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Work Visa Changes on the Way

Posted by Iain on Jan. 11, 2019, 3:17 p.m. in New Zealand Economy

Happy New Year to one and all.

What does 2019 hold for immigration to New Zealand?

Worsening skills shortages and dealing with it will dominate as the Government recognises we simply do not have the people or skills to fill the tens of thousands of jobs that continue to be created here every year.

The immigration year began, as it usually does, with the perennial whining of Immigration New Zealand about backlogs in processing everything from visitor, student and work visas to the allocation and processing of skilled migrant resident visas.

I’d suggest to INZ management that rather than tell us when there is a backlog, make it news by telling us when there isn’t one.

Media reports of people waiting 4 hours (!) to speak to someone at Immigration New Zealand Zealand to ask a question are making the news. The Department has been moaning it cannot find people to fill its call centre. Welcome to the world of all local employers, INZ.

These backlogs in processing are caused in part by increases in applications for work visas caused by employers needing to source skills and labour from offshore or from visitors in NZ on tourist visas. It is also caused by INZ not being able to recruit half decent people to replace the one third of its staff who leave every year leading to a workforce of inexperienced officers.

In a labour market with 3.9% unemployment and virtually no skilled unemployment, finding even half decent people to join most companies is currently nigh on impossible. That is also at the heart of INZ’s own problems - they too recognise and grapple with the fact that anyone with half a brain or a desire to work is working.

The fact that in the end, most half decent immigration officers leave once they realise the type of culture that exists within the department, results in an organisation bottom heavy with types you’d not usually employ in your own business - English language proficiency being one of the greatest issues. A few good people work their way up the food chain and are conspicuous in their small number. I thank my lucky stars we get access to them or our work would become intolerable.

As always, rather than Government asking themselves if they are part of the problem and looking for better ways to assess and process visas (like, for example partnering with reputable private sector immigration consultants - still standing by!), we have yet another round of proposed changes - this time to work visa policy. It is as if changing rules is the answer to the ills that beset not for profit organisations with no competition.

Obviously, markets and conditions change and policies need to catch up. But that’s the problem - in my 30 years of having input into immigration policy reviews, all Governments seem to be 12-18 months behind the labour market and what is trending.

Are the current work visa settings not working? I’d argue they are. Any change that might discourage employers from employing non-residents would be a disaster for an economy with so much job creation going on and so few people to fill jobs.

If I could be bothered making a submission to Government on this latest proposed round of changes to work visas, I’d tell those looking at making change that change for changes sake is not a good reason to do anything. Work visa policy by and large is well designed, well thought through and working - the issue is the bureaucrats, not the rules.

Every new Government wants to make its own mark and let us all know how the ‘previous administration failed’. This one said so in its press release This Government, and particularly the current Minister of Immigration, has an itch over ‘migrant exploitation’ and comes from a union background so tends to believe, it seems, that employers see staff as commodities rather than the only real asset that they have that need to be cherished, nurtured and made happy.

‘Consultation’ then on changes to work visa process have been announced.

This appears, at least at face value, to be a tidying up of the current settings as opposed to anything more radical. No wholesale changes are on the table.

It is true that there are many different ‘flavours’ of work visas that have evolved somewhat piecemeal down the years but the foundation of all virtually all work visa policy has long been to ‘protect employment opportunities for locals’ (as it is in every country in the world).

What is being proposed is for all employers to in effect become ‘accredited’ with INZ following some no doubt painful exercise in form filling and evidence gathering on a range of issues from human resource policy and processes, track record with employees (disputes, etc), one suspects possible input from Trades Unions (if employers can find a relevant one), a commitment to training and up-skilling locals and efforts to recruit and/or greater use of regional labour market shortage lists. I wouldn’t be surprised to see us going down the (dumb) Australian pathway of forcing employers who want to bring in migrant labour to pay money into some sort of training fund. To be controlled by another Government bureaucracy no doubt to offset any political blowback about not doing enough for the locals.

The Government has signalled a carrot and stick approach with more bureaucracy up front for employers but with the promise of less later - presumably for the employers who need to fill more than one position and have regular need to supplement their local work forces with foreign help. I am less certain about the employer that needs to fill one critical role. Experience tells me tat if the employer wants someone badly enough they’ll play the game.

Much is left to be explained but these changes are not designed to cut numbers.

Interestingly, while the usual political noises about getting young people into work and training and better aligning job vacancies with welfare policies and education outcomes (are we producing enough of the right skills of our own?), the very brief release also seemed to recognise that we have an economy which is pretty much at full employment and everyone who wants to work, is working. Everyone who wants to be in training, can be. Everyone who wants to increase their skills, has the opportunity. Government has legislated for a higher minimum wage (increasing to $20 per hour in about a year from now).  It is clear there is no economic evidence to suggest locals are missing out on anything to foreign workers.

One concern I have is with the new proposed ‘Regional Skills Shortage Lists’.  Bureaucrats love lists because it means, in theory, they don’t have to think quite so hard. We have had skill shortage lists in one form or another forever - certainly the 30 years I’ve been doing this work. They are supposed to serve two purposes - to tell immigration officers what skills there is a shortage of and therefore, in theory, streamline the visa application process (never seen much evidence it actually works that way) and to send signals to migrants of what we need (never seen much evidence that works either). The lists are seldom accurate and almost as soon as they are released they become obsolete given the wheels of this Government Department turn at glacial pace and by the time an occupation gets on a list the labour market may have moved on. I note for example that despite Auckland needing 900 teachers this year we still don’t see Teachers on the critical shortage list. It’ll get there eventually, possibly when we still need Teachers.

