Paul Foster-Bell: Questions for Oral Answer — Questions to MinistersText is subject to correctionPaul Foster-Bell: Questions for Oral Answer — Questions to Ministers[Sitting date: 13 November 2013. Volume:694;Page:5. Text is subject to correction.]2.PAUL FOSTER-BELL (National) to theMinister of Finance: What reports has he received on the stability of New Zealand’s financial system?Hon BILL ENGLISH (Minister of Finance): In a country with high household debt financial stability is important. The Reserve Bank today issued its 6-monthy financial stability report concluding that our system is sound. The banks are sufficiently capitalised and have strengthened their funding base while non-performing loans continue to fall. The Reserve Bank notes that all our banks are meeting comfortably new international standards for minimum capital requirements. The banks’ core funding ratios are above the required level and this makes them less dependent than they were on overseas borrowing and more likely to be sourcing their funds from New Zealand deposits. Over the past 6 months the Reserve Bank has continued to improve its prudential regulatory framework.Paul Foster-Bell: What are some of the measures the Reserve Bank has taken to manage risks around fast-rising house prices and increasing household debt?Hon BILL ENGLISH: House prices and household debt levels are the product of decisions made by New Zealand households. However the Reserve Bank has responded to the risks that this could pose in the future firstly by requiring banks to hold more capital against high loan-to-value ratio loans and secondly by requiring banks to restrict the proportion of high loan-to-value ratio housing loans. Higher capital requirements introduced in September this year were aimed at improving financial stability. The loan-to-value ratio lending restrictions introduced last month will directly limit the amount of high loan-to-value ratio lending the banks can undertake and the number of households with very high debt related to their house ownership. The Reserve Bank says in the report that it expects these measures to slow house lending and house price inflation somewhat and to reduce the potential risk to bank balance sheets.Paul Foster-Bell: What lessons can the Government take from the rise in house prices in the last decade and what steps is the Government taking to reduce the risk of a house price correction?Hon BILL ENGLISH: As the report points out there are lessons for New Zealand from the experience between 2001 and 2007 during which house prices doubled. The Productivity Commission has shown that in those 6 years houses moved from costing around 3 times the disposable household income to costing 5½ times the disposable income—the worst deterioration in housing affordability in many decades. Interest rates by 2007 were over 10 percent. Households were spending significantly more than they earned. The current account deficit averaged a record 8 percent over the 4 years to 2008 and the export sector went into recession. We share the Reserve Bank’s concern that a repetition of the same set of circumstances in the housing market could be as damagingto the New Zealand economy as it was between 2001 and 2007. This is why the Government is working with councils to improve housing supply particularly in those areas that need more low-cost housing by freeing up land speeding up consenting getting better infrastructure and lowering construction costs.Phil Twyford: Is the Minister aware of comments today from the Registered Master Builders Federation suggesting that the fall in new-build inquiries is mainly from cashed-up buyers further up the sale chain which means that exempting first-home buyers as the Reserve Bank Governor has discussed from loan-to-value ratio restrictions on building new homes will have little impact on the fall in new builds?Hon BILL ENGLISH: I am aware of the comments and I am also aware that building consent numbers continue to rise. I understand from the Reserve Bank Governor’s comments this morning that he is listening to the evidence from the building industry that the restrictions the Reserve Bank is putting on are having some effect in the short run on the supply of housing. We believe that the measures that the Government is taking to free up the supply of housing through special housing areas changes in the Resource Management Act reducing construction costs and so on will in the longer run have a much more significant effect than the Reserve Bank loan-to-value ratio restrictions.Paul Foster-Bell: What proposals has the Minister seen that are likely if implemented to increase risks to taxpayers?Hon BILL ENGLISH: We have learnt from the experience of the financial crisis and the earthquakes that proposals that involve the taxpayer taking on risk can lead to significant losses for people who are paying PAYE every week. Insurance is one industry that by definition deals in risk. Insurance companies are paying out around $20 billion for the Christchurch rebuild one of the largest insurance payouts ever in New Zealand’s history and at least one local insurer AMI Insurance did not survive that disaster. So the risk of another State-owned insurer in that part of the market for example is that the risk would be totally concentrated in New Zealand—not spread across international industries—and that when things go wrong it is the taxpayer who has to pay the bill. In the last few years that has amounted to billions of dollars. One would have thought that the experience of the last few years would rule out exactly the policy proposed by the Opposition which is that wage earners should take on the business of insurance companies.Phil Twyford: When he signed the memorandum of understanding with the Reserve Bank that ushered in high loan-to-value ratios did he seek any advice on the impact on the new-builds sector; if not does he accept responsibility for what the Registered Master Builders Federation is calling the “unintended consequence of a dramatic fall-off in new builds” or is it all still the Reserve Bank Governor’s fault?Hon BILL ENGLISH: The figures do not indicate what the Registered Master Builders Federation is saying—that is the consent figures do not indicate there is a fall-off at all let alone a dramatic fall-off. Of course if there is evidence to that effect then the federation can put that in front of the Reserve Bank Governor again. I am pleased to see the member has finally become interested in housing supply and we look forward to the support of the Labour Party for the Government’s programme because it is focused on more supply of housing faster.Phil Twyford: I raise a point of order Mr Speaker. My question was asking the Minister whether he has sought advice—Mr SPEAKER: Order! [Interruption] I do not need any help.Phil Twyford: He did not address it.Mr SPEAKER: The Minister did. He referred to the comments that you referred to—the question around comments about the Registered Master Builders Federation and the dramatic fall in—[Interruption] Order!Phil Twyford: I raise a point of order Mr Speaker. The Minister did not—Mr SPEAKER: Order! The member will resume his seat. I have just completed telling the member that in my opinion the Minister did address the question.Phil Twyford: He clearly did not.Mr SPEAKER: The member may well say that. I do not agree with the member. On this occasion the answer is to ask further supplementary questions if the member has them available to him not to dispute a ruling by the Speaker.