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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


Foreigners and our Auckland houses Part II

Posted by Iain on March 13, 2015, 11:01 p.m. in New Zealand Economy

Last week’s blog asked the question whether non-New Zealand residents or citizens should be able to buy residential real estate. It sparked off quite a discussion. As usual I received a number of private emails (I welcome and prefer public comment on the blog) accusing me of being either ‘right on’ or a complete racist...

It is worth following up on some of the points raised.

A number of people read the blog and concluded that the Government is about to cut (or has cut) migrant numbers. Nowhere in last week’s blog did I suggest that the Government has or is planning to cut resident visas it is issuing.

Every year the Government has a programme that sees it issue 45,000 (plus or minus 10%) Resident Visas.  It has announced no plan to change that. I am aware of no plan to change that.

It did cut numbers three years ago and has maintained those cuts but shows no inclination to cut further.  

I have no reason to believe that decision three years ago had anything to do with real estate prices but everything to do with rising unemployment between 2009 and 2011 and the politics of being perceived to be keeping jobs for locals...

On me and my fellow New Zealanders being complete racists I can simply say, grow up.

If you're a racist you are unlikely to last the 26 years I have as an immigration adviser.

I - along with 95% of other Kiwis - don’t give a monkey's who our neighbours are so long as they are clean and tidy and don’t play heavy metal music till 4am in the morning.

I am in the position of owning two houses and an office. It is my interest for those to be worth as much as possible because one day I will likely sell two of them and live in the third. If the buyer is a non-resident or citizen the richer (monetarily), my retirement will likely be. Turkeys don’t usually vote for an early Christmas.

I am however very prepared to forego some of that retirement ‘lolly’ if it means my children can afford to buy a home in their own city.

Does that make me a xenophobe?

Hardly.

If you were to migrate to New Zealand and bring skills we need to help the economy I also believe that you should have access to an affordable home to live in so you too can have the security of home ownership.

So when I speak of disincentives against non-resident visa holders or (dual) citizens buying residential property in Auckland, I am not referring to migrants who choose to live here. As I said last week in my view they have as much right as I do to access the local residential market.

In the past five years Auckland house values have increased by an eye watering  51%. Across the rest of New Zealand it is only about 4.5% so this phenomenon is very much an Auckland issue.

As an Auckland issue I could live with an Auckland solution which might include:

  • Banning non-resident visa holders or  (dual) NZ citizens from owning residential property in Auckland; and/or
  • Only allowing non-resident visa holders to buy empty land and building a house (as they do in Australia in order to increase housing stock) and/or
  • Requiring any local buying a second home to come up with a larger deposit (as they doing Hong Kong and Singapore)
  • Adding a tax to non-residents buying residential property if they sell within a few years (as Singapore does)

All of this might slow down house price inflation in Auckland, reinforce the regional development aspect of the Government’s immigration policies by encouraging migrants to settle outside of Auckland and bring the price of homes into an affordable range over time for more locals and immigrants alike.

If I you think I am wrong, share your reasons why in the comments box below. If you agree, I am interested in knowing why.

Until next week

Iain MacLeod

Southern Man


The issue of (un) affordable housing

Posted by Iain on Feb. 6, 2015, 4:39 p.m. in New Zealand Economy

The issue of unaffordable housing, particularly in Auckland, continues to dog the Government which in my opinion seems to refuse to actively address the issue, other than to do some minor tinkering around the edges.

With the average house representing  more than six times the average annual salary in Auckland, this city is becoming one where many people might have to accept renting for their whole lives. Whilst that is common in many countries it is anathema to New Zealanders.

The current Government in a timid approach has proposed shifting the operation of some social housing currently handled by Government to NGOs such as the Salvation Army but it is small stuff when one considers how many houses the Government owns (about 60,000) and how many they are looking to sell cheaply (about 2000 to use the money to build more) to these non Government organisations so they can ‘run’ a small percentage of social housing.

