Anticipation that the Reserve Bank might move to introduce DTIs in a bid to further cool the buoyant housing market has been building for some time.
The Reserve Bank has long been saying it has been doing work around DTIs but the bank’s governor, Graeme Wheeler, added fuel to the fire in his last Financial Stability Report.
He said the bank had officially asked Minister of Finance, Bill English, to agree to add a DTI tool to the Memorandum of Understanding on macro-prudential policy.
At the time, Wheeler said a meeting with English was planned for the coming weeks.
Now, it seems that meeting has fallen victim to the change in New Zealand’s leadership ranks following former Prime Minister John Key’s surprise resignation last week.
The Reserve Bank has confirmed the planned DTI meeting with English has been cancelled and another one has not just been scheduled.
English was yesterday sworn in as Prime Minister and is now focused on a Cabinet reshuffle, which will include a new Finance Minister who is expected to be Economic Development Minister Stephen Joyce.
While English has said he plans to have the new Cabinet line-up in place before Christmas, this leaves little time for a meeting on DTIs between the Reserve Bank and the new Finance Minister.
This in turn means the Reserve Bank’s chances of getting a governmental agreement on DTIs any time soon are looking slim.
Following Wheeler’s earlier announcement on the DTI meeting, bank economists said they did not believe DTIs would be introduced before the end of next year.
The cancelled meeting is likely to blow even that time frame out further.
The prospective introduction of DTIs is controversial, with some commentators warning they could do more harm than good to the housing market.
However, in BNZ research released yesterday 57% of those surveyed supported the introduction of DTIs – although only a third thought they would have any impact on rising house prices.
BNZ chief executive Anthony Healy said he wasn’t surprised that a majority were supportive of DTIs as any measure targeting investors would go down well with those who aren’t investors.
But it’s important to stay focussed on the fact that moves by the Reserve Bank are predominantly conservative tools designed to de-risk the banking sector, he said.
“Ratios can have a real impact on first home buyers who may be on lower incomes when compared to their potential future earnings.”
It is worth noting that the Reserve Bank has said it is not proposing the use of DTIs at this time.
“But financial stability risks can build up quickly and restrictions on high-DTI lending could be warranted if housing market imbalances were to deteriorate further.”
