Much Ado About Nothing; Robertson, Orr Wrestle over Future Tools

by Sam Nicholls · Mar 30, 2021

Finance Minister Grant Robertson amended the RBNZ remit, requiring the Monetary Policy Committee (MPC) to “asses the effect of its monetary policy decisions” on the Government’s housing goals.

In all honesty, this is should have come as no surprise to anyone.

Late last year, after a lot of pressure to do something about the escalating housing crisis, Robertson reached out to RBNZ requesting they take house prices into consideration when they draft their policies.

RBNZ Governor Adrian Orr’s letter of response said, essentially, ‘no, but…’

Orr noted that house prices were reactive to too many factors—transport, employment, immigration, climate change—and that if the RBNZ were made to craft their policies for the purpose of “dampening” house prices, it could conflict with the existing laws. It simply wouldn’t be “justified,” Orr said.

Not only would a change in MPC policy not be “justified,” but Orr also noted, right at the top of his letter, that “the MPC currently gives consideration to house prices when setting policy.”

Here’s the ‘but’:

Orr suggested Robertson amend the RBNZ remit so that it explicitly mentions the Government’s housing objectives, which is exactly what Robertson has done—almost down to the letter—just over three months later.

And of course, given that it was Orr’s idea, the RBNZ welcomed the change.

Really, there are two tangible outcomes to this amendment:

The RBNZ must now “assess” and “outline… the impact of its decisions on the Government’s housing objectives.”

Robertson and the Government get a bit of press and are able to be seen to be doing something about the housing crisis (though, again, very little has actually changed).

A more interesting and potentially far more impactful aspect of this exchange between Robertson and Orr is what was said (and not said), and what has been said since, on the subject of DTIs.

In his original reply to Robertson, Orr made specific mention of DTIs, requesting that “the Government gives consideration to adding [DTIs] to the permitted tools in 2021.”

Orr is keen to use DTIs to “complement” the recently reintroduced LVRs in RBNZs attempts to affect housing market dynamics and stabilise the economy.

Robertson, however, is hesitant to arm RBNZ with DTIs for fear of the policy having a negative impact on FHBs and housing inequality—something Orr admitted is a very real possibility.

When pressed on the matter of adding DTIs and other macro-prudential tools to the RBNZ toolbox, Robertson told reporters he was getting advice on the possibility of having DTIs target investors, something Orr has spoken out against.

Orr noted that narrowing the scope of macro-prudential tools to target investors would “come with great challenge” and that “‘macro’ means it’s the same tool for all.”

It’s worth noting that the LVRs instated by RBNZ have been skewed towards making it harder for investors to borrow, and will make it even harder again in April.

The Government has promised bold and rolling actions in the near future which, given Robertson’s reservations about DTIs, will most likely come in the form of an extension to the bright line test past the five year mark.

This will raise questions as to whether the Government would be breaking their promise not to introduce new taxes. Robertson would argue the Government is only ‘extending’ existing taxes, while one could argue that the extension would consist of ‘new’ taxes—an argument of semantics, really.

Watch this space.

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