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Contradictory Results: Reassessing the Impact of Loan‐to‐Value Restrictions on House Price Inflation

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  • Antony Andrews

Abstract

Using Bayesian Structural Time Series analysis, this study examines the causal impact of loan‐to‐value (LTV) restrictions imposed by the Reserve Bank of New Zealand in October 2013. By incorporating state‐space components, such as local linear trend, seasonality and regression, counterfactual values of house price indices are predicted. Surprisingly, the study reveals that the implementation of LTV restrictions had no significant effect on national house price indices, contradicting prior Central Bank studies that reported a nearly 3 percentage‐point decrease in housing cost inflation. This contradictory evidence challenges existing perceptions of the effectiveness of LTV restrictions in curbing house price inflation.

Suggested Citation

  • Antony Andrews, 2024. "Contradictory Results: Reassessing the Impact of Loan‐to‐Value Restrictions on House Price Inflation," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 57(3), pages 245-254, September.
    • Handle: RePEc:bla:ausecr:v:57:y:2024:i:3:p:245-254
    DOI: 10.1111/1467-8462.12547
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    References listed on IDEAS

    as
    1. Chris Bloor & Chris McDonald, 2013. "Estimating the impacts of restrictions on high LVR lending," Reserve Bank of New Zealand Analytical Notes series AN2013/05, Reserve Bank of New Zealand.
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    4. Andrew Coleman & Grant M. Scobie, 2009. "A Simple Model of Housing Rental and Ownership with Policy Simulations," Treasury Working Paper Series 09/05, New Zealand Treasury.
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    6. Coleman, Andrew & Scobie, Grant M., 2009. "A Simple Model of Housing Rental and Ownership with Policy Simulations," Motu Working Papers 292631, Motu Economic and Public Policy Research.
    7. Zhang, He & Meng, Xianchun, 2021. "The crowding out channel: Housing boom and investment in China," Finance Research Letters, Elsevier, vol. 43(C).
    8. Armstrong, Jed & Skilling, Hayden & Yao, Fang, 2019. "Loan-to-value ratio restrictions and house prices: Micro evidence from New Zealand," Journal of Housing Economics, Elsevier, vol. 44(C), pages 88-98.
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