The South Pacific nation’s efforts could offer a blueprint for the many other countries facing a similar dilemma after the coronavirus pandemic.
The problem is particularly acute in New Zealand, where housing supply failed to keep up with population growth over much of the past decade.
The country’s home-price-to-income ratio, a measure of affordability, is the highest compared with the long-run average among 30 key economies analyzed by research firm Capital Economics.
Economists and policy makers debate whether central banks should use interest rates to try to rein in housing prices by influencing the cost of borrowing.
And earlier in the year, New Zealand’s government, in a novel move, directed the central bank to consider home prices when making decisions about monetary policy, even though bank officials warned that would have little impact on the market and could lead to lower employment and below-target inflation.
New Zealand has also restricted low-deposit lending, a move designed to reduce risky mortgages and lower the chance of a damaging housing market correction, which could destabilize the broader economy.
The government also plans to make higher-density housing easier to build in cities and limit the deductibility of interest costs on residential property investments.
In September, the latest month for which data is available, property prices in seven of New Zealand’s 16 regions reached record median levels, according to the Real Estate Institute.
Gareth Kiernan, chief forecaster at Infometrics, doesn’t expect New Zealand home prices to fall soon.
The government recently decided to allow residency for tens of thousands of people on temporary visas, which means more people will be looking to buy homes.
However, it said the risk of a crash is elevated in countries such as New Zealand where affordability was stretched even before the pandemic.