A Broader View of Housing-Market Macroprudential Measures

Whereas a wide range of macroprudential policies can affect the housing market, the most commonly-used are Loan-to-Value limits and Debt-Service-to-Income limits. These are the key borrower-related policies in the macroprudential toolbox, other policies apply more directly to financial institutions. They are respectively the most commonly used policy by advanced countries (LTV) and the eighth (DSTI), see Chart from Alam et al (2019). The focus of macroprudential policy on the housing market raises a number of conceptual and policy issues and we seek to provide some points for discussion. There is extensive analysis of the effectiveness of these instruments in the housing market, not least at this workshop, and also among other macroprudential tools in respect of individual policy targets (house prices, risk, credit expansion). Some general issues can be identified in such research. Meanwhile, what is less common is an assessment of the broad effects of these borrower-related tools not only on housing but also financial institutions and the wider economy. This is a gap that we seek to fill in this keynote address, using mainly our own work. The suggestion is that further work in these areas is warranted, not least to give an assessment of comparative advantage of the different tools available as well as appropriate combinations