Steven Joyce: Focus on growth, not the property bubble


All the heat and light around housing in the last fortnight is unfortunately missing the target. The latest house price bubble in New Zealand is not caused by housing policy — it is a symptom of a much wider issue.

We can therefore talk about housing until we are blue in the face. There is not a single change in housing policy right now that will stop the rise in house prices.

While freeing up more land is always helpful in the medium term, most of the hackneyed housing ideas making the rounds are like doing the proverbial into the wind. Or worse.

Taxing behaviour that your other economic policies encourage is perverse.

Short of banning house sales for six months (more Covid restrictions anyone?) prices are likely to keep rising. As are other asset prices. The NZX50 stockmarket index is 13 per cent higher than it was a year ago before anyone knew what Covid-19 was — which also doesn’t make sense.

These rapidly rising asset prices are caused by ultra-low interest rates that have destroyed returns for fixed-interestdepositors. Faced will nil or worse returns on bank deposits and other fixed-interest securities, investors are doing the rational thing and irrationally bidding up other asset prices to gain any sort of return.

That momentum has in turn caused everyone else who can scrape together enough money to race in and buy too, so they don’t “miss out”. All the finger-pointing between the Finance Minister andReserve Bank governor doesn’t change any of that.

This week’s stoush between the two did nobody any credit. Leave aside whether the governor previously made a virtue of rising house prices to help ward off a depression (he did) and the Finance Minister two years ago scrapped asset price stability as a target in his policy targets agreement with the bank (he did). The problem is that the economic policies of the two are running in opposite directions, and that needs to change.

It isn’t clear that the Reserve Bank governor really appreciates outside advice, but he does need to convene his monetary policy committee and discuss whether they could be overshooting the mark with monetary stimulus. Just a hint of slowing down the printing presses or otherwise tapping on the brakes would likely moderate things immediately in the asset price department.

The bigger jobs, though, are for the Finance Minister.

He could start by reversing his ill-fated changes to the policy targets agreement with the Reserve Bank. He needs to re-insert a reference to asset price stability and remove the full employment target. It is perhaps unfair that his changes have been so cruelly exposed by the pandemic but the bank has too many targets and only one significant weapon — its management of interest rates. It should be left to manage price stability, including asset prices, while employment remains clearly the responsibility of Government.

His other job is to get some sense back into the Government’s economic policy making, particularly in relation to the labour market. As I said a fortnight ago, Government policies are too often working against economic recovery, increasing the reliance on ultra-low interest rates to do all the heavy lifting. He needs to give the Reserve Bank more room to moderate its monetary policy stance.

Nowhere is that more important than around the border, where it now appears the Government is using the pandemic’s controls to foster a more insular labour market to its own philosophical liking.

All pretence was dropped yesterday when Damien O’Connor announced a “deal” where a smallish number of RSE workers would be allowed into New Zealand for the upcoming fruit season — provided they were paid 17 per cent more than the current legally mandated minimum wage.

Let’s think about that. Paying above minimum rates has nothing to do with the pandemic.

Border controls are supposed to be about keeping us safe, not a convenient tool of labour market restrictions.

New Zealand has attained a growing level of prosperity partly because it has been an open economy that can attract more people to work here than were born or already live here.

We invite people in to do the jobs the locals don’t want to do or where we don’t have enough skilled people. That allows us to keep creating higher incomes and wealth for everyone.

It is understandable that Covid-19 challenges this model in the short term. But we don’t need government making it worse.

Ministers have made no attempt to increase the number of quarantine places for months now, or reduce the number of people whoneed to use them by setting up transtasman or Pacific bubbles. Given that everyone has to stay in isolation for 14days, we are limited to bringing in fewerthan 400 people a day, and that includes the newly announced RSE workers. On Thursday a grand total of 221 people arrived.

Families can’t reunite for Christmas, companies of all types can’t get the workers they need, crops can’t be picked, hospitality businesses can’t get staff, and university and school halls are being left empty of fee-paying international students.

“Jobs for locals” is a populist sentiment, but short of bussing redundant airline and airport workers to Hawke’s Bay, we are quickly coming face to face with reality. Some people are suited to some jobs, others are suited to others.

Make no mistake. The current border controls and policies like increased holiday pay and sick leave are making it harder, not easier, for our economy to recover. That means we are leaning more on interest rates than we should be.

Misguided tax initiatives are not the answer. More growth-enabling government policies are. The Finance Minister needs to get busy. We need an orderly, sustainable way to unwind this asset price bubble.

– Steven Joyce is a former National Party MP and former Minister of Finance.

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