A well-functioning housing market is essential for economic prosperity and well-being. A combination of favourable economic and financial conditions and tight housing supply led to sharp increases in real house prices between the mid-1990s and end 2007, which spurred household consumption. While this boosted output growth, economic imbalances and financial weaknesses mounted, leaving the economy vulnerable to the global financial crisis. Current land use planning policy is excessively restrictive, making supply unresponsive to demand and contributing to creating housing shortages and reducing affordability. While additional supply in the private rental market provides an alternative to homeownership for a significant number of households, social housing waiting list numbers have increased rapidly over the past decade. A reform to replace top-down building targets with incentives for local communities to allow development is underway, but the outcomes are somewhat uncertain. Housing taxation is regressive and encourages excessive demand for housing. More effective taxation could help contain demand and stabilise the housing market. Relying more on long-term and diversified funding for mortgages would also improve the stability of the housing market.
