25 Oct 2013

Govt defends ignoring Treasury housing advice

10:46 pm on 25 October 2013

The Housing Minister says the Government was right to introduce measures to help low-income first home buyers, despite the Treasury advising it not to do so.

Document from the Treasury show it warned the Government the changes would work against the Reserve Bank's rules to limit low-deposit loans.

An image of houses among trees on a hill.

Photo: RNZ / Diego Opatowski

Restrictions on how much bank lending can be tied up in low-deposit loans took effect at the start of the month and have made it difficult for buyers without hefty deposits to get mortgages.

In August, Housing Minister Nick Smith announced the Government would double the number of KiwiSaver deposit subsidies and treble the number of Welcome Home Loans to support first home buyers.

Labour Party housing spokesperson Phil Twyford says the Treasury is rubbishing those changes and the fact the Government ignored the advice shows it was panicking.

However, Dr Smith says the Government's view was that first home buyers needed some help.

He says the Treasury gives the Government advice on thousands of issues and he makes no apologies for sticking to his guns on housing policy.

Meanwhile, the Reserve Bank Governor says there is evidence its new mortgage loan restrictions are starting to have an impact.

Graeme Wheeler says it's still a bit early to say how effective the policy is, but anecdotal evidence - such as banks tightening lending standards, and fewer people attending open homes - suggest it is working.

He says he will not know how truly effective the policy is for another three to six months.