Housing market pressures have been an ongoing theme in the Reserve Bank’s communication over the last few years.

And it seems that theme is not set to change any time soon.

The Reserve Bank has released its statement of intent and it highlights high house price inflation as a concern throughout.

Reserve Bank governor Graeme Wheeler said that, from a financial stability perspective, New Zealand’s financial system remains sound and well placed to support economic expansion.

“New Zealand banks are well capitalised, funding and liquidity buffers are above required minimums, and profitability is strong.”

But while banks have capacity to absorb an increase in problem loans, sustained increases in house prices, and the risk of a sharp correction, could pose additional financial stability risks, he said.

The statement makes it clear that, when it comes to monetary policy formation, one of the key areas it will be monitoring is demand and supply imbalances in the housing market.

However, it is in the area of macro-financial stability, that housing is a focus point for the Reserve Bank.

Restrictions on LVRs, including last year’s restrictions for Auckland investors, are helping to contain financial system stability risks by reducing the share of risky lending on bank balance sheets, the statement said.

In spite of the LVRs, there are signs Auckland house price inflation is gaining momentum again and house prices have also been rising rapidly in other parts of New Zealand.

“While house prices outside Auckland remain less stretched relative to income, a continuation of this trend could present challenges for macro-prudential policy,” the statement said.

To address this issue, the Reserve Bank will be exploring additional macro-prudential policy options for managing the financial stability implications of housing market cycles.

Governor Wheeler has previously said that the macro-prudential policy options being looked at include LVR rules aimed at investors and debt-to-income ratios.

He has also indicated that, in terms of a timeframe for introduction, it is possible the Reserve Bank would be moving before the end of the year or before that.