Who will provide these lists? What methodology will be used? How regularly will they be updated? I have lots of suggestions…

Another piece of advice to the Government, as any migrant coming and looking for jobs will tell them, is there is little to no appetite among 99% of employers to employ migrants when there are locals available. What employer in their right mind would jump through all the hoops they must (eased of course for those that retain us to manage the process) if there are locals qualified and available? The answer I can tell the Government is zero. I’ve never met one. Kiwis first. They don’t need Government to tell them to look local - they want local.

Employers overwhelmingly recognise that migrants present a potential risk  - whether that is through language differences, cultural fit, transferability of qualifications and skills to local market conditions and norms, commitment to staying long term with them (is the migrant only accepting the job to get their residence and then they will leave is a real question we get daily) and grab the local where ever possible.

This is why our clients are all fluent in English, a good cultural fit and why the outcomes for our clients with work visas and residence is overwhelmingly positive for both migrant and employer.

Although I know I am screaming into a hurricane force wind I would also like to see a Skilled Migrant Residence policy that takes into account the ‘chicken and egg’ that exists in the real world between getting work visas and jobs and break that cycle for the select few we allow to stay permanently in the country. I wrote a blog on this a few months ago. You can read it here.

 This Government and the Minister in particular has long railed against ‘migrant exploitation’ as if it is commonplace. It isn’t, but as in any labour market there is no doubt that it exists on some level but it is known to INZ what sort of jobs and what sort of industries it takes place in and an entire system doesn’t need to change. Government knows that on the whole it is migrant employers that exploit migrants from their own ethnic or national group. The law was changed a few years ago to come down hard on such employers and there has been some very high profile actions taken against such people resulting in massive fines, loss of property and assets and imprisonment. Employers can in fact lose their own NZ residence if they are found to be exploiting others.

What we need is a system that makes it easier to secure work visas based on the real world and not some political construct predicated on ‘all employers are out to exploit so called vulnerable migrants’ which exists only in the minds of politicians and paranoid bureaucrats (one often reinforces the other in a not very virtuous circle).

In the end the Government can make whatever rule changes they like - I can with a great degree of certainty reassure our clients that it will make little to no difference to them or their chances of securing work. Employers will face greater scrutiny but that is not new, they do today.

If there is one thing this Government knows - we have chronic and worsening skills and labour shortages within this strong and growing economy and with job creation continuing to run into the thousands of new jobs every month, most of which can no longer be filled locally, they are not about to mess with that.

So, look out for change but, change ‘light’.

All the best for 2019

Until next week

Tags: work visa

Foreigner House Buying Ban: Explained

Posted by Iain on Aug. 17, 2018, 5:06 p.m. in New Zealand Economy

The long awaited outcome of the Government’s Select Committee process has been completed and we now understand more of who will and who will not be allowed to buy property and homes in New Zealand.
It has caused a lot of anxiety among our clients and it is good that the Government has finally made their announcement. Much ado about nothing, for the most part.
 
As expected, it was nowhere near as ‘bad’ as many have tried to make out and I suspect that’s probably because there is little evidence that in most parts of New Zealand foreigners buying houses were having any significant impact on house prices, except around the margins. However because during last years’ election process one major party had pinned much of the doubling in house values - particularly in Auckland since 2007 - on non-resident buyers, when the reality was it was a supply issue, they had to do something.
 
Under the new law you can only buy a house if you hold a Resident Visa and have spent at least 183 days in New Zealand.
Excluded from that will be ‘large developments’ and apartment blocks when bought off the plans (which is of course what a great many ‘foreign’ buyers looking for a good real estate investment, do).
It is hard to see why apartments have been excluded, but presumably the political pressure lies elsewhere. No explanation for this exception has been offered as far as I can see but perhaps it is as simple as a perception that ‘rich’ foreigners prefer to buy free standing houses rather than apartments. Who knows?
In terms of those looking to buy a property in the name of a company, trust or similar structure - if it has twenty-five percent overseas ownership, it will be deemed to be ‘foreign’ and such entities will not be able to buy free standing homes and will be limited to apartments and bigger developments.
 
Singaporean citizens and Australian citizens will also be exempt from all of this under the provisions of our Free Trade Agreements with those countries.
 
For those people moving to New Zealand and holding a Resident Visa who have spent at least 183 days in New Zealand following the grant of their Resident Visa are free to buy all the property that they wish.
Those looking to invest in property with no interest in living in the country will simply have to buy an apartment.
 
I can predict that it will have very little to no impact on anybody looking to move to New Zealand and settling. 
That is because most people have got to get jobs in New Zealand in order to secure their residency and most do not buy houses for at least twelve to eighteen months after they land, anyway. Most of our clients have secured their Resident Visas within six months of their job offer being secured.
Most people initially prefer to rent, settle in, find their feet and make sure in both an employment and emotional sense that they are comfortable before approaching banks to buy property.
 
Iconic land and coastal property will continue, as it has been for many many years, to require permission from the Overseas Investment Office, unless people do hold Resident Visas and have spent those six months in New Zealand.
 
I awoke to grand announcements yesterday on the BBC and Channel New Asia of New Zealand ‘banning foreign home buyers’ but as so often is the case with the media (and forgive me if this sounds Trump like) they have really sensationalized what is, for the most part, a very minor issue for those people interested in moving to New Zealand to live and who want to buy a house to live in.
 
