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s. This is raised due to prominence in recent times as the credit crunch has made lending money more difficult. The top banks and building societies are struggling to raise funds for lending on the money markets. Therefore, they have tightened their lending criteria requiring a bigger deposit to buy a house. This has reduced the availability of mortgages, when the availability of mortgages reduces then the demand for housing will decrease and it will seriously affect the housing market in New Zealand.

3.1 IMPORTANCE OF HOUSING MARKET TO THE ECONOMY OF NEW ZEALAND
3.1.1 HOUSE PRICE EFFICIENCY: EXPECTATION, SALES AND SYMMETRY
An efficient housing market is of critical importance for individual welfare and for a well-functioning economy. There had been a test for the efficiency of the housing market by estimating the factors that determine both the long-run and the dynamic paths of regional house prices. The tests use a new quarterly regional panel data set covering the 14 regions of New Zealand from 1981 to 2002. The tests indicate that regional housing markets converge to an equilibrium consistent with consumer optimising conditions, and hence with long-run efficiency. However, some conditions required for short-run (dynamic) efficiency are violated. We find that extrapolative price expectations, based on past regional phenomena, lead to overshooting of house prices in response to new region-specific information. We also find that price dynamics are influenced by past regional house sales activity and that the dynamic adjustment process is asymmetric depending on whether house prices are above or below equilibrium. When the house price is efficient then it will be easy for those who earn small amount of salary to be able to afford a house.

3.1.2 AUTOMATIC CYCLE STABILISING CAPITAL REQUIREMENT
This part discusses the potential for lenders' capital requirements to be used as 'automatic stabilisers' of the business cycle in New Zealand. The procyc licality of lending, and its importance for cyclical developments, motivates the consideration of regulation of lending for cycle-stabilisation purposes. This application of lenders' capital requirements is distinct from, but complements, the prudential reasons for capital adequacy requirements. I set out a putative capital requirement on housing lending intended to have cycle-stabilising properties. I explore the likely degree of cycle stabilisation that could be expected from feasible calibrations of such a requirement. However, the highly developed and open nature of New Zealand's housing lending markets is likely to limit the degree of cycle stabilisation that can be achieved with this approach. This helps in reducing the number of homeless citizens in the country.

3.1.3 Social Infrastructure
Housing is a core component of social infrastructure. It has a major influence on the well-being of New Zealanders and contributes to the quality of individual and community life. International research demonstrates there are strong relationships between housing outcomes and various aspects of social and economic well-being: health, education and training, employment opportunities, and family stability, among others. New Zealand research in this area has concentrated on the health sector, and there are a number of studies that demonstrate a link between the quality of housing and health outcomes.

3.1.4 Community and Co