Grant Robertson to face select committee grilling as house prices outpace Government forecasts

House price growth has outpaced forecasts. Photo / NZ Herald.

Treasury's November forecasts for how much house prices will increase in the 12 months from July 2021 to June 2022 were exceeded after just six months by one property measurement, with QV's house price index showing prices up 11.7 per cent from July 1, 2021, to January 2022.

Treasury reckoned the annual increase from July 1, 2021, to June 3, 2022, would be 10.4 per cent. It uses the CoreLogic Quarterly house Price Index for its measures, not QV.

The question is likely to come up when Finance Minister Grant Robertson appears before the committee on Wednesday to answer questions on the 2022 Budget policy statement - this is traditionally the time when the finance minister traditionally reveals the date the next Budget will be delivered.

It is not the end of the world for Treasury - some house price indexes like REINZ have shown prices fall slightly over the last two months, so the forecast may still hit the bullseye. Indeed, a Treasury spokesman said it is still anticipating "house prices easing".

But Treasury's recent history forecasting prices has left some, like Green MP Chlöe Swarbrick, doubtful.

She has been calling on Parliament's Finance and Expenditure committee to be briefed on how Treasury and the Reserve Bank forecast house prices, after both agencies' forecasts were well wide of the mark during the pandemic housing boom.

In December 2020, Treasury forecast a 8.5 per cent annual increase in house prices - they actually went up by 29.0 per cent.

Despite the inaccuracy of those forecasts, the committee's Labour majority has voted down regular motions for a briefing on the forecasts 22 times.

Last year, Treasury answered some written questions on the way it forecast house prices, revealing that it did not use a formal economic model and relied in some part on a "degree of judgment" - a defence that left some on the committee flabbergasted.

Swarbrick has been pushing the committee to open an inquiry into the economic response to the Covid-19 pandemic, noting that while the health response has been strong, the legacy of the economic response, particularly house prices, is considerably more complicated.

This request has also been rebuffed.

On Tuesday, she said she "would discontinue her regular motion for a briefing on house prices, but she hoped the committee would support a broader inquiry into the Covid-19 economic response".

But with Labour showing little appetite for such an inquiry, Swarbrick's request is likely to be rebuffed again.

Wednesday's briefing is likely to see the Government attacked from the right as well as the left.

This year's Budget will see Robertson announce $6 billion worth of new operational (day-to-day) spending, which will mainly be spent on health and climate change.

National finance spokesman Simon Bridges has been attacking Robertson in Question Time over why he has decided to increase his operating allowance by a record amount at a time of historically high inflation - noting some economists believe high government spending stokes demand, and drives inflation.

"How is $6 billion in new spend in Budget 2022 even remotely consistent with the OECD and most commercial bank economists' call to rein in spending now to avoid fuelling higher inflation and interest rates?" Bridges asked Robertson last week.

Robertson has pushed back on the allegation, arguing that much of New Zealand's inflation appears to be driven by post-pandemic challenges seen in many countries, and challenging the opposition to point to parts of the Government budget that would be cut to reduce spending.

"Mr Bridges and his colleagues have to explain what gets cut—because something gets cut, doesn't it? And maybe it's health spending, or maybe it's spending on housing, but Mr Bridges can't have it both ways," was Robertson's response to Bridges' inflation question.

Those arguments will likely frame the Budget, which will likely be delivered in May.