RBNZ Governor backs sub-prime lending

By Leith van Onselen

The new governor of the Reserve Bank of New Zealand (RBNZ), Adrian Orr, gave a bizarre interview on Newshub Nation over the weekend, whereby he simultaneously fretted over New Zealand’s excessive household debt while at the same time argued against loan-to-value ratio (LVR) limits for low income ‘Kiwi build’ borrowers.

First, below is a summary of Orr’s comments on household debt:

Reserve Bank Governor Adrian Orr is concerned by mortgage debt levels in New Zealand and disappointed by a lack of internal regulation in the banking sector.

The latest financial stability report from the Reserve Bank puts the income to debt ratio for mortgage holders at 350 percent and Mr Orr told Newshub Nation that worries him.

“Where people have five times their income leveraged in these mortgages, you’re saying, ‘That is just too high'”…

Mr Orr says that lending by banks seems to be ‘seasonally irresponsible’ and potentially dangerous…

And next, here’s Orr’s comments regarding low income ‘Kiwibuild’ borrowers:

Reserve Bank Governor Adrian Orr thinks KiwiBuild homes should be exempt from loan-to-value ratio (LVR) restrictions.

Speaking to The Nation on SaturdayOrr said this makes sense as the policy is aiming to get people with lower incomes and families into homes.

“It’s about adding supply [to the market] not demand.”

He says it makes sense to make housing more available to these people – the quicker and less restrictive, the better.

“Whether it’s an LVR exemption or some kind of income restriction, if the aim is to get affordable houses out there to people who can’t afford them presently, then make [houses] more affordable.”

Reader, Roger Witherspoon, nicely encapsulated the idiocy of Orr’s statement:

How do you make the unaffordable affordable? By making credit freely available to sub prime borrowers. Or am I missing something here?

Surely all these well intentioned schemes just inflate the price of housing? Like National’s laughable first home buyer subsidy, effectively adding $50,000 or more to the price of all entry level housing. If you give someone an extra 5% towards their deposit then they can borrow an extra $50,000 at a 10% deposit rate. So they can bid $50,000 more for a house.

All these bright, well intentioned bods are all from the same intelligentsia caste that created the house price problem in the first place, not to mention the leaky home fiasco. When will they actually identify the real causes of the house price bubble and stop believing in comfortable platitudes?

The Texans make us look really dumb.

Exactly. You don’t make housing ‘affordable’ by sucking sub-prime buyers into the market.

It is worrying that the head of the RBNZ has such a poor understanding of why New Zealand’s homes are unaffordable and where the genuine solutions lie.

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