Front Matter Page
INTERNATIONAL MONETARY FUND
European Department
Macroprudential Policies and House Prices in Europe
Marco Arena, Tingyun Chen, Seung Mo Choi, Nan Geng, Cheikh Anta Gueye, Tonny Lybek, Evan Papageorgiou, and Yuanyan Sophia Zhang
No. 20/03
Front Matter Page
European Department
Macroprudential Policies and House Prices in Europe
Marco Arena, Tingyun Chen, Seung Mo Choi,
Nan Geng, Cheikh Anta Gueye, Tonny Lybek,
Evan Papageorgiou, and Yuanyan Sophia Zhang
INTERNATIONAL MONETARY FUND
Front Matter Page
Copyright ©2020 International Monetary Fund
Cataloging-in-Publication Data IMF Library
Names: Arena, Marco, author. | Chen, Tingyun, author. | Choi, Seung Mo, author. | Geng, Nan, author. | Gueye, Cheikh A. (Cheikh Anta), author. | Lybek, Tonny, author. | Papageorgiou, Evangelos, 1980-, author. | Zhang, Yuanyan Sophia, author. | International Monetary Fund. European Department, issuing body. | International Monetary Fund, publisher.
Title: Macroprudential policies and house prices in Europe / Marco Arena, Tingyun Chen, Seung Mo Choi, Nan Geng, Cheikh Anta Gueye, Tonny Lybek, Evan Papageorgiou, and Yuanyan Sophia Zhang.
Other titles: International Monetary Fund. European Department (Series).
Description: Washington, DC : International Monetary Fund, 2019. | At head of title: European Department. | Departmental paper series. | Includes bibliographical references.
Identifiers: ISBN 9781513512259 (paper)
Subjects: LCSH: Financial risk management—Europe. | Housing—Prices—Europe.
Classification: LCC HD61.A74 2019
The Departmental Paper Series presents research by IMF staff on issues of broad regional or cross-country interest. The views expressed in this paper are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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Contents
Acknowledgments
Glossary
Executive Summary
1. Introduction
2. Literature Review
3. Macroprudential Measures Implemented in Europe in Recent
4. Country Experiences and Effectiveness of MaPPs
Impact on Riskier Mortgages
Impact on House Prices and Credit Growth
5. Circumvention
Circumvention through Nobank Loans
Cross-Border Circumvention
6. Macroprudential Policies and Housing Sector Policies
7. Balancing Financial Stability and Housing Affordability
8. Conclusion
References
Box
Box 1. The Impact of MaPPs in Norway and Sweden—Counterfactual Analyses
Figures
Figure 1. Real House Prices
Figure 2. Household Debt
Figure 3. Frequency of Selected MaPP Measures by Reported Intermediate Objectives
Figure 4. Number of Measures and Change in House Prices
Figure 5. Number of Measures and Change in Household Credit
Figure 6. Adoption of Macroprudential Measures by Region
Figure 7. Adoption of Key Macroprudential Measures
Figure 8. Residential Housing Loan-to-Value Ratio, in Domestic Currency
Figure 9. Residential Housing Debt-Service-to-Income Caps, in Domestic Currency
Figure 10. Share of High LTV Loans in Selected Countries
Figure 11. MaPPs, Household Credit Growth, and House Prices in Selected Countries
Figure 12. The Impact of MaPPs in Norway and Sweden—Counterfactual Analyses
Figure 13. Property Taxes
Figure 14. Price-to-Income and Price-to-Rent Ratios
Tables
Table 1. Property Tax Reforms That Were Implemented, Legislative or Announced in 2016
Table 2. Housing Policy Programs Surveyed by OECD
Acknowledgments
This IMF Departmental Paper was completed under the overall guidance of Jörg Decressin and Enrica Detragiache. The authors are grateful for comments and suggestions from participants of the IMF European Department seminar; the 12th Edition of the Seminar on Financial Stability Issues of the National Bank of Romania, held in Sinaia, Romania, November 14–17, 2018; and the European Systematic Risk Board–European Central Bank– IMF workshop held October 31, 2018, on the topic of a macroprudential framework. The authors would also like to thank Hannah Jung and Ben Park for formatting services. Thanks are also due to [___] of the Communications Department for leading the editorial and production process.
Glossary
| CB |
capital conservation buffer |
| CCB |
countercyclical capital buffer |
| CESEE |
Central, Eastern, and Southeastern Europe |
| CRD |
capital requirements directive |
| CRR |
capital requirements regulation |
| DSTI |
debt service-to-income |
| DTI |
debt-to-income |
| ESRB |
European Systemic Risk Board |
| GFC |
global financial crisis |
| LTV |
loan-to-value |
| LTI |
loan-to-income |
| MaPP |
macroprudential policy |
| PTI |
payment-to-income |
| SRB |
systemic risk buffer |
Executive Summary
Recent years have seen an increasing use of macroprudential policies (MaPPs) in Europe. Since the global financial crisis, many European countries have implemented macroprudential frameworks and tools, producing an expanding body of empirical research on their effectiveness. In part, the goal of this research is to evaluate the effectiveness of macroprudential policy. This paper discusses how MaPPs have been used in Europe to address risks from the housing market and growing household indebtedness. It also documents developments in riskier mortgages, as well as house prices and credit related to the adoption of MaPPs.
Macroprudential policy in Europe aligns with the objective of limiting systemic risk, namely the risk of widespread disruption to the provision of financial services that is caused by an impairment of all or parts of the financial system and that can cause serious negative consequences for the real economy.
The paper presents evidence suggesting that MaPP implementation successfully limited systemic risk that could emerge from riskier mortgages and helped to build resilience. That said, many European countries’ experiences have not yet spanned a full financial cycle, so any ensuing lessons and empirical evidence remain tentative. Overall, the findings suggest that borrower-based measures, supported by lender-based measures, helped limit the share of riskier mortgages. However, results are more mixed as to the ability of MaPPs to contain house prices and overall credit growth against the backdrop of still-accommodative monetary policy and other factors. This trend supports the notion that macroprudential policies are mainly aimed at strengthening resilience and containing systemic financial risks, rather than steering house prices and overall credit growth. Further, the wide range of institutional arrangements and policies being adopted across countries suggests that there is no one-size-fits-all approach.
The paper also notes that macroprudential policy effectiveness in influencing house prices through credit should be assessed in the context of other policies affecting house prices. House prices are a function of many drivers, such as supply of land, zoning, tax policy, etc. It should be also noted that to the extent that MaPPs are effective in contributing to reducing housing price growth, the reduction in price will come about via a reduction in demand, as MaPPs make (some) mortgages more expensive. To protect affected households, policymakers can strengthen various policies that promote housing affordability.