The Unassuming Economist

“House price inflation in Auckland has remained high. House prices in Auckland (where about one-third of the population lives) have continued their strong upward trend, rising by 22.5 percent (y/y) in December 2015, and the housing inventory available for sale remains low. Moreover, prices in neighboring areas are beginning to accelerate as buyers are priced out of the Auckland market. Supply shortages are a fundamental driver of house price inflation, exacerbated by high net immigration. On the demand side, macroprudential measures introduced in 2013 have led to a temporary slowdown in house price inflation. A package of additional macroprudential regulations and tax measures aimed at containing risks emanating from the Auckland housing market was announced in May 2015, but having become fully effective only in November, its effectiveness to cool rapid house price growth is yet to be seen”, says IMF’s new report on New Zealand.

A separate IMF paper “analyzes long-run trends in house prices and household debt in New Zealand. The key findings are that economic fundamentals such as financial liberalization, lower interest rates, demographics and supply constraints are important factors in the large run up in house prices. Although higher house price and household debt can largely be explained, it still has implications for financial stability.”