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New Zealand’s Central Bank to Tackle Housing Crisis
The duties of a central bank are ever expanding: Lender of last resort, financial regulator, macroeconomic manager… affordable housing. That’s the case now in New Zealand, where prime minister Jacinda Ardern has asked the Rese
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Realty Plus
Published - Thursday, 18 Mar, 2021
The duties of a central bank are ever expanding: Lender of last resort, financial regulator, macroeconomic manager… affordable housing.
That’s the case now in New Zealand, where prime minister Jacinda Ardern has asked the Reserve Bank of New Zealand to consider the state of the housing market there as it makes policy decisions; it’s a step back from an initial plan to make housing prices part of the bank’s primary mandate.
The median house price in New Zealand has soared past NZ$700,000 ($502,000) in the last year, up from less than NZ$600,000 ($430,589) before the pandemic. New Zealand’s increase in home prices of around 20% over 2020 outstripped a 5.4% increase in US home prices that has also raised eyebrows.
In response to the pandemic, central banks in both countries have cut interest rates, leading to more available home credit which has contributed to surging housing prices. That, in turn, makes it difficult for new buyers to obtain homes and contributes to homelessness.
But affordability isn’t a new problem in New Zealand, or indeed the rest of the developed world. Ardern herself was first elected in 2017 on the back of promises to tackle housing affordability after years of rising home prices. That reality suggests that any economy looking to make housing plentiful will need to look beyond interest rates.
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