The OECD says that the Reserve Bank should introduce debt-to-income limits to tackle rising household debt and house prices.
The measure would help increase resilience to the central bank’s balance sheet and protect against risk to the New Zealand financial system.
While the idea of DTI limits has attracted many critics since RBNZ
launched a consultation period on the proposal, another of the OECD’s recommendations is likely to be better received.
On the subject of housing supply, the organization says that infrastructure investment should better support housing and greater urban densification should be allowed.
The OECD’s newly-released New Zealand Economic Survey is generally positive, noting that it has seen “a strong, broad-based expansion, driven by booming tourism, high net inward migration, solid construction activity and supportive monetary policy.”
However, high levels of household debt, increasing house prices, and issues surrounding productivity and external pressures are also present.
“New Zealand’s robust economic growth and high levels of well-being are enviable, even among the highest-performing OECD countries,” said OECD Chief Economist Catherine L. Mann, speaking in Wellington.
“The challenge going forward is to enact reforms that will boost productivity, to improve on today’s strong performance and ensure that future generations also share in the prosperity. Continuously up-skilling the workforce will also be essential to maintain high levels of employment in the face of a changing labour market,” she added.
The OECD report backs DTI limits and says that they, along with loan-to-value restrictions, have been shown to reduce housing credit growth.
It does warn of the dangers of over-regulation though, and says that “the effects of adding DTI limits should be studied,” particularly as they may place the tightest credit restrictions on the poor.
It recommends that such analysis should not delay the implementation of DTI limits which should be “promptly added” to the Reserve Bank’s macroprudential toolkit.