I’d say the articles complement more than substitute – my issue wasn’t with intervention per se, it was with the discussion of house prices and their use in “justifying” the intervention 🙂

I’d state that my posts wasn’t so much about whether LVRs can be justified (which is what I believe you are commenting on), but the justification they are using for doing it!

In this context, I am looking it in more institutional and political terms rather than strict economics – I am worried that a perspective that tells people “Wheeler’s comments suggest the test of success should be moderation in the rate of house price inflation.” (http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11112231) tend to imply things about central bank policy that is inappropriate.

At best this suggests that the RBNZ is putting its independence in harms way. At worst, it implies that there are elements within the central bank who are interested in control a greater element of the economy than their mandate allows them to.

In these terms, this is quite an interesting situation!

Indeed – and Auckland construction is responding now. There may be concerns about the type of building, densification, and urban design – but not only are these not monetary policy issues, they are issues that are far beyond my own limited understanding of urban economics!

I am looking forward to some posts on that turning up at some point 😉

The price signal informs us about the risk – but the target is the risk, not the price itself. If banks are holding sufficient equity/capital to deal with a large fall in prices, then suddenly the RBNZ need not care about the prices!

We have stratified rents, they aren’t doing anything either. The Auckland situation is very tight (vacancy rate low), but the numbers being bandied about simply can’t be right (eg 30,000 shortfall). Where do these people live now and why aren’t they bidding up rents, because that would also be shortage in supply of that too…

I agree – although I wouldn’t go quite as far with Auckland. The Auckland issue is a hard one, as we don’t have “quality adjusted” rents. We would suspect that people who are starting families are in better rental properties and can’t move out, as a result rental growth is negatively biasd at the moment.

The rental figure can not, and should not, be ignored as questioning the idea of a “shortage”. But when we have vacancy rates and occupancy rates shooting around how they are, the idea that there is a “level” shortage is fair.

Where I think your point is especially relevant though is related to “growth” in house prices – the growth occurring, even given the negative bias in rents, does indicate that there is some investment demand factor involved here. Of course, in this circumstance this is a relative price shift, and we need to go a step further and ask how this shift in investment demand influences the stability of banks balance sheets (asking questions such as where is the demand coming from etc) in order to do this.

Now if we head this way, the Bank can come out and justify LVR limits as a means of targeting what they view as a specific shock that is creating instability – but as you say this is separate from the idea of a shortage, and as I’ve noted this is separate from the idea of talking about price growth and whether a price is right!

indeed. i’m quite interested in how one actually unpicks from price signal’s (and other data) the nature/size of this risk.