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Loan-to-value ratio restrictions and house prices: Micro evidence from New Zealand

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  • Armstrong, Jed
  • Skilling, Hayden
  • Yao, Fang

Abstract

This paper contributes to the international policy debate on the effect of macroprudential policy on housing-market dynamics. We use detailed New Zealand housing market data to evaluate the effect of loan-to-value ratio (LTV) restrictions on house prices. Our identification relies on the exemption for new builds from the LTV restrictions implemented during 2013–16 by the Reserve Bank of New Zealand. The empirical findings suggest that the LTV policy is effective at reducing house price inflation by limiting the credit-fuelled housing demand channel. The magnitude and duration of the policy effect depend crucially on the rate of house price growth at the time when the policy is implemented. When house prices are increasing quickly, the effect of LTV on house prices tends to be muted and short-lived.

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  • Armstrong, Jed & Skilling, Hayden & Yao, Fang, 2019. "Loan-to-value ratio restrictions and house prices: Micro evidence from New Zealand," Journal of Housing Economics, Elsevier, vol. 44(C), pages 88-98.
    • Handle: RePEc:eee:jhouse:v:44:y:2019:i:c:p:88-98
    DOI: 10.1016/j.jhe.2019.02.002
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    8. Fennee Chong & Venus Khim-Shen Liew, 2020. "New Zealand's Residential Price Dynamics: Do capability to consume and government policies matter?," Economics Bulletin, AccessEcon, vol. 40(3), pages 2262-2274.
    9. Nicholas Garvin & Alex Kearney & Corrine Rosé, 2021. "Macroprudential Limits on Mortgage Products: The Australian Experience," RBA Research Discussion Papers rdp2021-07, Reserve Bank of Australia.
    10. Ryan Greenaway-McGrevy & Peter C. B. Phillips, 2021. "House prices and affordability," New Zealand Economic Papers, Taylor & Francis Journals, vol. 55(1), pages 1-6, January.
    11. Fang Yao & Bruce Lu, 2020. "The effectiveness of loan-to-value ratio policy and its interaction with monetary policy in New Zealand: an empirical analysis using supervisory bank-level data," BIS Papers chapters, in: Bank for International Settlements (ed.), Measuring the effectiveness of macroprudential policies using supervisory bank-level data, volume 110, pages 51-62, Bank for International Settlements.
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    13. Hodula, Martin & Melecký, Martin & Pfeifer, Lukáš & Szabo, Milan, 2023. "Cooling the mortgage loan market: The effect of borrower-based limits on new mortgage lending," Journal of International Money and Finance, Elsevier, vol. 132(C).

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    More about this item

    Keywords

    Loan-to-value ratio; House prices; Macroprudential policy;
    All these keywords.

    JEL classification:

    • R38 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Government Policy
    • C54 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Quantitative Policy Modeling

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