The Unassuming Economist

The IMF’s latest economic report on Austria points out that:

“House price growth has been strong in recent years by international comparisons. The cumulative increase in the house price index over 2007–2015 was nearly 40 percent. To a large extent, this increase was driven by price dynamics in Vienna. The OeNB residential price index indicator, which assesses whether prices move in line with fundamental factors, points to an overvaluation of property prices of about 22 percent for Vienna, while prices in the rest of the country appear broadly in line with fundamentals. Price increases in Vienna have moderated lately, while picking up in the rest of the country (…). Low interest rates over recent years have loosened credit constraints and increased households’ borrowing capacity, putting upward pressure on housing demand. That said, prices have been kept high by supply side constraints and other idiosyncratic factors, especially in Vienna. Reviewing and relaxing local planning systems and regulations to facilitate the supply response to price movement can help contain the price rises close to the long run trend. Are the rising prices a problem? Financial stability risks seem contained. (…) Nonetheless, the authorities need to have the legal authority to expand the macroprudential toolkit with real estate-specific instruments when needed, to limit any potential risks to banks’ portfolios if real estate price bubbles were to emerge.”