Adrian Orr has essentially written off the Reserve Bank's chances of helping cool the housing market, saying any policy changes would come with trade-offs and likely make it harder for first home buyers to get into the market.
The median house price hasn't dropped year-on-year since November 2015, when it dipped 0.2 per cent. In the months before and after that, it rose. This year, house prices are up 20 per cent on last year.
Earlier this week, Finance Minister Grant Robertson wrote to the Reserve Bank asking it to consider stable housing prices when making decisions on monetary policy.
Today Reserve Bank Governor Adrian Orr is pointing the finger back at the Government for effective change.
"I believe that it is far more complex than simply increasing or reducing interest rates," he told TVNZ1's Breakfast.
"You see globally countries that have very low interest rates and don't have housing price asset bubbles.
"They have different structures within their broader market around the housing market and where housing sits as an investment option relative to all other investment options."
This year, banks have offered mortgages at record low interest rates after the Reserve Bank slashed the official cash rate (OCR) to 0.25 per cent.
Orr repeatedly emphasised the soaring housing prices aren't down to just the Reserve Bank, repeatedly describing it as a "whole of Government issue".
Yesterday Robertson said he'd brought the Reserve Bank into the conversation because while the Government was working to do what it could, the Reserve Bank's monetary and financial policy was also part of the equation.
Orr admits lower interest rates and quantitative easing — essentially printing money — was done deliberately this year to "expand" the economy.
"That is deliberate and that is to ensure that we could survive through the Covid-19 economic shock and which we have done incredibly successfully," he says.
House prices around New Zealand are currently the highest they've ever been; the national median price is $725,000 while the median price in Auckland is up to $1 million, according to the Real Estate Institute of NZ (REINZ).
Orr says any policy changes done by the Reserve Bank would result in a "trade-off", citing examples that would worsen the situation for first home buyers while not impacting investors as heavily.
"Economics is about trade-offs. We can do things but it would come at the cost of other things," he says.
"For example, loan-to-value ratios, by limiting the amount you can borrow for any particular asset price, it may impact on house prices at the margin but it also impacts on the ability to actually access the housing.
"As one example, a debt-to-income ratio means, again, accessibility becomes harder. And likewise if we limit credit into the market, it means less houses are actually built."
Ultimately, Orr doesn't think the Reserve Bank would be able to balance housing affordability on top of its other responsibilities — keeping the interest rate between one and three per cent and maintaining a productive employment rate.
"The blunt answer is no. And there would have to be trade-offs," he says.