I didn’t pay much attention to the Reserve Bank’s LVR policy. I’m sorta inside a bubble in which everyone I know has equity in a home in a nice part of Auckland or Wellington.
So I had a good laugh at Labour’s case study: some 23 year old trying to buy a $500,000 investment property. It’s not until you talk to people outside that bubble who are trying to enter the property market – trying to buy a fix-er-up house in an outer suburb of Wellington for $350,000, say – but now can’t because they need to save a deposit of $70,000 on average salaries while still paying rent on their current accommodation, that you understand the magnitude of the RBNZ’s policy.
Wheeler explains that policy here. I guess it makes sense to him from his 20,000 feet up perspective, but to the people affected – prospective property owners on low and medium incomes – it seems like the government is deliberately locking them out of the market. It seems unfair. And it is! And when the government does stuff that seems really unfair to tens? hundreds? of thousands of people, opposition parties get to oppose it. Right?
Here’s John Armstrong on the subject:
. . . some kind of consensus between the two main parties would be of considerable assistance to the Reserve Bank if they stopped questioning its efforts to cool a dangerously overheated property market as it sees fit.
The central bank has put its credibility very much on the line as to whether its swingeing intervention in the home mortgage market will work or not.
It could do without political parties – most notably Labour – making promises that would sacrifice the bank’s flexibility solely for naked political self-interest.
The Conventional Wisdom is that the Reserve Bank MUST be independent, because the Reserve Bank must be independent. It’s sacred! But when you see the Reserve Bank pursuing a near-zero inflation policy at a time of high unemployment it does make you wonder why an independent central bank is so vital. And now this! It’s like the RBNZ is handing left-politicians a gun and begging them to shoot them.