Academic journal article The Reserve Bank of New Zealand Bulletin

Addressing Housing Pressures Key to Stability

Academic journal article The Reserve Bank of New Zealand Bulletin

Addressing Housing Pressures Key to Stability

Article excerpt

Addressing housing pressures key to stability

8 April 2013

Avoiding another costly housing boom is critical for economic and financial stability, particularly at a time when the economy faces headwinds from an overvalued exchange rate, drought and a substantial programme of fiscal consolidation, Reserve Bank Deputy Governor Grant Spencer said today.

In a speech to the Employers and Manufacturers Association in Auckland, Mr Spencer said the housing market is important to New Zealanders, from an economic, financial and emotional perspective. It is also highly relevant for the Reserve Bank's monetary and financial stability policies.

On average, the gearing of New Zealand households is relatively low, but a growing number of households have high levels of debt with interest payments consuming a large portion of their income. As well as leaving households vulnerable, this could also put pressure on banks' balance sheets.

Easy credit conditions and rising house prices have prompted more people to buy homes, and with construction still at a slow pace, this has contributed to excess demand and added house price pressures, Mr Spencer said.

"We are left with concerns that the current escalation of house prices is increasing risk in the New Zealand financial system by increasing both the probability and potential effect of a significant downward house price adjustment that could result from a future economic or financial shock. …

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