What the Government has done as the Minister in charge explained to the BBC yesterday, those who want to buy some of the more expensive properties in places like Queenstown and the Bay of Islands that they apparently won’t get priced out of the market by international buyers. It is hard to understand how ‘successful’ (I think the Minister meant 'rich') New Zealanders were being pushed out of the market when in excess of 95% of sales at the top end are to New Zealanders anyway. Doesn’t seem too many were being knocked out and there aren’t too many homeless rich people in the country.
Perhaps the Minister knows something about global Armageddon and New Zealand increasingly becoming the bolt hole of choice for the super rich that the rest of us don’t?
There is little doubt that the outcome of one of the Government’s many other working groups, this one on tax reform, is going to deal a blow to the current essentially capital gains free profits for most people investing in property (other than the family home). What we have got here is a sledge hammer to crack a walnut and I suspect the Government only went through with this silliness for political reasons rather than economic.
Bottom line is if you are moving to New Zealand and planning on living here you can buy anything you want six months after your Resident Visa is approved and issued. 
No big deal really.
Until next week...

Iain MacLeod, Southern Man

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Two Brothers - The Rand and the New Zealand Dollar

Posted by Iain on Aug. 3, 2018, 12:35 p.m. in New Zealand Economy

The greatest fear of most South Africans leaving behind an increasingly beleaguered economy and job insecurity is how they might fair financially when they get to New Zealand. They fret that they might be jumping out of a financial frying pan and into a fiscal fire.

This tale of two currencies, two economies and two brothers tends to suggest that sucking up any short term exchange rate pain can lead to long term gain if you only have the courage to brave the immigration waters.

I know the brothers that feature in this article so have not used their real names to protect their privacy.

Around 15 years ago, Peter, then aged around 50, moved to New Zealand with his School Teacher wife and two teenage sons from Durban. We processed their application under the skilled migrant category and they moved to NZ around 2003. He was a Manager of a small business with around 10 staff in South Africa. I don’t know what he was earning, but I think it likely it was not significant, and he was earning enough that with his wife also working they were living comfortably but certainly not extravagantly. His School Teacher wife would have been similarly modestly remuneration given how poorly teachers are paid in South Africa. They lived a fairly ‘average’ middle socio-economic existence in Durban North.

The second brother, Paul, was a few years older, lived up the road, worked in the same business, was also married and had two children of similar age to Peter. Today both Paul and his wife continue to work fulltime, and I imagine earned back in the early 2000s a very similar income to Peter.

On paper then, in 2003 they were likely in a very similar financial position.

Fast forward to 2018. Peter and his wife recently hit the retirement age of 65. They had in the time they had been in Auckland bought and paid off a home, supported their two children through university and managed to help take care of the wife’s mother (insofar as the NZ state did not after she too moved to NZ).

The couple recently sold their Auckland home, purchased another home in Mount Maunganui (adjacent to Tauranga in the Bay of Plenty) and given one of the sons had secured lucrative employment and settled with his family in Queensland, they recently purchased a second home near them. Their NZ pension pays out $630 per week (after tax) and they have decided to spend ‘winter’ in Queensland and summer in New Zealand. The wife has said as and when she requires or fancies it, she will top that pension up by doing relief teaching in Australia and New Zealand which is very lucrative. Peter has said he will do some Uber driving work to give him some extra pocket money to supplement the couple’s pension.

Meanwhile, back in South Africa, although he is a few years older than his younger brother Paul continues to work in the family business, not I suspect because he wishes to, but because he has to. These folks rarely go on holiday and are it seems part of the new struggling white minority (not that whites have a monopoly on struggling in South Africa).

In New Zealand, Teachers earn well when compared to their South African counterparts. A Bachelor of Education qualified teacher with 8 years’ experience can expect to earn around NZ$72,000 which is around R650,000. Those with additional responsibilities can earn another $20,000 per year. I might add the wife in this story was probably earning over her 15 years somewhere between $55,000 and $60,000 per year before tax given teachers in the public sector (over 95%) are paid better today than they were when she arrived in NZ. Her husband would have been earning something around $70,000-$75,000 gross per annum I suspect for the majority of the 15 years.

How is all this possible? 

While you cannot exclude the massive increase in house values in Auckland over that 15 years it goes beyond that because Durban house prices have also increased in value in the areas these two brothers lived, although to be fair, not to the same extent as Auckland.

As we go to great lengths to explain to prospective migrants, New Zealand provides almost all public and social services out of the taxes paid by the citizenry. Taxes are not high by developed world standards and interest rates are about 60% lower than they are in South Africa. With ‘only’ 4.7 million people it can be done. It is a hard concept for middle class South Africans to get their heads around given they pay high taxes and then have to pay for healthcare, education, retirement and other social services on top. Their Government bleeds them dry. In New Zealand someone earning the minimum wage of $38,000 per annum (which is a pittance) is topped up by Government to $60,000 (that’s R550,000). 

In NZ, around 95% of education costs are covered by the state, no child is charged for Doctors visits until they are 14 (planned to become 18), nor for Dental care (but not orthodontics which is very costly) till they are 18 and we don’t pay through the nose for security services to keep us safe. The first year of university is now ‘free’ and subsequent years continue to receive a 75% subsidy (or put another way, one’s taxes have already paid for it or others are subsidising your children’s study might be a better way of putting it). 

You don’t even have to save for your retirement as the state pension is paid out at 65 irrespective of your wealth i.e. there is no means testing. It is always my suggestion that migrants should put something aside in a private fund for their retirement given this too is boosted by ‘free’ government money (taxes). You get both when you retire. If you are bond (mortgage) free at 65 you have a good shot at a dignified retirement especially if you sell up and move out of Auckland. If you saved some extra, you’ll enjoy a quality of life and standard of living those you left behind in South Africa cannot imagine.

