IDEAS home Printed from https://ideas.repec.org/p/nzb/nzbans/2022-09.html
   My bibliography  Save this paper

How does monetary policy affect the New Zealand housing market through the credit channel?

Author

Listed:

Abstract

Housing matters- the big picture: House prices in New Zealand are driven by a wide range of factors – interest rates are just one part of the big picture. A global decline in interest rates and strong population growth in New Zealand has had an outsized impact on house prices because the supply of new homes has been slow to respond. This includes both opening up new land and building new homes. Tax rules in NZ favour housing against other investments. House prices are influenced by employment and incomes, as well as bank lending rules and the availability of mortgages. House prices were boosted by falling interest rates around the world in the past decade (post GFC). The Reserve Bank of NZ moves short-term interest rates to keep inflation low and stable and support employment at its maximum sustainable level. We consider the impact of our interest rate changes on house prices and how they affect the Government policy for sustainable house prices. We do not aim to drive house prices up or to stop them falling. The factors affecting house prices have changed. Building consents are now high, population growth has slowed dramatically, interest rates are rising and we are seeing house prices cool down in 2022, after a rapid rise last year. We are carrying out a wide range of research to understand the key drivers of house prices. We need to be clear about what the Reserve Bank can and cannot do and what others could do to fix this problem, which has been many decades in the making. Key findings of Analytical Note: - We analyse the effect of a monetary policy shock on household credit and real house prices in New Zealand through one of the channels of transmission, the credit channel. - We confirm that monetary policy stimulus triggers moderate house price movements in New Zealand. - We find out that an unanticipated increase in policy rate reduces real house prices by up to -1.6% and the growth rate of residential loans by -0.6% after 2.5 years.

Suggested Citation

  • Meltem Chadwick & Aynaz Nahavandi, 2022. "How does monetary policy affect the New Zealand housing market through the credit channel?," Reserve Bank of New Zealand Analytical Notes series AN2022/09, Reserve Bank of New Zealand.
    • Handle: RePEc:nzb:nzbans:2022/09
    as

    Download full text from publisher

    File URL: https://www.rbnz.govt.nz/hub/-/media/project/sites/rbnz/files/publications/analytical-notes/2022/an2022-09.pdf
    Download Restriction: no
    ---><---

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nzb:nzbans:2022/09. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Reserve Bank of New Zealand Knowledge Centre (email available below). General contact details of provider: https://edirc.repec.org/data/rbngvnz.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.