Hamish Rutherford: ‘House prices sell newspapers’ – Reserve Bank shoots the messenger of ministerial suggestion


A fortnight ago, Reserve Bank governor Adrian Orr complained to reporters about how much more they wrote about house prices than the labour market.

Orr was clearly getting tired of taking questions about the national obsession of property, as he made the point, yet again, that controlling house prices, per se, was not his job.

While the central bank keeps a watchful eye on risky bank lending to any section of the economy, when it sets interest rates it focuses on keeping inflation low and stable, as well as trying to boost employment.

On Wednesday morning, Orr was back in front of the media, begrudgingly acknowledging how important housing affordability is, but hinting that it was the media elevating it above other important issues and work the central bank was doing.

“Yes, the housing issue, etcetera, is an issue. It’s been an issue forever. Just as, by the way, can I say, [are] the many other things we deal with, such as financial inclusion, climate change and the responses to that,” Orr said, pointing to the vast volume of issues the Reserve Bank monitored.

“House prices sell newspapers.”

Orr is at once correct, but also guilty of a blatant case of shooting the messenger.

This time at least, the reason he was being asked, over and over, about the state of the New Zealand housing market, could not sensibly be blamed on editors.

A day earlier Finance Minister Grant Robertson stood in front of reporters, volunteering that he had written Orr a letter that morning suggesting he pay attention to house prices when setting interest rates.

Although it was framed as merely a suggestion – and even if the Reserve Bank should agree it would not likely form any part of policy for months – the letter had a sudden impact on what financial markets expect the Reserve Bank to do with the official cash rate.

According to figures from Westpac, the odds that the Reserve Bank will cut the OCR some time in the first half of next year virtually halved on Tuesday, even after traders had seenthe Reserve Bank’s response to Robertson, that it already paid attention to house prices in its thinking.

Orr insisted yesterday that the letter was not a challenge to the Reserve Bank’s independence, but some awfully big bets are being taken that interest rates are not going as low as previously thought, and the only thing that moved the dial was the Minister of Finance.

Since he became the governor in 2017, Orr has done little to shake off the idea that his politics align with the Beehive, imploring the Government to help him out by spending more to help him meet his spending targets and frequently adopting the language of wellbeing.

Orr has been far more willing to appear in grinning photos with politicians than he has been to criticise them.

In the face of a subtle yet clear intervention into the Reserve Bank’s business, Orr showed subtle signs that he may be willing to push back harder than before, even though he tried to frame Robertson’s intervention as a cry for help that he was happy to answer.

As he revealed that the Government was reviewing the settings driving the housing market, Robertson confirmed yet again that it had no plans to touch the tax settings, which tend to favour investment in property over other asset classes.

Orr pleaded ignorance. Asked if the Reserve Bank would offer advice on tax settings, he said he did not know whether it was on the agenda. “One would assume issues of taxation would be in the broader work agenda.”

Later he said the issue of house prices in New Zealand had been looked at so many times that the issue was not identifying the problem. The issue was the “appetite for accepting policy recommendations”.

The fact that house prices are surging even as New Zealand emerges from a short but severe recession is clearly a function of the ultra-low interest rates which the Reserve Bank is responsible for.

But the bigger and longer-term issues are tax settings that encourage property investment and planning laws which influence the ability of supply to meet demand. Responsibility for these sit with the Government, something Orr is more than capable of articulating.

By trying to pass the buck for the recent increases in prices to the Reserve Bank, Robertson may open himself to some home truths from the governor that the real problem lies with the Beehive.

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