I suggest that those of you reading this who are married, mortgaged, middle class with two children (our ‘every client’) and who are asking yourselves whether you’ll be better off financially in New Zealand rather than staying in South Africa should take note of this story. The rand has depreciated by so much in the 26 years I have been travelling there that increasingly there are those that are currency prisoners and simply cannot afford to leave. They are trapped. It is hard to see it ever recovering to the parity it once enjoyed with the NZ dollar back in the early 1990s.

I am often asked to write a piece about the cost of living in NZ but that’s just too hard because of the different lifestyles people are used to, their expectations and of course where they live.  I do hope though that this piece offers some insight to you about the diverging paths of two economies, two currencies and two brothers.

Until next week,

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The Year That Was and What May Be

Posted by Iain on Dec. 9, 2016, 4:16 p.m. in New Zealand Economy

As the Prime Minister passes the baton to his long time Deputy and the year starts to draw to a close, it is a good time to take stock of what the economy holds for New Zealand over the next three years.

The Ministry of Business, Innovation and Employment forecasts another 183,000 jobs in that time, which is not far off that of the past three years. That’s pretty impressive and promising if you are contemplating a move to New Zealand, given about half of those jobs are estimated to be skilled or highly skilled. I have no doubt the mismatch between the skills we have and are creating at home will mean that’s around 50,000 jobs that migrants will have to fill.

Government coffers are set to swell on the back of 3–3.5% predicted growth in the economy over that time.

Treasury is forecasting surpluses over the next three years of around $11 billion (around $8 billion three years out). The Government is already in surplus, dented somewhat by the cost of the latest infrastructure bill from the earthquake of last month.

Things then are looking pretty rosy. We have to hope Donald trump doesn’t go and do anything too stupid as it only ever takes one shock (natural or man made) to put a dampener on any predictions.

For those of you thinking of timing a move, those that stare into their crystal balls believe we are going to start to see interest rate rises next year as all this good economic news starts to feed through into inflation in late 2017. Right now it is sitting at 0.2% but with unemployment predicted to fall to around 4.5% over that time (with skilled unemployment even lower) inflation is going to start to reappear we are told.

That has today seen a jump in the value of the dollar as markets start to build in such expectations.

What challenges lie ahead:

  1. Hospitality and infrastructure groaning under the high numbers of tourists. Government is proposing (and I’ll bet will get) a bed tax or similar to help expand infrastructure in areas where locals cannot afford to fund toilets and public amenities tourists require out of a small local rates base. Tourist numbers are increasing exponentially – a good problem to have.
  2. Infrastructure groaning under the continued high rate of net migration. With the Australian economy contracting 0.5% recently no doubt those Aussies will continue to stream across the Tasman and more Kiwis will come home. All points to continued upward pressure on house prices, pressure on schools and hospitals (but what a nice problem to have)
  3. Continued mismatch between local skills sets and the jobs being created is both a political and economic issue – the Government needs to start addressing this more holistically. I may be in the visa game and making a positive contribution to the nation’s skill base but our own children should be coming first. Education reform and how we subsidise University courses needs to reflect the skills we need rather than the ones we are awash with.
  4. 2017 – The year of the inner bigot? We have seen this wave of bigotry spread from Europe to the UK to Australia and the US in 2016. We are heading into an election year in New Zealand where there is always a minority of people who’d prefer it if all migrants came from the UK and we could ‘return to the dream time of 1970’ (God forbid, I’d be the first one out the door). There is the prospect of the one party that advocates this holding the balance of power in any future administration. If that happens this populist politician will no doubt do what he did last time he held the balance of power and could try and cut migrant numbers – nothing. That’s right – he campaigned on slashing migrant numbers became the Deputy PM and did...nothing. Clearly a wasted vote and my advice to anyone concerned about changes to migration settings based on the resignation of the PM this week or who might be PM next week or in power a year from today is to relax – 90% or more of New Zealanders not only see migration as positive but in our best interests. Not to mention, we like being ‘international’. New Zealand in the 1970s had to have been one of the dullest places on Earth. Today it is vibrant, outward looking and connected. The challenge for our politicians is not to succumb to the temptation to go all ‘Trump’ on us just to get their hands on the levers of power. There will be those that cannot resist of course and they’ll grab the headlines.

All in all it’s been a good year for the country and the people. Things for the most part continue to get better for the significant majority. The economy is in good shape, the people have made clear they don’ want tax cuts with these surpluses but improved Government services, more money to go to health and more to education. I am with them. Our collective hard work, creativity and tolerance has built the foundation for a very prosperous few years.

If the rest of the world can hold it together and there are no major economic shocks all should be well as we kiss goodbye to 2016 and welcome in 2017.

Until next week

Iain MacLeod

Southern Man


New Zealand Now in Top 5 for Wealth

Posted by Iain on Dec. 2, 2016, 3:06 p.m. in New Zealand Economy

I love and detest statistics. They can often tell any story you want.

Apparently me and my fellow New Zealanders are now the fifth wealthiest people per adult in the world. Beats being last I guess.

The annual Credit Suisse Global Wealth report 2016 has seen weeny New Zealand leap frog over the British, the Singaporeans (mugs – you work so hard and such long hours!) and the Belgians.

The world’s wealthiest citizens remain the Swiss at US$562,000 per adult, followed by Australians (US$376,000), the United States (US$345,000) and Norway (US$312,000).

In at 5th comes New Zealanders at a whisker under US$300,000. This is up around US$34,000 over the previous year and has been put down to capital appreciation and an improvement in exchange rate (our currency has been going up against most others making us wealthier).

Interestingly, when you look at median wealth, New Zealand goes up one place to 4th whilst the US falls to 23rd.

