IMF report shows housing focus right - Key

KATE CHAPMAN AND TRACY WATKINS
Last updated 11:02 19/03/2013
Fairfax NZ

Prime Minister John Key says New Zealand can't afford a long term bubble in the housing market.

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A report warning of a sharp downturn in house prices shows the Government is focused on the right area, Prime Minister John Key says.

The International Monetary Fund has highlighted a strengthening housing market as one of the risks facing the New Zealand economy over the next 12 months. Rising price expectations could fuel another housing bubble, it says.

In its annual report card, the IMF said household credit growth, housing market turnover and house-price inflation had all recently picked up, particularly in Auckland where supply bottlenecks persisted and prices remained elevated "by most measures of affordability".

Key said the report showed the Government was doing the right thing in looking closely at the housing market.

"[And] good to see them come out and support us in terms of our response to monetary policy."

The report said a worst-case scenario was that a combination of external shocks, such as international financial turmoil and a slowdown in China and Australia, could trigger a sudden decline in house and farm prices.

Tools under investigation by the Reserve Bank - including restricting the amount of low to no-deposit lending - could limit the risks, the IMF said.

The central bank, which usually seeks to peg back an overheated housing market through interest rates, is looking at new measures including sources of bank funding, requiring banks to carry a bigger buffer and regulating loan to value ratios - effectively requiring bigger house deposits.

Key said yesterday the Government had made no decisions on those changes but clearly some intervention was needed.

"Given [Reserve Bank Governor Graeme Wheeler] is signalling interest rates are likely to be low for quite a long period of time, the Government does need to look at all the levers around housing to make sure there is enough supply, to make sure there isn't a runaway housing market." 

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