| Summary: | A considerable housing boom has been a key feature of persistently large saving-investment imbalances in New Zealand over the past decade. Wealth is concentrated to a greater extent in property compared to most other OECD countries, leaving households and the banking system heavily exposed to a correction in land and housing markets. Supply rigidities and tax incentives that bias savings decisions towards property investment have amplified the increase in house prices, widening wealth inequalities in the form of larger homes for those who can afford them, but deteriorating affordability for the rest of the population. Substantial distortions via tax planning have been evident in rental property markets. Although the 2010-11 budget introduced measures to reduce some of these distortions, further reforms are needed to remove the significant tax bias favouring housing. The economic downturn has increased financial pressures on the social housing sector, with a shortage of public dwellings in areas of high demand. Regional supply constraints reflect inefficient land-use policies and long delays arising from an overly complex urban planning system. The adoption of spatial planning frameworks is a positive step forward, but they should include pricing mechanisms for land and road use that are aligned with broader policy objectives. This Working Paper relates to the 2011 OECD Economic Review of New Zealand (www.oecd.org/eco/surveys/NewZealand)
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