The Unassuming Economist

From the IMF’s latest report on New Zealand:

“Despite the COVID-19 pandemic, housing prices have surged in New Zealand in 2020 and much of 2021, more so than in other countries, raising affordability concerns. This was driven by demand-side factors such as record low mortgage rates, easy credit availability, COVID-related pent-up demand, and lagged effect of population growth interacting with inelastic supply. The housing market is now turning given that many of these factors are reversing, in part due to recent policy actions, but the extent of moderation remains uncertain. Rising mortgage rates are set to further dent affordability and make borrowers vulnerable to mortgage repricing risks, but financial stability risks from the housing market would likely be manageable as banks are well capitalized. Policy should focus on increasing supply and ensuring affordability, including through the provision of public social housing. Macroprudential policy should be adjusted commensurate with the evolution of the housing cycle and financial stability risks, while the planned expansion of the macroprudential toolkit may prove useful for future use.”