National’s housing crisis now main obstacle to interest rate cut

Today’s record low inflation figure of 0.1 percent for the year to March 2015, well below the Reserve Bank’s target band, gives the Bank scope to cut the Official Cash Rate later this month but it is unlikely to given National’s failure to address Auckland’s housing crisis, the Green Party said.

A lower Official Cash Rate (OCR) would likely to lead to lower domestic interest rates which would lower the costs of borrowing to help businesses, exporters, and those with mortgages.

“Low inflation gives the Reserve Bank scope to cut the OCR and help reduce the cost of borrowing throughout the economy,” Green Party Co-leader Dr Russel Norman said.

“However, the National Government’s failure to address the housing crisis in Auckland will mean the Reserve Bank is unlikely to cut interest rates for fear of adding fuel to the Auckland housing crisis.

“New Zealand households and businesses could benefit from interest rate cuts, but because National is not addressing the Auckland housing crisis, it makes it harder for the Reserve Bank to cut rates.

“National’s failure to address the housing affordability crisis in Auckland is hurting businesses and mortgage-holders throughout the rest of the economy.”

Median house prices in Auckland reached a new record in March of $790,000, well above the national median house price of $475,000.

“National needs to stop tip-toeing around on housing and introduce strong new measures that will address both supply and demand issues in Auckland,” said Dr Norman.

“Investing in Auckland property is currently the biggest tax loophole we have. As the Deputy Governor of the Reserve Bank, Grant Spencer, said last week, we need to close that loophole with a capital gains tax on investment properties.

“The Green Party will: introduce a capital gains tax (exempting the family home), place restrictions on housing ownership by non-resident foreigners, embark on a major state house building programme, with a focus on quality, affordability and progressive ownership options, and fast track medium-density housing around public transport corridors.

“By addressing the Auckland housing affordability crisis, we can safely reduce the cost of borrowing to help businesses and all those with mortgages or looking to get into their first home.”