. table 1 provides a simple snapshot of the many policy levers that can influence the demand, supply, and ultimately price of houses and housing affordability. figure 6 : factors affecting house prices and housing costs ( or affordability ) source : adapted from the productivity commission ’ s inquiry into housing affordability ( 2012 ). 16 see, for example, the productivity commission ’ s 2012 inquiry into housing affordability in new zealand, and eaqub, howden - chapman and johnson ( 2018 ), a stocktake of new zealand ’ s housing. 17 ministry of business, innovation & employment. briefing for the incoming minister of housing and urban development ( 2017 ). table 1 : existing housing policy levers supply tax policy fiscal transfers social housing land availability / housing plans building standards ( including materials ) infrastructure building immigration ( for example, hiring foreign builders ) education ( for example, training programmes ) demand tax policy fiscal transfers overseas investment restrictions rental standards immigration capital market development kiwisaver policy monetary policy financial policy monetary policy and housing the bank ’ s monetary policy committee ( mpc ) takes into account the impact of house prices on its inflation and employment remit targets in a number of ways. housing demand affects the demand for housing - related goods and services, such as property construction, rents, and property maintenance. these components account for around one quarter of the consumer price index weight – the target index for the committee ’ s remit. the level of interest rates also influences asset values, including house prices, and the decision to own or rent a house. in particular, house price variations influence households ’ spending decisions, and eventually economic growth, inflation, and employment. this ‘ wealth effect ’ is especially strong in new zealand given that equity ownership in housing represents more than two - thirds of new zealand households ’ total wealth. 18 and, higher house prices relative to the costs of house building will also encourage increased building activity. these factors add up to a complex relationship between monetary policy, housing affordability, and house prices. for example, the current low interest rates are simultaneously contributing to both a rise in house prices while also improving housing affordability. the latter occurs through the lift in employment and household incomes and the lower debt - servicing costs of mortgage borrowers. financial stability policy and housing asset ( including house ) price volatility poses risks to new zealand ’ s financial system soundness. this is why, for example, retail banks actively manage their lending. they need to 18 rbnz estimate

concerns about consequences of emissions from burning fossil fuels for climate change, have stoked demand for alternative, potentially cleaner, energy sources such as bio fuels, prompting production to switch from food to fuel crops and further adding to the pressure on food prices. other factors are also playing a role in driving global commodity price developments – supply disruptions owing to unfavourable weather conditions have also made the food shortfalls more acute. differing competitive conditions in the retail and distribution sectors have contributed to diverging patterns in price changes across countries. that aside, the example serves to illustrate that the current collection of shocks facing the world economy cannot be viewed in isolation and that the interactions are varied and numerous. the pressure on global commodity prices is, of course, just one facet of the globalisation process affecting economic developments. we cannot provide a comprehensive picture of the impact of the globalisation without also acknowledging the dis - inflationary effects associated with the attenuation in prices of imported manufactured goods in recent years. increased trade with low costs countries and the growing share of these countries in the rest of the world ’ s imports has in particular put downward pressure on developed economies ’ manufacturing import prices over the past decade. the net effect of these two forces – the attenuation in imported manufacturing goods ’ prices and the accentuated increases in commodity and food prices – is difficult to judge ; the effects also differ across countries. however, a tentative consensus seems to have emerged amongst economists and academics that in the recent past the overall effect of globalisation has been a small net dampening of euro area inflation. the outlook is perhaps more uncertain : indeed, there have been recently signals that the dis - inflationary impact of low - cost countries on euro area import prices may be weakening. inevitably, the process of unpicking and understanding shocks and complex interactions affecting the economy is an ongoing task. and that raises the challenging question of how the monetary policymaker should respond to this changing environment. clearly we need to be sure that the analysis underpinning policy decisions incorporates an appropriate understanding of the complexities of our global system. the success of monetary policy at the ecb depends on our ability to take into account – in our economic and monetary analysis – this rapidly changing environment. but while our analytical processes have new challenges to cope with, the responsibilities are unchanged. challenging as the present global economy may be, the rules for monetary policy - making are not altered. also in our globalised world, inflation is a monetary phenomenon