Instead of conceding publically (as they clearly believe privately) the whole delivery system needs a serious overhaul and they are going to come up with something innovative that protects the vulnerable but rewards those that might be willing to buy in if they could on say a 5% deposit or even less, they tinker, fearful that the electorate might lash out and vote them out. I think the voters no matter where on the spectrum they lie could  see benefits in a substantal rethink.

After another week in Singapore I can but marvel at what that country did in making home ownership accessible and affordable. I am not normally a fan of the way ‘democracy’ operates in Singapore and running a country like a quasi-corporation. However on housing I think the New Zealand Government could learn an awful lot from Singapore in regards solutions to an issue that is only going to get worse here in Auckland. Unless of course there is a massive correction in house values and that is not beyond the realms of possibility......

The public housing programme in Singapore brought home ownership to the masses – low deposits and entry points to gain access and an effective rent to buy model has achieved two aims – providing some degree of social stability through (almost) everyone having access to an almost first world roof over their head and to create wealth for those that buy in.

It seems to me that the Government of New Zealand has two pretty pathetic and tame ‘solutions’ – force the Auckland Council to free up more land for development and reform the law to try and decrease the compliance costs associated with building. Then they say the ‘market’ will correct the imbalance between supply and demand.

As something of a neo-liberal (with a fine sense of social justice if I may be so bold) I cannot see how the New Zealand Government could reasonably believe this could overhaul a system they clearly feel is broken.

Auckland is already one of the largest cities in the world in area (stretching about 90 kilometres from its northern to southern boundaries) and is hampered by its low density sprawl. We spend billions on roads and freeways which in 10 years will be gridlocked when we could be increasing to medium density housing to increase the efficiencies and availability of public transport. Right now the way this city is configured you really cannot survive without a car. Much of that could be acheived as part of a 'social' housing or 'affordable' housing model. Call it whatever you like. 

With migration at historic highs owing to a flood of Australians arriving and fewer New Zealanders leaving along with more coming back from Australia, Auckland is adding about 35,000 people a year and building about 5000 houses to accommodate them. We need triple that.

The current Government in assuming the market will sort it out is missing an opportunity of massive social and economic proportions. New Zealanders expect quality housing for all and most would not mind paying for it even if it meant the Government in partnership with private companies/organisations doing the building.

While I am with the Government in believing that if you want to waste taxpayers money give it to a bureaucrat (witness my day job) something along the lines of Singapore might be the lesser of two evils.

The Singapore HDB model is certainly not perfect. Only this week I met a couple who were busy rorting it for reasons I won’t explain but surely accepting some breach of the social contract that citizens have when Government provides amenities and services is acceptable if it alleviates a burden on the many. I know it also risks creating another bureaucracy to administer it (unless of course this was handed over to the private or NGO sector).

As a father to a 21 year old soon to be University graduate I do wonder how he might be able to afford a home in the next few years. What he could afford will be a long way out of the central city and then he has a small fortune to pay in commuting costs.

I am also a fan of preventing non-residents or citizens buying up residential properties in Auckland, if not New Zealand. If you live here, fair enough – fill your boots – but if you are simply in it because you get a reasonable yield, a seemingly ever rising market and no capital gains when you sell it, I say try doing that in some other country and you will struggle to do so. Perhaps, as in Australia (that has a capital gains tax regime) we might let non-residents or citizens buy vacant land if they are building houses and therefore adding to the stock over all.

No one knows how many ‘foreigners’ are buying up large here in the residential market but in certain suburbs it is clearly a heck of a lot and it will surely increase. In no way ‘blaming’ the Chinese their Government is freeing up exchange controls and this could result in a flood of money into housing markets like Auckland further pushing up valuations.

What the New Zealand Government is proposing is going to be like trying to stop a tsunami by holding a piece of plywood in front of them.

They need to get bold and they need to get creative or they will pay a political price.

Until next week

Iain MacLeod

Southern Man


The Little Country That Could does it again

Posted by Iain on Oct. 17, 2014, 9 p.m. in New Zealand Economy

I often think of my homeland as the little country that could. And in equal measure the little country whose people don't realise thatthey are actually quite special.

