Update on the New Zealand housing market
Download Document| Date Published | 2014 |
| Version | |
| Primary Author | Grant Spencer |
| Other Authors | |
| Theme | |
| Country | New Zealand |
Abstract
Housing is a key sector of the New Zealand economy, and an important factor influencing the Reserve Bank’s monetary and financial policies. And of course housing is never far from the front pages.Since 2012 we have seen rapid rates of house price inflation, reflecting a demand – supply imbalance. There has been a physical shortage of houses, particularly in Christchurch and Auckland. On the demand side there has been strengthening economic growth and inward migration as well as easy credit conditions, in terms of both the price and availability of mortgage finance. His combination of supply and demand factors has contributed to the price pressures we have seen.The Reserve Bank introduced Loan to Value Ratio restrictions (LVRs) in October with the aim of reducing the systemic risk arising from increasingly overvalued house prices. More recently, the Official Cash Rate (OCR) has been increased from 2.5 percent to 3 percent with the aim of forestalling general inflation pressures in the broader economy. Housing supply conditions have also started to improve with a recovery in residential construction, centred in Christchurch and Auckland. These factors are all working to reduce the housing market imbalance. The one factor that is not helping at present is the strong inward migration flow.Our overall view is that housing market pressures are easing gradually. Today I will review the progress being made towards a better balance in the housing market and discuss the potential implications for Reserve Bank policies.