House bubble not big enough to burst - yet

Wednesday 4 February 2004

Reserve Bank governor Alan Bollard says that he would be prepared to raise interest rates to prevent a housing price bubble but says that would only happen in rare circumstances.

By The Landlord

Speaking to the Canterbury Employers’ Chamber of Commerce on Friday, Bollard said the recent boom in the housing market isn’t sufficiently overheated to warrant "such a severe intervention".

Thursday’s interest rate hike "was just part of the normal operation of monetary policy to ensure continuing consumer price stability," Bollard said. But housing is currently still the biggest element in the day-to-day controlling of consumer price inflation.

Housing demand can shift dramatically in a short space of time and it takes time to build new houses so house prices are prone to significant short term movements, Bollard says, noting the close correlation between net migration inflows and house prices.

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