As we have become wealthier, our aspirations for housing in terms of position, quality and size have naturally enough increased. But for various reasons the supply is not very elastic – there is only so much well-located land, and other factors have affected the supply price of dwellings more generally.
This consideration was behind the decision to reduce the OCR in March so as to mitigate the near-term negative impact of the February earthquake. It is appropriate for monetary policy to remain supportive, given the continued downside risks to economic activity stemming from the Canterbury earthquakes and more broad fragility in the New Zealand economy.