Booms and busts in housing markets not only contribute to a range of social problems but, as demonstrated by their role in the global financial crisis of 2007–2009, they also pose a very real threat to financial stability. Policy-makers can — and should — act to mitigate this threat, but how they can do this effectively is hotly debated.
The Committee on the Global Financial System (CGFS) — a central bank forum hosted by the Bank for International Settlements in Basel, Switzerland — has conducted an in-depth analysis of this problem in multiple countries and found that macroprudential policies are a key part of the solution. These policies work by maintaining sound lending standards and boosting lenders’ loss-absorbing buffers.
