Grant Robertson and Adrian Orr see house prices becoming more 'sustainable'

Finance Minister Grant Robertson appeared to welcome forecasts of house price moderation. Photo / Mark Mitchell

Finance Minister Grant Robertson has cautiously welcomed forecasts published by the Reserve Bank on Wednesday showing house prices falling at the end of next year.

He said both the Government and the Reserve Bank were keen to see house prices become more sustainable.

"As a Government we have been concerned about house prices for some time ourselves."

"There's a shared view that house price growth has been unsustainable," Robertson said.

The Bank's Monetary Policy Statement (MPS) published on Wednesday afternoon forecast house price growth slowing and eventually going negative, meaning house prices would fall.

It is the first time since house prices took off last year that the Bank has forecast price decreases. The Bank's last statement, published in May, forecast continued increases in house prices, although at a much slower speed.

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Robertson took some credit for the Bank's forecasts, which said the moderation was partly a result of additional housing supply being built.

"Supply is definitely improving and it's something we've worked very hard to be a part of both in terms of the houses that we build ourselves but also trying to incentivise new builds and trying to get the private sector to get on with building too," Robertson said.

"This will take some time, but it is definitely an improving trend in that regard," he said.

The Bank decided not to hike the Official Cash Rate (OCR) today, despite a widespread expectation it would rise from 0.25 to 0.5.

Instead, following news of the latest nationwide level 4 lockdown, the Bank decided to hold the OCR, keeping the cost of lending cheap and stimulating the economy.

Robertson would not be drawn on where he thinks the cash rate will go - maintaining a longstanding convention of respecting the Bank's independence.

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However, he said the Bank had given a "strong signal" about where the cash rate was heading.

"It's pretty clear from reading the statement and the press conference that the Governor had, that there was a clear direction of travel," Robertson said.

This "direction of travel" is a likely rate increase. Many economists are still pegging rate increases by the end of the year, Covid-19 permitting. The Bank's own forward guidance suggests the cash rate will rise later this year.

The Bank continues to be optimistic regarding unemployment forecasts.

It sees the unemployment rate falling even further than 4 per cent, where it currently sits.
Robertson appeared less sure about this forecast.

He noted that while there was definitely "some spare capacity" in the labour market, there is evidence of a skills mismatch.

This means even though employers are desperate to hire, they are not hiring from the ranks of the currently unemployed because those unemployed people do not have the skills needed for the jobs the employers are offering.