The Reserve Bank has said thanks, but no thanks, to Finance Minister Grant Robertson's specific suggestion on how the central bank could take a more active role in cooling house prices.
Instead, he told Robertson that if the Government wants to address New Zealand's housing issues, it needs to create a new housing agency.
"There is a need for a single agency or 'clearing house' to co-ordinate the Government's response across agencies," Orr said.
He has also requested that the Government gives the Reserve Bank further powers when it comes to stopping those with high levels of debt from buying more assets, such as more houses.
This includes making debt-to-income limits a permanent part of the Reserve Bank's toolbox next year.
Orr this morning posted the Reserve Bank's full response to Robertson's November 24 letter, where he sought Orr's views on how the RBNZ could help "address the issue of rising house prices".
It is a highly detailed response but a main focus was Orr telling Robertson the Government already has the tools it needs to stabilise the housing market.
"Solutions to any identified problem of high house prices or housing affordability require the involvement of many government portfolios and agencies, as well as non-government participants."
In fact, he said the Reserve Bank was just one out of 17 main players when it comes to New Zealand's housing market.
"Government agencies already have a wide range of levers that could be used to address housing issues."
One such lever includes "tax policy" – but Orr does not detail what changes should be made.
In response to Orr's letter, Robertson said in a statement: "I thank the Governor for his response and will consider it, along with the advice I have requested from the Treasury. The Government will make announcements in the New Year."
Although Orr put some of the onus to New Zealand's housing issues back on the Government, Orr does suggest a way the Reserve Bank could help.
But he pushes back against one option Robertson had lightly mooted in his letter last month.
Robertson said an option was for the Reserve Bank's remit to be changed so the bank takes house prices into consideration when formulating monetary policy, such as setting the interest rates.
But Orr has warned against this option, saying there are "strong reasons" as to why it would not work and there could be a number of adverse trade-offs.
These, according to the letter, could include lower employment – specifically for Māori, Pasifika, women, and youth – as well as lowering the supply of housing.
"There are strong reasons why it would be unlikely to result in significant policy changes."
But Orr has outlined what he describes as his "preferred option" as to how the Reserve Bank could get involved, when it comes to cooling the housing market.
He said a new "house price consideration" could be added to one of its current responsibilities – its "financial stability" obligations.
This would mean the Government would be able to specifically direct the bank in regards to a specific Government policy.
This would allow for a whole-of-Reserve Bank response to housing market issues and would mean the Reserve Bank could target the "specific drivers" of the housing market, Orr said.
"If you wish to strengthen the Reserve Bank's role in relation to house prices, our recommendation is that this would be best achieved by amending our financial policy remit."