First home buyers are currently being hit from two sides amid rising interest rates.

The Reserve Bank's aggressive raising of rates over the last 12 months to curb inflation has had a direct impact on those looking to get into the property market.

"As interest rates rise it just looks a more and more daunting task to get and service a mortgage," NZ Herald business editor at large Liam Dann tells the Front Page podcast.

Data out in the last week suggested that house prices are coming down from historic highs. But at the same time, rising rates mean the average income needed to buy a house now is $142,000 for either a single person or a couple. This is $7000 higher than it was in November 2021.

But it's not only prospective buyers that are being affected.

Additional housing data from Valocity shows that 10 per cent of people who bought a house between October and December 2021 are currently sitting in negative equity – meaning that if they were to sell their house today, they'd likely make a loss.

Dann says it isn't ideal for a family to face this, but a strong job market does offer at least some protection.

"If we don't have a recession where people lose their jobs at mass, then generally homeowners will be able to work with their bank to keep paying the mortgage – even if there are cost-of-living issues… It's when people lose their jobs and they don't have another job to go to and then still have a giant mortgage to pay that you have problems."

Dann says this shows why it's important for the Reserve Bank to also keep an eye on employment numbers when making monetary policy decisions.

This issue is the subject of fierce debate at the moment, with some critics arguing that the Reserve Bank should stick in its lane and focus strictly on getting inflation under control.

"The Labour Government has given the Reserve Bank a dual mandate to officially consider unemployment and that's quite controversial," says Dann.

"I do have some sympathy for the single-mandate argument that requires the Reserve Bank to target inflation and stick to that because I think they've always considered the job market as part of that."

The concern is that if the Reserve Bank does follow the dual mandate it may not move as fast as it should to address the inflation issue currently weighing on the market, but that argument is somewhat countered by the Reserve Bank's aggressive lifting of rates of the past 12 months.

Discussions about whether the Reserve Bank is moving fast and hard enough will likely continue for years after inflation has subsided – as evidenced by the ongoing discussions about the role the Reserve Bank played in causing the inflation it is now trying desperately to cool.

The stimulus poured into the economy during the pandemic period by the Reserve Bank ultimately fed into the inflationary pressure that we are dealing with now.

Some critics are now questioning whether the Reserve Bank simply went too far with the amount of stimulus, making the problem worse than it should have been.

Dann says that it's always easy to point the finger in hindsight.

"Blaming the Reserve Bank for inflation is a bit like blaming the fire brigade for getting your carpets wet when your house has been on fire.

"You can turn up after the fire is out and say: 'Oh, it wasn't such a big fire. Why did you use so much water?'

"That seems a bit churlish to me."

• The Front Page is a daily news podcast from the New Zealand Herald, available to listen to every weekday from 5am.
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