RBNZ's sharp rise of interest rates by 4%+ in the last 2 years to current levels is in no small part responsible for the re-emerging housing shortage and increased the cost for developers to supply new builds. So to use that as a reason to keep rates higher for longer seems self defeating. With current mortgage rates at around 2-3% p.a. higher than the pre-Covid era developers struggle to get the numbers to work plus there are a lack of buyers that qualify for the mortgage at current mortgage rates. Other potential and existing property investors lack the confidence to invest to provide more new build rental stock, especially in light of RBNZ's consistent 'higher for longer interest rates' storyline.
RBNZ's stance may even contribute to keep inflation stubbornly high as a result of the ongoing reduction in new builds from being built, therefore adding upward pressure to rents and of course ultimately house prices.
It’s an unfortunate side-effect that raising interest rates discourages the supply of new housing (though I believe it’s secondary to the effect of dampening incomes and ability to pay). But interest rates are for managing the cycle; the problems with housing supply are structural. There is no monetary policy setting that can ‘fix’ this problem.
The house always wins in the end... because the rules are rigged that way.
The house always wins... in the end.
RBNZ's sharp rise of interest rates by 4%+ in the last 2 years to current levels is in no small part responsible for the re-emerging housing shortage and increased the cost for developers to supply new builds. So to use that as a reason to keep rates higher for longer seems self defeating. With current mortgage rates at around 2-3% p.a. higher than the pre-Covid era developers struggle to get the numbers to work plus there are a lack of buyers that qualify for the mortgage at current mortgage rates. Other potential and existing property investors lack the confidence to invest to provide more new build rental stock, especially in light of RBNZ's consistent 'higher for longer interest rates' storyline.
RBNZ's stance may even contribute to keep inflation stubbornly high as a result of the ongoing reduction in new builds from being built, therefore adding upward pressure to rents and of course ultimately house prices.
After all...
The house always wins in the end.
It’s an unfortunate side-effect that raising interest rates discourages the supply of new housing (though I believe it’s secondary to the effect of dampening incomes and ability to pay). But interest rates are for managing the cycle; the problems with housing supply are structural. There is no monetary policy setting that can ‘fix’ this problem.
The house always wins in the end... because the rules are rigged that way.