Two events this week reminded me of how we punch well above our weight and a third quickly reminded me most New Zealanders don’t appreciate just how special we are.

The first was an economic report released a few days ago that shows that New Zealand tops the wealth creation stakes when measured in United States currency between 2000 and 2013. During that time the New Zealand economy has increased per capita wealth by a whopping 300% and tops the global list ahead of rapidly growing economies like China and developed economies like Australia. 

I have to say I don’t feel 300% wealthier but when measured in US dollar terms it is real. 

Back in 2000 one New Zealand dollar only bought US$.40. By the end of 2013 it was buying US$0.86. This has in the past few weeks fallen back to around US$0.79 as the Reserve Bank of New Zealand makes Central Bank noises about an ‘overvalued’ currency and the ‘free’ markets, even if only temporarily, sit up, do as they are expected and sell the Kiwi (which makes it potentially cheaper to migrate here so it isn’t a bad thing for you Dear Reader…).

However with the underlying economy strong no one expects it to stay down for long.

As an exporter (of services) I long ago learned to live with the high dollar my team and I had to ensure our service offerings are so good people will be willing to pay a premium for it. Manufacturers, Farmers, Tourism operators and everyone has had to adapt, sell hard and deliver real value. I always think if the Germans can do it with their high labour rates and production costs there is no reason why New Zealanders cannot. It simply means thinking smarter, being innovative, efficient and focussing on increasing productivity.

While some in New Zealand still wish for a lower dollar as the cure for all their problems, I realise that having a high value currency is a real vote of confidence in the economy, our products, performance and our prospects.

The New Zealand economy is now incredibly diversified and we don’t simply rely on commodities (as local myth might have you believe) such as milk powder, meat, wool and the like. ICT exports for example are now worth over $7 billion annually.

Having just been through an election campaign in which the major topic of discussion seemed to be a constant whinging about ‘poverty’ (let me tell me you New Zealand does not have real poverty like Africa or Asia has poverty, it is ‘relative’) this report proves just how well we have done over the past 14 years through the Global Financial Crisis and the local recession that caused.

In the second bit of news which demonstrates our standing in the world New Zealand has just been voted a seat on the UN Security Council for 2015-2016. It has been praised as evidence of what smaller countries, that don’t usually get a look in, can do, especially when others think highly of you...

The fact New Zealand squeezed out far bigger, more populous and depending on your world view, more important countries like Spain and Turkey on the first ballot shows the esteem in which we are held internationally. Even with our independent foreign policy there are many who’d prefer to have their own ‘closer’ friends sitting at that table who are perhaps easier to control but still New Zealand was voted onto the seat. It took nearly ten years to get there but little New Zealand once again punched above its weight.

The chance to take our world view based on our values of fairness, equity and ‘treat your neighbours as you would them treat you’ rather than towing some ‘bloc’ line suggests an interesting few years.

Of course as one dines at the top table one also gets to win friends and influence people in all sorts of other ways that New Zealanders should celebrate and use as leverage.

It is by any measure an incredible achievement following ten years of hard work by politicians of various persuasions across two different Government Administrations and every New Zealander should be immensely proud.

I somehow suspect in their usual lackadaisical way New Zealanders won’t even bat an eyelid.

I am in Kuala Lumpur right now and this news is only hours old so I do not know what the reaction back home will be but if the online media are to be believed the magnitude of these two stunning achievements appear to have passed largely uncelebrated.

The most important story in the New Zealand Herald this morning was of an 85 year old grandama in Auckland apparently about to lose part of her property to a road widening exercise because the local Council refused to cut down a native tree.

It makes me want to weep at times. What the media thinks we are interested in is banality, negative and trite.

The little country that could has just done it again and all Kiwis should celebrate it from every rooftop they can find.

I hope they are popping the champagne corks back home.

 

Until next week

Iain MacLeod

Southern Man


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