RBNZ should leave mortgage decisions to banks

Press Release – The New Zealand Initiative

Wellington (4 June 2014) The New Zealand Initiative has expressed concern about a Fairfax Media report today that the RBNZ is not ruling out restricting mortgage lending according to household income multiples. Such a policy is currently being …RBNZ should leave mortgage decisions to banks
Wellington (4 June 2014) – The New Zealand Initiative has expressed concern about a Fairfax Media report today that the RBNZ is not ruling out restricting mortgage lending according to household income multiples. Such a policy is currently being considered by the Bank of England under its new governor Mark Carney.

However, the media report does not say that the RBNZ is currently considering recommending such a measure and The New Zealand Initiative doubts that it is doing so. Nor should it.

Dr Oliver Hartwich, Executive Director of The New Zealand Initiative, said:

“To counter high and rising house prices, particularly in Auckland, tools to curb mortgage lending are the wrong way to go. We need to tackle the underlying issue of housing supply if we are serious about housing affordability. In any case, it should be left to commercial lenders to decide whom to lend to and how much.”

In a series of three research reports, The New Zealand Initiative has made detailed recommendations on how to free up land and housing supply. The research showed that countries with a flexible housing supply side typically avoid the affordability problems faced by New Zealand. In contrast, demand side interventions such as loan-to-value ratios or income caps can at best provide temporary relief but do not offer a lasting solution to long-term housing pressures. Moreover, direct controls on mainstream financial intermediaries always have unintended and undesired consequences, including disintermediation.

The New Zealand Initiative reports on housing:

Free to Build: Restoring New Zealand’s Housing Affordability

Different Places, Different Means: Why some Countries Build More Than Others

Priced Out! How New Zealand Lost Its Housing Affordability

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