NZ Treasury Criticizes RBNZ Over Plan for Auckland Lending Curbs

New Zealand’s Treasury Department criticized the nation’s central bank over plans to introduce lending curbs on Auckland property investors, saying it hadn’t presented a compelling case or consulted adequately.

“The evidence presented is somewhat mixed on the extent that” highly leveraged investors “underpin systemic fragility, as they are a relatively small part of the market,” Treasury said in May 25 advice to Finance Minister Bill English released Thursday. “We do not think that the consultation document makes a compelling case for the proposed use of these macroprudential settings.”

The Reserve Bank is targeting residential property investors in an effort to quell surging Auckland house prices while it lowers interest rates to address near-zero inflation. From Oct. 1, it will require Auckland investors to have a minimum 30 percent deposit for a loan, the bank said May 13.

The RBNZ’s consultation document on the changes “contains little discussion on some of the possible unintended consequences,” Treasury said. These included increased risk of disintermediation or higher non-bank lending, the possibility of shifting demand toward cashed-up buyers, or risks that investors leverage up property outside of Auckland, it said.

The RBNZ published the consultation document June 3.

While noting the RBNZ has the right to implement the policy, Treasury said it had concerns about “late notice and lack of consultation” in its preparation. It would “raise these issues with the RBNZ and propose process changes to address these concerns,” it said.

RBNZ Governor Graeme Wheeler cut the official cash rate a quarter point to 3.25 percent on June 11 and signaled a further reduction. In unusually frank comments, English said in an interview last week that Wheeler needs to get inflation back to the 2 percent midpoint of his target range.