Housing provides utility to households but can be used as collateral in debt obligations. The authors find that financial market liberalisation, seen as an economy-wide relaxation of collateral constraints, such as lower down payments, can create a boom in house prices relative to housing fundamentals. This result has highly relevant policy implications.
While market participants recognised and acknowledged the shortcomings with Jibar and Sabor, and the former’s inherent vulnerability to manipulation, there was general consensus that the current governance arrangements limited the scope for untoward behaviour. Notwithstanding this position, the SARB still felt it was appropriate to reconsider the design of these benchmarks, and thus published a consultation paper with proposals for their redesign.