Focus on housing costs, raise wages not interest rates

"The increase in the Reserve Bank's interest rate, while expected, shows little imagination and will raise mortgage costs for home owners," says CTU economist Bill Rosenberg. “The focus should be on getting housing costs down, and raising wages to make housing more affordable.”

“The Minister of Finance has been saying wages will start to rise, based on Treasury forecasts. Wage and salary earners need to get together to make sure that happens: it won’t happen by just talking about it”, Rosenberg says. “The economy can afford it: labour productivity rose 10.1 percent between 2009 and 2013 but average private sector wages rose only 0.6 percent in real terms.”

"Rising interest rates will keep the value of the dollar up, threatening jobs in exporters and firms competing with imports, and add to housing costs." Rosenberg said.

"The increase shows little recognition that inflation was lower than expected in the three months to March, nor that it is driven mainly by housing costs, apart from the January increase in tobacco taxes. CPI inflation was 0.9 percent for the year without housing and electricity costs. It was 1.5 percent with them included. And this doesn't recognise the increasing costs faced by first home buyers when looking to buy an existing home." Rosenberg said.

"Rising housing costs demand more urgent direct action. The Reserve Bank should look at other (macroprudential) policies in addition to the loan to value ratio (LVR), but better targeted. Construction of new low cost housing needs to be sped up, particularly in Auckland and Christchurch. The downward pressure on rents from state housing needs to be increased rather than reduced: pushing state house tenants out of their houses into more expensive private rentals is not going to help. Tenancy reform is needed to get better long term rentals for those who cannot or don’t want to buy.” Rosenberg said.

ENDS

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