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20 Jul 2016

RBNZ on Migration Settings

The RBNZ has called for a review of migration settings, as house prices in Auckland continue to rise and supply levels fail to keep up with demand. While additional LVR restrictions could be introduced by the end of the year to help cool conditions, the RBNZ has also brought the migratory capacity of New Zealand into question. Despite rising property prices and a wider gap between first-home buyers and investors, the Government seem unwilling to agree to a migration review.

According to deputy governor Grant Spencer, conditions in Auckland are unsustainable and potentially dangerous if not dealt with soon: "House price pressures have re-emerged in Auckland following an easing in late 2015 and have also strengthened across other regions ... The longer the boom continues, the more likely we will see a severe correction that could pose real risks to the financial system and broader economy."

Mr Spencer said that the Reserve Bank were considering tightening the restrictions on loan-to-value ratios (LVRs) for investors, in addition to the current LVR limits for a 30 percent mortgage deposit in Auckland and a 20 percent deposit for the rest of the country. According to Mr Spencer, "Such a measure could potentially be introduced by the end of the year," with the deputy also making repeated calls to remove tax incentives for property investment and review migration settings.

Even though Finance Minister Bill English has outrightly rejected the Reserve Bank's call for a migration review, Mr Spencer continues to assert the view that housing needs to be tackled on a number of fronts. In a recent interview with RNZ, Mr Spencer said "Given it's an important driver, we should be taking a look at that policy - making sure we're getting the numbers and skills that Government's really targeting ... I think it needs to be reviewed. We're running at a rate of 60,000 (per year) at present. But how many years can we continue running at a rate of 60,000 and continue to absorb that rate? It gets more and more difficult when the country doesn't have that absorptive capacity."

In a later interview with NBR Radio, Mr Spencer repeated his calls to address migration settings, saying "We think at the end of the day the physical imbalance needs to be addressed, and that's about building more houses and potentially looking at migration, in the sense that I don't think the country can sustain the rate of immigration - 60,000 plus per annum for a large number of years - so that's the essence of it." While plans are currently in place to dramatically increase housing supply levels in Auckland, strong migration makes it very difficult for town planners and builders to keep up. 

In response, Bill English said "We’re always looking at the tax system and immigration, and there’s been a number of changes in those areas. The Reserve Bank may not be familiar with those ... No, we’re not committing to doing that, and the Reserve Bank does not have a detailed understanding of how the tax system or the migration system works ... They’re putting a view of theirs out, but they’re not in the policy-making process, and so there’s adjustment going on in those areas continuously."