I have no doubt New Zealand and New Zealanders are getting wealthier in both real and nominal terms.

The economy is growing well, is diversified and we are working far smarter across many more industries and sectors than we ever did. We have benefited from free trade agreements with a number of countries and accept that the world owes us nothing and we need to get out and sell our products and services.

At the same time tourism is booming as more and more people crave, if even for only a few days, the natural beauty, space and fresh air of New Zealand.

This at a time where if you can believe other statistics we have more children living in relative poverty than ever before. While our levels of inequality are far lower than comparable western economies and I’ll wager most Kiwis are feeling secure in their work and comfortable financially, these sorts of reports are flattering but should be no cause for complacency in our continued drive to ensure inequality does not start to widen (we do a pretty good job I think of keeping the gap reasonably narrow).

As with all statistics however there is a hidden story and I suspect it applies as much to Australia as it does to New Zealand.

Of all western economies in the OECD our economy has been growing strongly in recent years and is growing at around 3.5% and is in line with the US. It is far ahead of Europe and for most of the time, better than Australia.

With strong inward migration and rising house values, particularly in Auckland, I’d be interested to know if this increase in wealth is more paper wealth than realised wealth. I suspect the former given house values in Auckland in particular moving up by a further 9.3% over the past year. I am sure however that we have leap frogged the UK as its currency has plummeted post Brexit, making Brits poorer than they were at the beginning of the year. For most however I’d suggest their fall in wealth is likely also only on paper although higher import process might start to make it more real than imagined.

New Zealanders tend to have the significant majority of their wealth tied up in property and few venture outside this passive wealth accumulation through investing in higher risk and real wealth generating assets. So while it is nice to know we are all wonderfully rich (ha!) if our property bubble in Auckland was to burst I suspect we would fall several places from almost podium finish to top ten.

I am not sure it would make us feel any different. I confess I had no idea I was living in the country with the 5th wealthiest people this year. I knew we are pretty well off but wouldn’t have thought higher than the UK to be sure.

I do feel there is a message in there though – and it applies to where I am sitting this week – Singapore.

My one frustration about this place is how many people bemoan that New Zealand tax rates are higher than Singapore’s. Yes, they are, I confirm, but surely what counts at the end of each month after you have toiled away, paid your taxes and then paid your bills is how much you have left over.

New Zealand’s approach of socialising risk through tax payer pre-school day care, education, health and social security has not stopped us as we are still the 5th wealthiest bunch on the planet and is testament to how higher taxes might actually increase wealth. The fact that we don’t have to pay for private schools, private health insurance, our (complete) retirement and other social services to the extent that people in economies like Singapore do; we seem to be wealthier. On any happiness index we are certainly happier which to my mind doubles the wonderfulness.

Nice to know then I am apparently wealthier than last year, but to be honest, I don’t feel it. I live in the same house I have lived in for 20 years, I drive the same car as I did last year and I don’t see a whole lot of money piling up in my bank account.

But I am content and once again thank my lucky stars I was born in the country I was. This report is further independent evidence for those looking to decide whether life and the standard of living might be better or worse in our cool little country if they choose to join us.

Until next week

Iain MacLeod

Southern Man


Reserve Bank of NZ Gets Tough

Posted by Iain on July 22, 2016, 8:52 a.m. in New Zealand Economy

In what can only be described as ‘long overdue’, the Governor of the Reserve Bank has signalled significant changes to lending criteria to try and pop the Auckland region house bubble. 

Although the Governor gave the banks six weeks warning, all four major banks immediately signed on for the new lending criteria. The major changes see investors only allowed to borrow 60% of the value of the second property (one they don’t live in).

The rules apply nationwide and not only to Auckland as the rampant Auckland market spills over to surrounding regions and sees property values in places like Tauranga and Hamilton spike over 20% in the past twelve months.

Signals are also being sent that loan to income ratios will shortly follow. Right now the average house price is about ten times the average Auckland salary. Clearly unsustainable.

The Reserve Bank is being forced to take what is fairly drastic action now as did the Central Bank in Singapore a few years go. I was consulting with a Singaporean Real Estate agent a couple of days ago and she told me these similar rules have caused the market here to slow down dramatically.

The Reserve Bank of NZ is grappling with having to keep interest rates higher than they otherwise would be as they have tried, unsuccessfully, to contain house price inflation. The downside of this is a dollar at a three year high against the US dollar, virtual parity with the Australian and while exporters (like me!) have kept their heads above water there is real downside economic risk in constantly squeezing exporters margins.

The upside of these moves are that the markets are now pricing in two 25 basis point cuts, i.e. 0.5% over the next few months which will bring fixed mortgage rates down to around 3.5% and floating to perhaps 4.5%. Good for the productive economy.

While this all goes on we wait with anticipation for the release of the Auckland Unitary Plan which I am more convinced than ever will confirm a mix of Auckland growing out beyond its current boundaries and a degree of intensification.

I believe the Government is likely to confirm that it is maintaining the status quo in available resident visas over the next two years. A bold call when many are openly calling for a cut back or slow down in migrant numbers.

Wise move by the Government – there is scant evidence permanent migrants (of which there were around 45,000 last year) are fuelling house price inflation. While some will buy homes most are not adding to house price inflation but are victims of it - particularly in Auckland because they cannot afford to buy homes. This house price inflation is largely home grown with a degree of onshore investors buying into the market. I can only offer praise to the Government for standing firm against the calls of those that do not understand the needs of employers in New Zealand and the importance of migration to the strength of the economy.

More houses are being built but the speculation needs to be reined in.

The Reserve Bank is now getting tough and more power to it.

