Former Reserve Bank Governor Don Brash has defended the Reserve Bank's cheap lending programme, despite its effect on house prices, saying he'd do the same thing if he was still in charge.
House prices have skyrocketed in the past year, despite the recession, with some blaming the Reserve Bank's refusal to limit its cheap lending to productive investments. It's loaning out billions to banks at record-low interest rates to stimulate the economy, but despite loan-to-value restrictions it's expected much of it will simply be poured into the housing market.
Dr Brash, who led the Reserve Bank between 1988 and 2002 before going into politics, said it's not the Reserve Bank's job to fix the housing crisis.
"I'd have cut interest rates certainly, and to that extent the bank can be blamed for the current effervescence in the housing market... but the fundamental problem is not the Reserve Bank's problem. It's the Government's problem."
Current Governor Adrian Orr said high house prices is a "first-class" problem to have, with the alternatives being "depression and having high unemployment".
Economist Shamubeel Eaqub last week said the Reserve Bank is "completely out of touch" and "asking for trouble" by not putting restrictions on its cheap lending.
"We know that right now what is happening is there is a huge amount of lending that's going on in the economy, but it's only going to buying and selling houses from each other. This is a recipe for disaster. They are asking for political intervention."
The Government has since asked the Reserve Bank to keep house prices in mind when it sets monetary policy. But Dr Brash says the real reason house prices are being allowed to skyrocket is that the Government doesn't actually want to see them come down.
In 2017 Robertson admitted as much, telling The AM Show he wanted them to "go up more slowly" than they had been. Until this year's massive rise, they had been going up more slowly than in the years since the global financial crisis.
"He did know what he was saying," said Dr Brash. "The challenge is to fix the housing market and get re-elected. Successive Governments - Labour and National - have failed in this area."
Dr Brash four years ago said Auckland house prices were already three times higher than they should be, and they've only gone up since. He also said then it wasn't the Reserve Bank's job to keep them in check.
The real problem, in his view, is the cost of land. WIthout freeing up more land, he doesn't think house prices can be fixed.
"Flatbush, $800,000 for 400sqm of bare land - put a tent on that, most people can't afford it. We're a country bigger than Great Britain in area, with 5 million people. I'd do what Labour promised to do after the last election in 2017 - remove the metropolitan urban limit around Auckland. "
Asked why the Government doesn't remove what's now called the Rural Urban Boundary, Dr Brash said because it "would reduce house prices".
"Every politician is scared of what would happen if prices dropped to where they should be."
Auckland Council in March said its analysis found opening up the land supply would have "minimal" effect on house prices - contradicting an earlier study which found it could be adding hundreds of thousands to the price.
Mayor Phil Goff says the current boundary has within its borders enough room for 2 million more dwellings.
