's numbers have been jumping around as the Government quantifies the impact of Covid-19.
Treasury Secretary Caralee McLiesh said the numbers show the economy has "proven more resilient that we expected in the Budget."