(Bloomberg) -- Dutch central bank Governor Klaas Knot urged action on Monday to prevent large swings in property prices, warning they could damage the euro area’s fifth-biggest economy if left unchecked.
“The cyclical nature of the housing market and economy in the Netherlands remains remarkably high,” said Knot, who also sits on the European Central Bank’s rate-setting Governing Council. “I personally think it is very important to do something about this.”
Property prices have surged in the Netherlands, thanks to a mix of record-low interest rates, scarce supply and a growing economy. The Dutch Financial Stability Committee, which includes representatives of the central bank, the financial regulator and the finance ministry, held exploratory discussions late last year on policy options to prevent overheating.
In a speech in Utrecht, Knot argued the country needs more rental home for middle income households, a call to boost supply in the so-called “free” property sector to take pressure off prices. He also said there’s a need for lower loan-to-value ratios for mortgages.
“Exuberant price fluctuations” have a stronger impact on the Dutch economy because of their “exceptionally strong” influence on household consumption, he said.
“Now that contribution to economic growth may sound like a positive thing to you, but you have to keep in mind that this effect works in two ways: in lesser times, the same housing market means that the valley is extra deep.”
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