Until next week

Iain MacLeod

Southern Man


Housing Bubble in Danger of Bursting

Posted by Iain on May 20, 2016, 11:46 a.m. in New Zealand Economy

Over the past week three simple yet powerful statements have passed the lips of the Reserve Bank Governor, Minister of Housing and most importantly, the very powerful Minister of Finance in regards to the Auckland housing market.

The first said that the continued rise in house values in Auckland has become a ‘threat’ to the national economy.

The second told the Auckland Council it ‘must’ move to free up more land to increase supply of housing and speed up the building consent process.

The third, most ominously, came out yesterday and warned without any veil, ‘Auckland Council is on notice’.

Auckland Council has been considering for the past few years through its ‘Unitary Plan’ whether this already sprawling city should grow up or out or both as it contemplates another one million residents in the next 40 years.

After political pressure was brought to bear by a bunch of selfish ‘NIMBIES’ many Councillors kicked for touch some time ago and appointed an ‘independent committee’ to take submissions and come up with recommendations on the proposed Unitary Plan which had among other things called for more building out rather than up by freeing up land. This was to be achieved by re-zoning existing land within the metropolitan city limits. It was, in my view, thoroughly irresponsible and cowardly to back away from the immodest intensification opportunity. These people, locally elected to work on local issues, didn’t have the stomach to take on the vested interests.

I have argued before that Auckland must be given greater opportunity to grow up rather than out. The cost of increasing storm water, sewerage and transport infrastructure makes it a no brainer in my book. The most ‘liveable’ cities in the world (of which we aspire to be the top rather than our currently ranked number three) are a mix of medium density housing and recreational spaces.

As migration numbers surge with fewer NZers leaving the country, more Australians joining us and the same number of ‘other’ migrants being approved residence to fill gaps in our labour market, Auckland is growing at something like 40,000 people a year. Over the next five years we need to build around 80,000 dwellings. Over the past year 9000 odd consents have been issued. We are way behind the 8-ball.

So we have a real supply problem but more than that we have a political problem.

For anyone that sits in our traffic jams in the morning or on their way home at night it is clear that as fast as we widen freeways, build new tunnels, under passes, overpasses, bi-passes and cover this city in tarmac the faster they clog up again.

While Auckland’s public transport is, when compared to many similar cities very good, it too cannot keep up. One of my sons regularly catches a bus to work. Although they come every 5 minutes in peak time it is not unusual for him to watch 3, 4 or more fly past him full to the brim and unable to take on more passengers.

What a lack of housing adds up to we know is more than a lifestyle issue, there is a clear and present threat to the national economic interest if you listen to what these economic and political leaders are telling us. Their comments over the past week seem to me to be easily interpreted as code for ‘bubble’. We all know what happened across the western world in 2007-2008 when we last had one of these.

The average property in Auckland at around $900,000 is now some nine times the average Auckland salary of $75,000 making this town one of the most expensive in the world relative to incomes.

No wonder these senior Ministers and economic leaders are concerned and starting to pour the acid on the feckless Auckland Councillors.

Interest rates could be even lower for all New Zealanders if it weren't for what is happening in Auckland. That would suggest a lower exchange rate which would make life even better for all of us involved in exporting goods or services.

I am in my late middle age (hopefully) and my side of my suburban street was designated in the proposed unitary plan to go from a single unit site to low rise apartments at 3-4 stories. I do not fully understand the economics or commercial viability of going up on our piece of land but if it were possible, I’d do it in a heart beat.

Not because I think I could make a lot of money (if I bought into the hype around here about what these 200 square metre homes on 750 square metres of dirt were worth today I could make a lot selling now and think about going fishing…), it is far more than that. I want my own children to be able to afford to buy a home within a reasonable distance of the city centre.

The Auckland Council has helped to create a time bomb. Not all their fault - no one could see the economy doing so well that fewer kiwis would go in search of opportunities elsewhere; no one foresaw the number of New Zealanders pouring back to New Zealand from Australia and further afield and we continue to need all the skilled migrants we are letting in to fill skill gaps we cannot create the skills for ourselves. Coupled with the lowest interest rates in living memory it has been in some respects the perfect storm.

The piece of the machine that has failed to deliver is demonstrably the Auckland Council.

Leadership is about making tough calls at times. The proposed plan (rejected by the cowards at Council under pressure from a few selfish greybeards) is coming to a head. The Unitary Plan would see see some neighbourhoods change and the single unit dwelling replaced by low rise apartments.

With an ageing population and rampant house inflation who in their right mind could see this as a bad thing?

I am increasingly advising my clients, particularly the cash strapped South Africans not to settle in Auckland. Whilst the Singaporeans, Brits, French, German, Americans and others from relatively strong economies can afford the eye-watering house values here, many migrants will have to look further afield if they are to own their own homes. With average national house prices not far off half the value of Auckland, many will be left with no choice but to find work and settle elsewhere (not that that is a bad thing those of you reading this living outside of Auckland will be thinking).

New Zealand is increasingly being viewed by many wealthy around the world as having the triple advantages of being far away from the worlds dramas and hotspots; politically stable and economically free without rampant corruption. They are moving here as the world continues to look less and less stable, not least economically (we are not alone in this housing bubble).

In the end, short of global financial meltdown the wealthier are going to continue to seek out the country as it has so much to offer over and above generally solid economic performance and management (at a national level - we are over 90% self sufficient in renewable energy, no national shortage of water and we produce nine times more food than we consume).

While they will not all settle in Auckland, many will.

In some respects the Council is fighting a losing battle but they could quite easily, if they had a backbone and a sense of vision of what makes real cities great, come up with a plan that offers the best of both worlds - starting with growing up before we grow ‘out’.

