Property Institute warns of ‘unintended consequences’ of latest Reserve Bank proposals to curb Auckland house inflation

Property Institute of New Zealand Chief Executive, Ashley Church, is questioning the latest efforts, by the Reserve Bank, to curtail investment in property in Auckland saying that the Reserve Bank Governor needs to “stop chasing shadows and stick to his knitting”.

The Reserve Bank is considering treating residential investment properties differently from owner-occupied properties and is consulting banks on how best to define a residential investment property loan. It proposes the new asset classification for such loans will take effect from July 1 and that all existing loans be "classified correctly" by April 1 next year.

But Mr Church says house price inflation, in Auckland, is the result of strong demand and a severe lack of supply and that attempts by the Reserve Bank Governor to slow down demand in a ‘King Canute-like fashion’ only risk further compounding the existing problem.

“In the unlikely event that Mr Wheelers proposed initiatives are actually successful all he’ll have achieved is to make the current housing problem even worse by scaring away the very people who are prepared to invest in new housing stock”.

Mr Church says history shows us that, left to run their course, property booms eventually peter out once the underlying issue – lack of supply – is resolved.

“The only sustainable way to fix the Auckland housing crisis is to build more homes as quickly as possible – and making sure that happens is the responsibility of the Government, the Council and the private sector – not the Governor of the Reserve Bank”.

Mr Church says that attempts to influence the market without addressing the issue of supply will almost certainly invoke ‘the law of unintended consequences’ where the result of a policy leads to an unintended, and potentially worse, outcome while not actually fixing the original problem. He points to the Reserve Banks recent clampdown on low value lending as an example of this and says that the policy has now made it impossible for many young kiwis to buy their first home while “not making a jot of difference’ to house price inflation”.

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