The Reserve Bank of New Zealand (RBNZ) today released its annual report, which once again warned of “major imbalances in the housing market” and called for policy assistance to mitigate financial stability risks:
…the the country is experiencing major imbalances in the housing market. In the past year house prices have increased by 15 percent and house-price-to-income ratios in Auckland, at around 9.5, are among the highest in the world. House-price-to-income ratios average around 5.4 for the rest of the country, but are increasing as annual house price inflation outside Auckland and Christchurch is currently running at 20 percent.
The historic surge in net migration in the past three years, the decline in global interest rates, and policy cuts by the Bank have stimulated housing demand. Even though annual building consents for the country as a whole are at an 11-year high, additional supply is needed. This would be facilitated by addressing issues relating to the costs and delays associated with planning approvals, choices in respect of housing densification within urban limits, and the productivity of the building and construction sector that is linked to scale and other factors.
Our concern is that a severe housing correction would pose substantial risks for financial system stability and the broader economy. The banks are heavily exposed to housing, with mortgages making up around 55 percent of their total assets. Household debt, at 163 percent of household disposable income, is at a record level.
We remain vigilant about financial stability risks arising from imbalances in the housing market. High prices and excessive leverage – both in Auckland and elsewhere – highlight the risk that a major price correction could occur.
We deployed macro-prudential policy, in the form of loan-to-value ratio limits, to address some of the financial risks posed by the housing market. These measures have reduced credit risks associated with bank mortgage lending, and in doing so have helped to improve the resilience of bank balance sheets…
There’s nothing new here, given the RBNZ has been banging the drum on this issue for several years.
But at least the RBNZ is not ducking the issue, unlike the RBA/APRA, who have rarely spoken-up on housing-related issues throughout the entire bubble period.
