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Reserve Bank slammed as 'asking for trouble', 'completely out of touch' - economist

Newshub logo Newshub 20/11/2020 Dan Satherley
Shamubeel Eaqub wearing a suit and tie: Shamubeel Eaqub and Marama Davidson on Newshub Nation. © Newshub Nation Shamubeel Eaqub and Marama Davidson on Newshub Nation.

A prominent economist has called for Grant Robertson to step in and order the Reserve Bank to stop pouring fuel on the housing market fire, saying it's "ripping apart the social fabric of New Zealand".

Property prices in New Zealand have shot up nearly 20 percent in the past 12 months, ignoring the shocks sent through the rest of the economy by COVID-19 and putting home ownership further out of reach for many Kiwis. 

At the same time, the Reserve Bank is funnelling billions of dollars to banks at extra-low interest rates to encourage investment and keep the economy ticking over - but Shamubeel Eaqub says most of it will just end up being spent "buying and selling houses from each other", rather than on anything productive. 

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"The Reserve Bank is completely out of touch with what is happening in New Zealand right now," he told Newshub Nation on Saturday morning. 

"They are asking for trouble. 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 Reserve Bank's two main goals are to keep inflation between 1 and 3 percent - which it has done successfully for many years now - and maximise employment. Its actions' effects on the housing market don't come into it. 

"The alternative is being in a recession or depression and having high unemployment," Governor Adrian Orr said last week. 

Shamubeel Eaqub wearing a suit and tie © Provided by Newshub

Eaqub says Robertson, Finance Minister, needs to rein the Reserve Bank in - even if it goes against the idea the bank is meant to operate independently of the Government.

"We should interfere because they're not doing their job. Their job is to look after how much money there is in the economy and where it turns up. Right now it's not turning up equitably.... House lending is going up like this, and there is no lending growth when it comes to businesses and farms - the bits that actually create jobs and incomes for people. 

"We've got this huge ponzi scheme that is being enabled and encouraged by the Reserve Bank. We can't afford for this to continue."

Eaqub's recommendation is to pour billions into social and community housing providers to underwrite a mass build of rental accommodation, saying taxes and the like won't help at all.

"We can borrow $100 billion to deal with COVID. Are you really telling me when you spend $3.5 billion a year on housing support, we can't spend $30 billion to fix it? Of course we can." 

Property investment expert Ashley Church earlier this week told The AM Show house prices would likely double in the next seven to 10 years, as they have done for the past half-century. 

Asked what advice he had for people who feared they'd never get on the ladder, Eaqub was blunt.

"You probably won't, unless you move somewhere where it's very cheap - but that may not be cheap for very much longer."

Grant Robertson's response

Finance Minister Grant Robertson has responded by saying the decision to undertake the Funding for Lending Programme was made solely by the Reserve Bank, which is operationally independent of the Government.

"As I said last week, in the end it is the retail banks that will ultimately decide if this money is used and where it is allocated. I encourage them, if they take part in the programme, to focus their lending to support investment in the productive economy, including in supporting our small businesses," he told Newshub.

"The Government has a range of policies to increase the supply of houses and to manage demand. We will keep working to support more New Zealanders to own their own home and making renting more secure and affordable."

Megan Woods' response

Minister of Housing Dr Megan Woods says the Government "considers a wide range of advice to address a housing crisis that has been decades in the making and will take more time to fix".

"We are investing billions of dollars in rebuilding the state housing stock and are on track to deliver over 18,000 public and transitional housing places by 2024. This includes investment in horizontal infrastructure like stormwater and roading which enables more market and affordable homes to be built off the back of public housing builds," she told Newshub.

"The KiwiBuild initiative (which has delivered about  700 affordable homes with about another 1000 under construction) also enables developers to build more housing, including through underwrites.

"The $350 million Residential Development Response Fund we announced in August as part of our economic response to the impacts of COVID-19, will be available to further grow affordable housing options and we are investigating innovative pathways to ensure more people have warm, dry, secure and affordable homes."

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