Until next week...

Iain MacLeod

Southern Man - Letters from New Zealand


Economy Powers Along

Posted by Iain on March 25, 2016, 6 p.m. in New Zealand Economy

Statistics released this week continue to add to the good economic news that New Zealand has been for at least the past four years.

Unemployment has fallen to 5.3% - once it hits 5% (which it is estimated to do within the next two years) experience suggests skills shortages will become acute. The Reserve Bank is picking 4.9% unemployment by 2018.

There is no doubt that there are chronic skills shortages already across many sectors.

Strong net inward migration is helping to boost Gross Domestic Product. GDP is up by 2.3% over a year ago taking NZ close to being a $250 billion economy. The two go hand in hand - the more jobs that are created, the more economic activity there is and the more people wishing to come and live here or come home (most long term migrants are Kiwis ditching Australia and heading home).

We have now had 11 straight quarters of positive GDP growth.

The Reserve Bank is forecasting positive economic growth for every quarter in 2016, 2017 and 2018 with the March 2016 quarter projected to grow by 0.7 per cent, the next two quarters by 0.8 per cent each and the December 2016 quarter by 0.7 per cent.

This in the middle of a dairy slump (traditionally one of our top two exports).

Tourism continues to surge ahead to the point where infrastructure is groaning at the seams. In the past year we have welcomed over 3.2 million visitors.

Construction in all sectors is booming. Commercial, residential and industrial. Critical shortages of those involved in the sector exist, particularly the hands-on building and fitting out tradesmen. If anyone is looking to build in Auckland or the Bay of Plenty most people are waiting a year or so for their builder and team of choice to be available.

A shortage of houses, particularly in Auckland continues to see record prices. I would suggest that is great if you own a home, not much good if you are a young person looking to buy or a migrant from a country like South Africa. The British, American, Singaporean and other migrants find it affordable as they enjoy the twin benefits of strong currencies and off the chart house values as well.

Evidence suggests Aucklanders are starting to cash up and move south - a $1.5m home in Auckland can be replaced like for like in cities like Tauranga, Hamilton or in the Hawke Bay for half that number leaving a tidy little nest egg for those close to retirement. Property values in those areas are up around 15-20% in the past 12 months.

Services and manufacturing continue to expand.

All of this might make some (particularly South Africans) wonder why a small percentage are still being stopped from boarding flights or being hassled on arrival when they are coming over on their Look, See and Decide (’LSD’) trips in order to see if they like NZ and can find skilled employment so as to become part of the Government’s Skilled Migrant programme. A senior immigration official said to me privately a couple of weeks ago that the ‘disconnect’ between what the Government wants in terms of skilled migrants and those responsible for securing our border is real and the official expressed frustration at the blinkered approach taken by border staff; particularly in respect of South Africans.

It is interesting - I have obtained figures under the Official Information Act that show that as of about four weeks ago there were 122 South Africans unlawfully in the country versus 1300 Chinese, 600 Indian and over 300 British. Given the thousands of South Africans who visit here there is scant evidence of any great risk to the integrity of the immigration system or the border.

It makes me wonder why South Africans are being singled out as they undoubtedly are. It isn’t in my view ‘anti’ South African sentiment per se - those at the border really do believe South Africa is collapsing; passports are freely for sale through Home Affairs and there is a risk that we end up with some here we would prefer did not come. As I remind the Department constantly however - these are clearly two sets of people with quite different profiles to IMMagine’s clients.

I have been given encouragement to begin some work on tweaking the Skilled Migrant rules so that this disconnect could become a thing of the past. 

In the meantime we are going to have to live with border officials prejudging the reasons South Africans are visiting and presuming they are coming to find work (which is not illegal by the way and these border guards have been told that over and over again). I cannot fathom what is so hard for these officials to comprehend - coming here to look for work is not a crime...coming here with a job offer in one’s back pocket and applying for a work visa is. 

We are going to have to live with new Zealand employers missing out on some very good skills sets as a consequence - what I term a clear sabotaging of the skilled migrant programme by the Government’s own officials through little more than ignorance of their own rules.

Clearly the Government is right to be concerned about economic and potential social meltdown in South Africa but as long as they demand the majority of skilled migrants get skilled jobs first and work visas second, migrants are going to have to continue to run the gauntlet. Most will get through (around 95% are not stopped or questioned). All will be put through unnecessary trauma along the way, however.

I am hoping my work with officials over the next few months might result in a more certain pathway not just for South Africans wanting to be part of the skilled migrant programme but many other nationalities as well.

This economy has a big problem now - we do not produce the skills needed to fill the tens of thousands of jobs we are creating - IT, Engineering and Trades to name three - we rely on migrants to fill them.

If we stop the immigrants that we need to fill these vacancies being able to get here for interviews then the skilled migration programme could be in big trouble indeed.

If that is allowed to happen our stellar economic performance that so relies on these immigrants might stutter and stall.

Until next week

Iain MacLeod

Southern Man


Auckland property party over?

Posted by Iain on May 15, 2015, 6:08 p.m. in New Zealand Economy

This week the Governor of the Bank made the first of what could be a number of moves to cool the boiling Auckland residential property market.

I know it isn’t the most riveting of topics but when you consider that property values in Auckland are up 50% in five years and in that time the South African rand has fallen by 30% against the Kiwi then for a South African migrant, as one example, this has massive implications on home affordability for immigrants.

It is also important because those of you planning on arriving in the next few months, history tells us most of you will be coming to Auckland and you will want, strangely enough, a roof over your head.  An affordable one at that.

