In the somewhat party-political and evidence-light press release on housing the Reserve Bank has just released…
“Much more rapid progress in producing new housing is needed in order to get on top of this issue. Tax policy is also an important driver, and we welcome the changes announced in the 2015 Budget, including the two year bright-line test, the proposed non-resident withholding tax and the requirement for tax numbers to be provided by house purchasers.”
…it is perhaps not too surprising that, once again, there is no reference to the enhanced first-home buyer subsidies announced, as it happens, a year ago today, as the centrepiece of the Prime Minister’s launch of the National Party election campaign. We know quite a lot about first home buyer subsidies. In the presence of supply constraints, all they do is bid up the price of houses (house plus land). Other countries have tried them (Australia closest to home). They don’t raise home ownership rates or do any socially useful thing. And, if the subsidies don’t last for ever (which they often don’t, especially in real terms – for example, Sir Robert Muldoon had a short-lived one of these subsidies late in his term), they simply increase the risk of a nastier correction in house prices later. Those corrections are what the Governor, and his deputy, often tell us they are worried about.
You might think it would be inappropriate for an unelected central bank to be commenting on party election promises, even when they become legislated government policy. And I would have some considerable sympathy with that position. But the same surely goes for other aspects of tax policy, regulatory policy, government data collection policy and so on (eg the list in the press release), all of which are contentious in some circles or other. Oh, and was there any mention of the role of immigration policy – the bit directly controlled by central government?
Today’s papers report on the take-up of the enhanced subsidies. Fortunately, perhaps, Auckland prices are already too high for many potential Auckland buyers to bid prices higher. But elsewhere, in Tauranga, for example, where people worry about the spillover from the Auckland boom, those who’ve used that subsidy will have bid prices up just a little faster than otherwise. But no mention of it from the Reserve Bank?
In getting so involved with regulatory matters, that go well beyond its areas of responsibility, the Reserve Bank is playing a dangerous game. There is a strong, but not unarguable, case for central bank autonomy on monetary policy, but the case is much harder to sustain when the unelected Governor is weighing in, with words and actions, to decide who should and shouldn’t get credit, what general regulatory interventions make sense, and which he thinks don’t. And when it stays quiet on really bad policy that drives house prices higher, but helped generate some useful headlines in the middle of an election campaign,
The Governor – and his deputy – would be well-advised to stick to their knitting. Get inflation back to around the middle of the target range and keep it there (it would make a change), and focus on indirect instruments (capital requirements) to promote the continued soundness and efficiency of the financial system. And leave the rest to the political debate, and decisions made by those whom we can hold to account.