Reserve Bank governor reiterates housing concern

Updated at 8:49 pm on 1 February 2013

Reserve Bank governor Graeme Wheeler has again expressed concern about investment in the housing sector.

When keeping the Official Cash Rate on hold at its record low of 2.5% on Thursday, Mr Wheeler said rising house prices were a threat to the central bank's inflation target and the stability of the banking system.

Graeme Wheeler speaking to the Canterbury Employers' Chamber of Commerce.

Graeme Wheeler speaking to the Canterbury Employers' Chamber of Commerce.

Photo: RNZ

In a speech to employers in Christchurch on Friday, he bemoaned that so much money was being invested in housing and New Zealand's low productivity was partly explained by a lack of investment and too going into non-productive assets such as houses.

"Our capital to labour ratio - or the amount of capital that labour works with - is low by OECD standards. And second, much of our investment goes into housing, rather than more productivity promoting investment."

Mr Wheeler said he did not want to see a price bubble developing that might threaten the stability of the banking system, with banks being hit by big losses.

The Reserve Bank would begin consulting in March on ways of dampening house price rises if they threaten the stability of the banks and that could include restricting the amount that can be borrowed to buy a house, he said.

The Bankers' Association said the Reserve Bank is still to go through a full consultation with the industry. It said banks are conservative in their lending and are not pumping up house prices.

Listen to report on Checkpoint ( 2 min 59 sec )

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