BNZ Governor Wheeler says wants house price inflation to drop to ‘nearer’ Consumer Price Inflation
By Bernard Hickey
Reserve Bank Governor Graeme Wheeler has given a broad target for success in the central bank’s fight to reduce house price over-valuation and inflation to strengthen the banking system. Until now the bank has been cagey about exactly what level of house price inflation it is targeting with its high LVR speed limit.
Asked repeatedly in a Finance and Expenditure Select Committee (FEC) hearing by Labour MP Shane Jones about when the Reserve Bank would know if its high LVR speed had been successful, Wheeler said he would like to see annual house price inflation, which is running at around 16% in Auckland and 10% nationally, closer to the bank’s consumer price inflation target of 1-3%.
“If we had inflation currently at around 1.2% at an annual rate and we have an objective under the Policy Targets Agreement of maintaining inflation over the medium term in the order of 2%, then you wouldn’t want to see house prices for the country as a whole growing at around 10% as they are at present. You would want to see a figure much closer over time to the level of Consumer Price Inflation,” Wheeler said.
Wheeler agreed the bank would not want to see signficant falls in house prices. He pointed to OECD research showing New Zealand’s house price to disposable income ratio of around 4.5 was above its levels of 2.5 in the early 1990s and was 20% above its long term average.
“One doesn’t want to see a significant adjustment in house prices happening quickly, by that I mean house prices falling in nominal terms, which would pose risks to the financial sector. What one wants to do is to slow down the rate of house price appreciation and our measures are basically trying to affect the demand for housing while the supply side comes into much better balance,” he said.
www. Interest .co.nz