The Government has told the Reserve Bank to consider the impact on housing prices when making monetary and financial policy decisions.
"The committee retains autonomy over whether and how its decisions take account of potential housing consequences, but it will need to explain regularly how it has sought to assess the impacts on housing outcomes," Finance Minister Grant Robertson said on Thursday.
The Reserve Bank had previously pushed back against the idea, saying it "could make monetary policy less effective and impact financial market efficiency".
Under section 68B of the Reserve Bank Act, Robertson has issued a direction to the Reserve Bank "requiring it to have regard to Government policy on housing in relation to its financial policy functions".
"The bank will have to take into account the Government's objective to support more sustainable house prices, including by dampening investor demand for existing housing stock to help improve affordability for first-home buyers.
"The Reserve Bank's objectives and mandate remains the same, which is to maintain price stability, support full employment and promote a sound and stable financial system."
Robertson has also asked for advice on debt-to-income ratios and the impact interest-only mortgages are having on investor demand.
"I want to understand the extent to which interest-only mortgages (particularly to speculators) pose risks to financial stability, and whether restrictions should apply. Some jurisdictions, like Australia, have in the past applied restrictions on interest-only mortgages due to financial stability risks.
"Following the bank's request that the Government allow it to make use of tools such as debt-to-income ratio limits, I've asked for further advice on how the bank might implement such tools. I have made clear that in principle I would want these to apply only to investors. It's important that any potential restrictions do not disproportionately affect first-home buyers and low-income borrowers."
Robertson said more moves to ease the housing affordability crisis are on the way.
"Today's announcement is just the first step as the Government considers broader advice about how to cool the housing market.
"We know the rapid increases we have seen in recent months are not sustainable, which has meant many first-home buyers are struggling to access the market. We'll be making further announcements in the coming weeks on other policy responses."
The Reserve Bank welcomed the changes.
"The minister’s direction is in tune with our recent advice to the Government in which we detailed the many influences on house prices, including the actions of the Reserve Bank," said Governor Adrian Orr.
"We have a long-standing commitment to transparency about our policy actions and approaches, and this will continue."
