incentive for households to own rather than rent. over the past 18 months, as housing demand picked up, housing credit has also been easier to obtain than previously, with banks competing aggressively to write mortgages. as a consequence, credit growth has risen, with outstanding housing credit rising 6 percent through the year to august. lending to borrowers with high lvrs has grown twice as fast, causing the share of high lvr lending to rise ( figure 6 ). figure 6 : high - lvr loans as a share of new lending source : rbnz. households who borrow at high lvrs tend to be the most vulnerable to a fall in house prices. in the event that house prices fall, these borrowers are more likely to see the value of their house fall below the amount of debt they have outstanding – particularly if they have entered the market recently. this can lead to financial hardship, mortgage defaults and, potentially, stress across the broader financial system. apart from easy credit conditions, housing demand over the past year has been boosted by a growing net inflow of immigrants ( figure 7 ). net immigration to new zealand has risen substantially over 2013 due to fewer departures of new zealand citizens to australia at the same time as inflows of returning citizens and non - new zealand citizens from europe, the bis central bankers ’ speeches united kingdom and asia have continued to increase. over the year to august 2013, a net 13, 000 people moved to new zealand with the intent of staying a year or longer – the highest annual inflow since early 2010. as more people enter the country, this increases the demand for housing, tending to put upward pressure on rents and house prices – particularly in auckland, where immigration flows have been strongest. figure 7 : permanent and long - term immigration to new zealand ( quarterly ) source : statistics new zealand. the role of high - lvr lending restrictions the lvr lending restrictions in operation from 1 october 2013 are primarily intended to reduce systemic risk by slowing house price inflation. they seek to reduce the risk that a subsequent price correction in an increasingly overvalued housing market could pose for the financial sector and broader economy. given the relatively slow response of housing supply, it does not make sense to let credit - based housing demand get too far out in front. further, to the extent that the lvr restrictions dampen overall demand in the economy, they could also reduce the extent of interest rate increases, and hence exchange rate pressure, that may be

donald t brash : the pros and cons of currency union - a reserve bank perspective address by dr donald t brash, governor of the reserve bank of new zealand, to the auckland rotary club, auckland, on 22 may 2000. * * * introduction in recent years, there has been a huge increase in interest in exchange rate regimes, both within new zealand and internationally. should countries maintain their own currencies, or adopt the currency of some other country or group of countries? if countries maintain their own currencies, should they “ float ”, or attempt to “ peg ” to the currency of some other country? as you know, new zealand has had its own currency for many decades, and since march 1985 that currency has been floating against other currencies, with its value determined day to day in the financial market. but through the mid - nineties as our exchange rate appreciated strongly, many people became concerned about whether this was the best arrangement for new zealand ( between early 1993 and early 1997, an inflation - adjusted trade - weighted measure of the new zealand dollar appreciated by some 29 per cent, putting considerable pressure on exporters and those competing with imports ). interest in the subject has become even more widespread in the last couple of years, with 11 of the countries of europe abandoning their own currencies and forming a currency union, and with the growing interest in several latin american countries in adopting the united states dollar. last month, sir frank holmes and dr arthur grimes, two highly - regarded economists, released a study they had undertaken for the australia new zealand business council entitled an anzac dollar?, and this has further intensified public and political interest in the matter. it is clear that there is strong interest in the subject on the part of the business community. so today i want to make some comments from a reserve bank perspective. but at the very outset i want to make it clear that any decision to abandon our own currency is fundamentally a political issue. currency unions are generally formed as part of a larger strategic push to integrate the countries entering the currency union, often in combination with free trade agreements, harmonisation of legal standards, and liberalised migration laws. viewed in this way, entering a currency union is a major foreign policy decision, and thus a matter for elected politicians. it is not a matter on which a central banker should express an overall opinion, and i will not be doing so. but the choice of currency regime does have important economic implications which need