Increasing supply is the only way to cool off New Zealand's red-hot housing market, the country's deputy prime minister told CNBC, ignoring the central bank's call for a capital gains tax.
Property markets across New Zealand's major cities are steadily climbing, prompting fears of a sharp correction. Sales volume in March rose to an eight-year high, with median prices in the capital city of Auckland soaring 13 percent on year, nearly double the nation's 8 percent gain, the Real Estate Institute of New Zealand (REINZ) said on Tuesday. New Zealand is one of the few advanced economies that hasn't experienced a major price correction in the past 45 years.
Those statistics prompted an unusually aggressive warning from the Reserve Bank of New Zealand (RBNZ). In a speech on Wednesday, deputy governor Grant Spencer said he "would like to see fresh consideration of possible policy measures to address the tax-preferred status of housing, especially investor related housing." That's a clear reference to a capital gains tax on the sale of investment properties, economists widely agreed.
However, Bill English, deputy prime minister & minister of finance of New Zealand, told CNBC on Thursday that he believes increased housing supply is the best way to fix the issue.
"We just need more houses on the ground faster to deal with the inflows from migration and the positive attitudes of many New Zealand households in a world of lower interest rates," adding that the government is going through a deliberate, long and complicated process to improve supply.
But the RBNZ believes supply-side solutions are unlikely to yield quick results, noting that increased supply will take a number of years to eliminate the housing shortage.