30 Jan 2014

Key fends off rate critics

10:04 pm on 30 January 2014

The Prime Minister has said there is no silver bullet to reining in rising house prices, amid criticism his Government is to blame for the prospect of interest rate increases this year.

300114. Photo Diego Opatowski / RNZ. dOLLAR DOWN

Photo: RNZ

Both Labour and the Green Parties believe the Government's failure to fix the housing crisis in Auckland is putting pressure on interest rates and the whole economy will be hurt as a result.

They said while the Reserve Bank held the official cash rate steady on Thursday at 2.5 percent it has clearly signalled interest rates will go up. They also said a capital gains tax would have helped slow the rate of house price inflation.

But the Government has consistently said a capital gains tax would have little impact on the housing market. John Key said the strong house market was a reflection of rising confidence in the economy, and fewer houses having been built in the recession.

"There was really a low level of new construction activity. Now that's catching up and you can see through the government's initiatives that there's a lot of construction coming onstream."

Mr Key said the previous Labour-led Government spent nine years looking at the housing affordability issue but did not come up with any solutions.

The OCR has been at 2.5 percent since March 2011 as the New Zealand economy struggled out of a mild recession.