Rodney Hide to John Key: Stick to what you’re good at

It’s marvellous having a wildly popular Prime Minister. It gives a government political legitimacy.

But some things should not be decided by the roar of the crowd or press gallery whim – and monetary policy is one of those things.

This week Prime Minister John Key asked publicly for the Reserve Bank to “just get on with” making property investors stump up with greater equity. It was hot news for a day and the public could be forgiven for thinking finally the Prime Minister was dealing to house prices by talking tough to the Reserve Bank.

That was presumably the statement’s purpose.

Of course, it won’t take the steam out of the market and I suspect the Prime Minister knows that. No government could survive a large fall in house prices, let alone the 40 per cent “collapse” Financial Markets Authority Board member Arthur Grimes called for this week.

Such a crash would make for many more unhappy voters than happy ones.

It’s tricky for politicians. They want to be seen to be doing something but don’t want to do too much. It’s a delicate act taking the steam out of a puffed-up market without collapsing it.

Hence the tough talk with the Reserve Bank, which has only the bluntest of tools with which to attack the problem.

Key’s statement is also wonderful political misdirection.

The Reserve Bank is responsible for many things but the housing-price bubble is not one of them. That sheets firmly and directly back to generations of central and local government politicians and their great desire to pack Aucklanders in like sardines to justify their gross expenditure on trains.

Decades and decades of mismanagement by successive councils are the cause, but only the government can now force councils to act against their own long-term interest. 

The Reserve Bank’s concern is banking and monetary stability.

That’s a long-term objective. It’s hard to achieve and very easy to lose.

That’s why it’s enshrined in law that the Reserve Bank is independent of direct political meddling. The Finance Minister formally sets the price-stability target and the Reserve Bank gets on with the job.

Key’s public jawboning undercuts that independence, signals that our much-touted monetary stability is at risk, and is a small chink that could easily open wide on our economic credibility.

That’s a bigger issue than house prices.

We have been here before, but not since Prime Minister Robert Muldoon have we seen a PM attempt so directly to influence the Reserve Bank.

The Reserve Bank should be acting on Auckland house prices only if monetary or banking stability are threatened. The supply of housing is a problem of regulation and one for Government to address directly.

It can’t point the finger anywhere else.

Key is doing a great job as Prime Minister.

He should stick to that.

What continues to amuse is that everyone is talking about the immediate problem of land supply, but that takes some time to prepare for housing. You need sewage, roads, communications, electricity, gas and drainage. And then you need builders. Lots of them. And they need raw materials. Lots of them.

You simply can not fix a problem that took 50 years to create in a few years.

Certainly not in time for the 2017 election.

 

– Rodney Hide, NZ Herald


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