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Publish Date: 18 September 2009
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If householders start borrowing to spend again they will be hit by an old fashioned dose of mortgage rate hikes, Reserve Bank Governor Alan Bollard told MPs today.
Dr Bollard today kept the official cash rate unchanged at its record low 2.5 per cent and said he expected the rate to remain at or below that level "until the latter part of 2010".
Appearing before the finance select committee today Dr Bollard said there were early signs of recovery in the housing market and this was one reason he had not cut rates despite inflation being under control and a soaring dollar.
"We are alert to not wanting to spark off an unnecessary housing revival or imbalanced housing revival," Dr Bollard said.
"At the minute we are not overly concerned. But were we to see a big increase or a big increase in expectation of big house prices and consumption off the back of that we would start getting concerned."
He believed that New Zealanders had learnt from the recession that housing prices could go down and leave them overstretched.
If they had not learnt that lesson "we would have to go back to applying the old sort of medicine again".
A careful eye would be kept on banks' lending habits and Dr Bollard hoped for a change in tax law to make housing speculation less attractive to investors.
"We are particularly interested in the prospect of seeing a flattening of the tax incentive structure around housing investment and it seems to me the most obvious part of that would be around taxation on people who intend to flick on investor housing."
Dr Bollard believed New Zealanders wanted a balanced economy driven by investment, exports and real growth, and not consumption based on borrowing.
"But people don't always vote for it in the sense of preferring investment in their houses compared to investing in their companies. New Zealanders have said they prefer to own their own homes, but have their businesses owned from offshore," Dr Bollard said.
He told MPs he would observe with interest how New Zealanders changed their habits after the current recession ended.
"New Zealanders will behave differently after this crisis they have all been through, but we are not exactly sure how differently."
In the Monetary Policy Statement today, the Reserve Bank said house prices had risen 4.4 perc ent in the past four months, apparently driven by an unusually low number of dwellings being offered for sale.
It expected the tight supply in the housing market to persist in the short term, supporting an increase in house prices for the rest of 2009.
Overall, it believed house prices would hold up around current levels for the rest of its forecast period, to early 2012.
Information from the Reserve Bank shows house prices have fallen 10 or 11 per cent from peak to trough, while three months ago it had been picking a fall of about 16 percent.
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