The Labour Party continues to hammer the Government on rising house prices, seizing on comments made by the Reserve Bank's deputy governor for ammunition.
Labour finance spokesman Grant Robertson said yesterday the Reserve Bank had revealed retail banks were becoming more concerned about the effects of the housing crisis.
That added yet another "weighty voice'' to the calls for action from the Government.
"The Reserve Bank has stopped dropping hints and sending smoke signals and is now talking in director language.''
Deputy governor Grant Spencer said banks were worked about the effects of the housing crisis, Mr Robertson said.
The "big four'' banks had taken action by cutting off loans to foreign speculators to protect their balance sheet against the housing bubble.
Mr Spencer spelled out three areas the Government needed to act on as part of a "team effort'' to tackle housing and the Government should not ignore his warnings, Mr Robertson said.
The first was to boost supply, the second was to remove incentives for speculators and the third was to review immigration policy.
"The Reserve Bank is right. National must take action on these three areas as soon as possible. If ministers refuse to get on the team with the Reserve Bank, they need to be subbed off,'' he said.
Prime Minister John Key yesterday expressed further frustration about the Reserve Bank's response to rising house prices, saying it should not need any more time to investigate stricter rules for property investors.
In a speech on Thursday, Mr Spencer said the bank was considering new loan-to-value (LVR) restrictions but would not introduce them before the end of the year.
On Wednesday, Mr Key had urged the bank to target investors with tougher lending rules, saying it should "just get on with it''.
Speaking to Stuff.co.nz, Mr Key said he was aware at the time the bank was not going to introduce further LVR restrictions immediately.
"I stand by what I said. I think they should get on with it,'' Mr Key said.
The bank was making a point it was a team effort, he said.
But the Government was doing an enormous amount and local government was, as well.
The Reserve Bank should not need more time to research the potential impact of tougher borrowing limits.
"We're not critical of the bank but we're simply saying it's not like they don't understand LVR restrictions. We gave them that tool in the toolbox, they know exactly how to do it and they can do it quickly.''
Westpac acting chief economist Michael Gordon said the Reserve Bank needed mates, and not just on monetary policy.
The speech by Mr Spencer stressed a range of demand and supply factors had contributed to the current strength in the housing market.
The Reserve Bank could lean against demand-side pressures to some extent but much of the responsibility lay elsewhere.
Mr Spencer noted a range of measures to help reduce the imbalances in the housing market - from the regulatory environment to changes in the tax treatment of investment property, through to whether migration policy is appropriately targeted, Mr Gordon said.
"The Reserve Bank emphasised inflation is the overriding influence on interest rate settings. Right now, low inflation means the Reserve Bank can't hike the official cash rate to lean against housing market pressures.''
At the same time, the Reserve Bank was cognisant of the impact low interest rates were having on the housing market, he said.
Some tightening of lending policy was likely before the end of the year and it was likely to be a broadening of the 70% LVR cap for investors already in place for Auckland.
House price inflation had been increasing nationwide and was running at a double-digit pace outside Auckland and Christchurch. Investors had been a key segment driving increases in demand for houses and the related increased demand for credit.
As banks already had policies in place to identify lending to investors, such a change could be introduced relatively quickly, Mr Gordon said.
Other suggestions included debt-to-income limits which would help to improve the resilience of the household balance sheets.
The limits would be a new tool and the Reserve Bank would need to negotiate a memorandum of understanding with Finance Minister Bill English.
Such a policy was complex and it seemed unlikely to be put into force before the end of the year, he said.
BNZ senior economist Stephen Toplis said the financial market reaction to Mr Spencer' housing speech was rational, to be expected, but unwise.
The New Zealand dollar had risen around three-quarters of a cent against the US dollar and the trade-weighted index (TWI) increased another 1.5% to 77.70.
At the same time, markets reduced the probability of an August rate cut to 40% from 65%.
"Whether or not the foreign exchange move is justified is a moot point. But given the currency's move, the chance of an August cut has just gone up.''
Rightly or wrongly, financial market participants were looking for a clear sign of immediate macro prudential action to slow the housing market.
This was fed by the rumour mill which was circulating ever more outrageous ideas of likely policy announcements.
Strong macro-prudential tightening would have been seen by the market as the green light for further rate cuts, Mr Toplis said.
As things turned out, in the eyes of many, the speech went two stages further on the disappointment scale, in implying that there would be no action of any sort in the immediate future and noting further interest rate cuts could be damaging to its financial stability objectives.
At a glance
• Labour will make further housing announcements today and tomorrow
• Prime Minister John Key remains frustrated at lack of action from Reserve Bank
• Official cash rate rise ruled out to help cool housing market
• Dollar rises against the US currency
