A preferred outcome would be a “soft landing” in the housing market, where house price growth moderates without resulting in a sharp correction. In that situation, the Reserve Bank would need to carefully weigh the efficiency benefits of removing any LVR restrictions against the risk that this might stimulate a renewed build-up of systemic risk.
A persistent moderation in household credit growth would argue in favour of removal. Conclusion We at the Reserve Bank see the current overheated housing market as a real threat to future financial stability. While limited housing supply is at the heart of the problem, strong demand supported by easy credit is underpinning the rapid escalation of house prices.