Most countries that experienced an explosion in house prices ahead of the global financial crises have taken a variety of policy measures to avoid another real estate boom with evidence that a limit of the debt-service-to-income ratio is the best tool to slow housing credit growth, according to the Bank for International Settlements (BIS).
But to slow down the actual growth of real estate prices, a BIS working paper found that higher housing- related taxes was the only tool that had any measurable impact.
Measures specifically targeted at dampening a rise in real estate prices are now used by authorities worldwide as it has become clear that an increase in central bank interest rates that is large enough to dampen the rise in house prices would run the risk of triggering an overall recession.
The working paper by Kenneth Kuttner, professor of economics at Williams College, and Ilhyock Shim, senior economist at BIS' Hong Kong office, systematically examines the efficacy of nine different measures taken by 60 countries since 1980 to control housing credit and house prices.
Click to read: "Can non-interest rate policies stabilize housing markets? Evidence from a panel of 57 economies."