By Lucy Craymer

WELLINGTON (Reuters) - New Zealand needs to keep increasing the supply of houses to address housing affordability, which is still a concern, the International Monetary Fund said on Wednesday, adding that land should be freed up to promote investment.

“The cyclical downturn in (house) prices does not imply that the structural housing shortage has been addressed. There is a strong need to expand housing supply, including for social housing to improve affordability,” the IMF said in a statement issued after its "Article IV" review of New Zealand policies

New Zealand house prices have fallen roughly 16% since their peak in November 2021 as the central bank has aggressively hiked the cash rate with the intent of dampening inflation. However, New Zealand still has one of the highest house-price-to-income ratios in the world.

The IMF report said while prices have fallen, financial stability risks appear contained.

It added that achieving long-term affordability depends critically on freeing up land supply and improving planning and zoning, and fostering infrastructure investment to enable fast track housing developments and reduce construction costs and delays.

More broadly, the IMF said that New Zealand’s economic growth is expected to slow to 1% annually both this year and next while inflation will likely gradually decline to be between 1% and 3% by 2025.

“Risks to the outlook stem from the external environment and a potential need for stronger tightening of monetary and financial condition,” it said.