3. Economy—Impact of Housing Market on Imbalances in and ProductivityGRANT ROBERTSON (Labour—Wellington Central) to the Minister of FinanceEconomy—Impact of Housing Market on Imbalances in and Productivity3. GRANT ROBERTSON (Labour—Wellington Central) to the Minister of Finance: Is he concerned that the New Zealand economy is unbalanced towards speculation in housing given that the value of New Zealand's housing stock is now $998 billion eight times the total value of the New Zealand stock market and is that valuation of the housing market a risk to financial stability?Hon BILL ENGLISH (Minister of Finance): No not particularly concerned. The Reserve Bank has a series of tools available to ensure financial stability as it is obliged to by the Reserve Bank of New Zealand Act. So it has for instance quite conservative capital requirements on our banks and it also uses loan-to-value ratios as a way of restricting demand for borrowing for housing. I believe that these tools are robust enough to ensure that even if the housing market stops rising and if some households come under pressure because they borrowed a lot at the peak of the market that does not represent a threat to financial stability.Grant Robertson: In light of that answer why then has the Reserve Bank Governor described inflated house values as a threat to financial stability in all of his financial stability reports in recent years?Hon BILL ENGLISH: I would have to go and check exactly what language the Reserve Bank Governor has used. There is no doubt that a housing market rising this quickly can represent a risk. That risk is being well managed by the Reserve Bank. Also most of these decisions are made by New Zealanders who run the risk of losing their life savings if they get it wrong. So yes it is a source of risk but I do not believe there is currently a threat to financial stability from the housing market.Grant Robertson: What does it say about the balance of the economy under his watch when the number of renting hiring and real estate companies increased by 11.6 percent at the same time as a number of businesses in productive parts of the economy such as IT and manufacturing were dropping?Hon BILL ENGLISH: Of itself it probably does not tell us much. I mean you only have to be a single person to set up a real estate agency—and there has been a fair bit of that on the back of an increase in the housing market. You have to be a larger entity to survive in manufacturing or IT. The fact is that we have record low interest rates strong population growth and therefore strong demand for housing. This is a challenge of growth and fortunately the New Zealand economy is reacting to it with resilience. In time the housing market will run through and capital will through flow to other parts of the economy.Grant Robertson: How does he think imbalances in the economy will improve when according to Statistics New Zealand's latest business demography release there were fewer new businesses created in New Zealand this year than last year and the number of new businesses created in the last year is 6 percent lower than in 2008?Hon BILL ENGLISH: Of course you would have to have a look at that to see what you think that might mean. But if the member is looking for indications of balance in the economy then he might note that what is often regarded as a measure of imbalance—and that is the current account deficit—is now running at around the rate of GDP growth which after 30 or 40 years of fairly significant imbalance actually shows that this economy is becoming a bit more balanced gradually over time as measured by the current account deficit. Grant Robertson: Is it correct that since the beginning of 2012 real GDP per hour figures show that we have had no productivity growth at all and that it has in fact started to decline in 2016?Hon BILL ENGLISH: We have discussed at some length in the House here measures around per capita GDP or per capita productivity. The fact is that New Zealand is going through a pretty substantial population growth. At the same time it has got rapid growth in tourism which tends to have lower pay and is a lower-productivity sector. So it is not surprising that in this phase we have got relatively low per capita growth compared with some parts of history. But recent figures show it picking up and in an economy growing at over 3.5 percent—one of the fastest in the developed world—I think the outlook is pretty positive. Grant Robertson: Is it not actually the case that after 8 years what economic growth there is in New Zealand is not from the productive economy but rather from a grossly overvalued housing stock record immigration and record household debt?Hon BILL ENGLISH: No actually. The member is not correct. I know he does not like the fact that we have had very high levels of new job creation a consistent and moderate increase in real incomes for housing unemployment under 5 percent inflation still 0.5 percent households—Grant Robertson: And yet no growth Bill.Hon BILL ENGLISH: Household interest rates are half what they were when Labour left office. The member might not like that but that is a positive outlook for the New Zealand economy.