In recent years statistics have shown that over 38% of residential property purchases in Auckland have been made by investors (speculators?) rather than by owner occupiers. They are getting the blame for setting prices and out muscling those that simply want somewhere to live.

So the Governor has put in place some new rules for anyone wishing to purchase a home within the Auckland Council boundaries (note not all of NZ):

1.   30% deposit for non-owner occupiers

 2.  Single and existing residential property only – does not apply to apartments being bought off plan or new home builds

What has the Governor not done?

·         Applied the rules to the rest of New Zealand where residential values are largely static; and

·        Has continued to allow foreign buyers equal access to the market.  Of course they too will now need to come up with 30% equity deposits so that will shoo some of them away.

This is an interesting move on many levels but it is seen as ring fencing the Auckland property market because it is the one part of the national economy which is showing strong inflationary pressure. The median house value is up 17% on this time last year and is now nudging NZD800,000.

In recent weeks the Governor has signalled that he is not intending increasing interest rates any time soon and most senior Economists are in fact picking he will cut them by up to 0.5% by year’s end (currently overnight cash rates are sitting around 3.5%). He can do it because overall inflation across the whole economy is anaemic and sitting at around 0.6%.

It makes sense to try and slow down Auckland house price inflation without a big bang bubble bursting move.

He is clearly also hoping that the Government will be true to its word of eliminating (time) hurdles so as to increase the supply side of the equation through new builds while he deals with the demand side.

For its part the Government is trying to get Auckland Council in particular to speed up the consenting process for new developments to try and bring more of the 35,000 desperately needed houses to market.

He has a job that must be like trying to balance on the head of a pin in all this so as not to cut demand by so much so fast while increasing supply too quickly to cause any sort of crash.

Retail sales in the first quarter of this year were up a massive 2.7% over the same period as last year and that won’t be seen as good news for a Reserve Bank Governor looking to cut interest rates. It appears that the ‘wealth effect’ of Auckland’s sky rocketing house values might be feeding through into retail sales – never a good sign.

So my pick will be interest rates staying pretty much where they are for a while – not going up but not coming down (much) to ensure that the inflation genie doesn’t pop out of Auckland’s bottle, charge through the city’s shopping malls and then fly screaming down the road to the rest of New Zealand.

What we clearly have is a two speed economy now – Auckland on fire with jobs and consumption and the rest of New Zealand (perhaps excluding Christchurch) in more subdued mode.

And of course the greater the wealth that ends up in Auckland the greater an attraction it becomes and so reinforces the whole cycle.

Although I could potentially see the value of my own home fall I’d prefer its value falling or staying the same rather than watch its paper value crashing because of the flow on effects of popping the wealth effect ‘bubble’.

If this doesn’t work watch out for the Government lining up foreign investors next – something they have made clear they are reluctant to do.

Whatever happens next I for one am relieved something is being done to ensure ongoing national financial stability.

Until next week.

Iain MacLeod

Southern Man


Reserve Bank rattling their sabres

Posted by Iain on April 17, 2015, 8:07 p.m. in New Zealand Economy

This week the Deputy Governor of the Reserve Bank gave the strongest signal in two years that moves are afoot to try and deal with (to) rampant (Auckland) house price inflation.

And it’s about time. Some key numbers released this week:

·         House price inflation in Auckland is running at 17% per annum….

·         The average house price now represents seven times the annual average salary……

·         Inward migration to NZ and Auckland remains strong (returning and Kiwis and Aussies mostly)

·         Interest rates are low and not likely to go up any time soon

·         Strongest economic growth of the 34 OECD countries

·         Falling unemployment

·         Around 38% of house sales are now made to investors and that percentage is growing and.up from 33% a year ago.

It’s all good except for the fact we haven’t been building enough houses to cope with the ‘good news’ going on around the economy.

It seems that the last group are in the Reserve Bank’s cross-hairs as clearly a low interest rate environment is having two impacts locally – soaring share prices and investors piling into residential properties. Where else can you think of making a legal 17% a year?

While these investors are only reacting in a logical way to market signals and prices  it is also shutting out our young people and those moving to Auckland.

While supply will inevitably catch up with demand there is now a clear fear that when that happens there will be such a correction that it will impact not just on the local economy but the national as well.

No talk of capital gains tax – I think that as been largely discredited but the Reserve Bank is looking to limit the percentage of ‘investor’ loans on their books.

Not quite sure how they would define an investor.

I have been thinking of late to take a modest windfall that will shortly come my way and buy a property with my two sons – I put down the deposit, they pay the mortgage. Get them on the property ladder and all that. I would be an investor for long term gain (not completely altruistic!) but would that be categorised as a first home for two young men or a second property of mine given it would likely be bought in a trust?

What is interesting is that the Reserve Bank, which is independent of the Government and the politicians, has made its strongest statements and all but accused the Government of failing to understand the seriousness of the situation and abrogating its responsibilities through a fixation on trying to fix supply. No one doubts that is important but as I have touched on before there are some solutions and they extend to preventing those that are not citizens or holders of Resident Visas from buying property. That alone would cut out something like 8-10% of investors.

Adopting Singapore style solutions of higher tax rates for each year someone does not own their house when it is sold have to be looked at.

The problem is this country is full of smart Accountants and Lawyers and one can only wonder at how quickly loop holes will be found.

There is also the issue of whether the Government could pass legislation quickly enough.

Retail sales are ramping up demonstrating the wealth effect of paper health values.

‘Tis certainly a bubble. And bubbles have a habit of bursting.

It’s the old story – easy to spot the problem but how do you find a solution?

Until next week

Iain MacLeod

 

Southern Man


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