Macroprudential policies to mitigate housing market risks

Report prepared by a CGFS Study Group chaired by Emmanuelle Assouan (Banque de France)

Country case studies accompanying the report

 
How can macroprudential policies most effectively mitigate the potential financial stability risks arising from housing market developments? This report draws lessons from the practical experience of authorities in 14 jurisdictions with a combined total of 168 years' experience.

The report shows that policymakers usually translate broad financial stability objectives into more specific intermediate objectives to mitigate risks in the housing market. Lender resilience is the most common of these objectives, but most authorities also target others. A number target borrower resilience, while a few seek to dampen the credit cycle or lean against house price exuberance.

Given the range of intermediate objectives pursued, a key finding of the report is that certain tools are better at addressing specific objectives than others. In other words, the effectiveness of individual tools depends on the objective.

Four lessons stand out from the collective experience of the authorities contributing to the report. First, successful mitigation of the boom-bust cycles in housing markets that have destabilised financial systems in the past requires consistency across all housing-related policies including tax, planning and land supply. Second, governance arrangements have an important influence on policy effectiveness. Third, inaction bias can be mitigated by prioritising tools that meet objectives without requiring adjustment. Finally, being open about cost-benefit trade-offs can foster long-term support for macroprudential policies even as memories of housing crises inevitably fade.