ReseRve bank of austRaliakenneth kuttneR and ilhyock shim
to the property sector. The third category consists o iscal policy measures such as capital gainstax at the time o sale o properties and stamp duties. One o the contributions o this paper isthe compilation o an extensive dataset on the implementation o these macroprudential policiesor a wide range o economies.
We assess these policies’ eects using panel regressions o housing price growth and housingcredit growth, with models that also include controls or other actors aecting the housingmarket, such as rent, personal income and institutional eatures o the housing inance system.With regard to housing prices, our main indings are that increases in short-term interest rates andin the maximum LTV and/or DSTI ratios have strong, statistically signiicant eects. These resultshold or several alternative model speciications, and in sub-samples that exclude the periodaected by the inancial crisis. Regarding the impact on housing credit, our results consistentlyshow that limiting LTV and/or DSTI ratios and increasing loan-loss provisioning requirements tendto slow credit growth. Tax policies and exposure limits were also ound to have the desired eects,although these results are sensitive to sample period and model speciication. Taken together,our results suggest that macroprudential policies can be eective tools or stabilising housingprice and credit cycles. The plan o the paper is as ollows. Section 2 surveys the existing evidence on the eects o monetary policy, inancial structure and regulation. Section 3 outlines the standard theory o property prices, which will be used as a ramework or understanding the potential roles o monetary policy, inancial innovation and regulation in contributing to (or attenuating) propertymarket luctuations. Section 4 sketches the empirical approach. Section 5 describes the dataused in the analysis, whose unique eature is an exhaustive compilation o a range o policymeasures aimed at inluencing conditions in the housing market. Section 6 reports the results,and Section 7 concludes.
2. Existing Evidence
Research on the eects o monetary and regulatory policies on the property market tends to allinto one o two categories. One strand o the literature, surveyed in Section 2.1, emphasises theeects o interest rates. The second strand ocuses on macroprudential policies, oten making useo cross-country or event-study methods. This literature is summarised in Section 2.2. The analysisin this paper combines elements o both.
2.1 The effects of interest rates
Many studies have documented the cyclical co-movement between interest rates and housingprices. Claessens, Kose and Terrones (2011), or example, show that housing prices are stronglyprocyclical in most countries. Ahearne
(2005) ind that low interest rates tend to precedehousing price peaks, with a lead o approximately one to three years. While these patterns aresuggestive, discerning the impact o interest rates
is complicated by the act that other
1 Following FSB-IMF-BIS (2011), macroprudential policy is characterised by reerence to the ollowing three deining elements:(i) objective – to limit systemic risk; (ii) scope – the ocus is on the inancial system as a whole; and (iii) instruments and associatedgovernance – it uses primarily prudential tools calibrated to target the sources o systemic risk. In this paper, we use the term‘macroprudential policy’ to reer to non-interest rate monetary policy, prudential policy and iscal policy designed to inluencehousing prices and housing credit.