26.3 per cent, pushing the average asking price for a home to a whopping $980,000.
Historically, interest rates have played a significant role in curbing house price growth and therefore many believed that the ongoing crisis would be tackled by the recent increase in the official cash rate in mid-October, for the first time in over a year. Since the beginning of the pandemic in March 2020, the Reserve Bank of New Zealand has maintained the OCR at a historic low of 0.25 per cent, and on 13 October, this figure was increased by a quarter percentage point to 0.5 per cent.
Nevertheless, RBNZ Governor Adrian Orr is playing down the role played by the apex bank in tackling the ongoing crisis.
“The role of the Reserve Bank is a bit part,” he said in his address to the Property Council of New Zealand Retail Conference on Tuesday (2 November). “We are one cause of demand changes as we alter interest rates to meet our monetary policy remit. We also work to limit mortgage lending when it appears excessively risky. However, this is more about limiting the damage to banks’ balance sheets, rather than altering overall demand.”
The central bank Governor is of the view that global interest rates had more of an influence on house prices in New Zealand compared with the RBNZ’s measures, such as a hike in the OCR or tightening of the loan-to-value ratio restrictions.
“Our recent research efforts suggest that it is the secular decline in global interest rates that most explains house price moves globally, with official cash rate surprises playing only a bit part,” he said. “Our tools are limited. For example, our loan-to-value ratio restriction (LVR) tool can only impose bank lending constraints on new loans – as they are being made. It does not impact on the vast bulk of loans already made.”
A couple of months ago, the central bank announced restrictions on the amount banks can to borrowers with small deposits. Accordingly, from this week onward, only 10 per cent of new loans to owner-occupiers can be above an LVR of 80 per cent. However, Orr insists that these measures are no sufficient to tackle a runaway housing market.
“Solutions to any identified problem of high house prices, housing affordability, and housing require the involvement of many government agencies, businesses, financial institutions, and broader community groups,” he noted. “There is no one agency or silver bullet.”
