The Reserve Bank (RBNZ) has had a good couple of weeks.
As anyone who has watched interest rates heading for the moon since mid-to-late 2021 knows, our central bank is involved in a 'to-the-death' battle with inflation, which in the space of not much more than a year rocketed from 1.5% in 2021 to a 32-year high of 7.3% in June of last year.
The RBNZ's task is maintaining inflation within a 1% to 3% range, with an explicit target of 2%. Our inflation rate has been outside the target range for well over two years and progress has been slow - much slower than expected - in reining it back in. The RBNZ's weapon of choice, the Official Cash Rate (OCR) was hiked all the way from 0.25% to 5.50% between October 2021 and May of this year as part of the hostilities.
So, in the context of this, the latest Consumers Price Index (CPI) figures released on October 17 and showing an annual rate of inflation of 5.6% as at the September 2023 quarter, were encouraging. The RBNZ had beforehand forecast a 6.0% rate - so the actual rate 'beat', in a definitely good way, the RBNZ forecast.
Digging down a bit though, and the key component of inflation - in terms of the RBNZ being actively able to do something about it - is the domestically-sourced, or non-tradable, inflation. The RBNZ had forecast that this figure - which was showing signs of remaining stubbornly high - would drop in the September quarter from an annual rate of 6.6% to 6.2%. It 'missed' slightly on this forecast as the actual figure came in at 6.3% - but close and encouraging enough.
So, anyway, some signs there that inflation is starting to 'play ball'.
Next up came the labour market figures, released on November 1. In short, the RBNZ wants to see some 'slack' develop in the jobs market and for the rate of wage growth to slow. Well, the unemployment figure, rising from 3.6% to 3.9% came in higher than the RBNZ's 3.8% forecast, while wage growth as measured by private sector ordinary hourly wages came in exactly as the RBNZ picked, at 7.1%, down from 7.7%. Super encouraging for the RBNZ.
The upshot of all this is that there is now virtually no chance the RBNZ will hike the OCR again when it has its last review of it for the year on November 29. The next review is not till February 28, 2024.
So, will this perhaps be the chance for the central bank to send us on our summer holidays with a reassuring, 'we are on track, enjoy your holidays' message? Well, you might think so, wouldn't you?
Ah, but as they don't say, every silver lining has a cloud, or in this case two clouds.
And these clouds were present, but in an almost oddly peripheral way, in the RBNZ's latest six-monthly Financial Stability Report (FSR), released on the same day as the labour market figures.
Cloud 1: The housing market has woken up again. Cloud 2: Migrants are pouring in again.
Problem?
Migrants need houses to live in. Did someone say inflation risk?
There's irony here. The new wave of migrant workers are clearly helping enormously to take the heat out of the labour market. But clearly they would already be having an impact on the upward bound rents, particularly in Auckland, the largest city, which according to Statistics NZ had population growth of 2.8%, or 47,000 in the 12 months to June 2023.
We've been building lots of houses by NZ standards, but now that's all starting to fall off a cliff. To use the above mentioned Auckland as an example, in September there were 42% fewer new dwelling units consented for Auckland than in September 2022. This in a city that's just added 47,000 people to its population.
The FSR featured this rather telling graph:
Talk about two lines heading in the wrong directions!
The RBNZ's language in describing all this in the FSR is very dispassionate. Facts are displayed without comment as to potential ramifications. The RBNZ mentions the fact that house prices have stabilised and are now rising again. It doesn't mention that the total quantum of the fall in prices was less than it had earlier forecast. It expresses no surprise at how swiftly the stabilisation has occurred and the quantum of rise - though clearly it is surprised.
Here's two quick grabs from the FSR:
"House prices have stabilised in spite of ongoing tight lending conditions."
"Several factors explain the recent rise in house prices, partly reflecting the large net immigration New Zealand is currently experiencing."
There's no attempt to suggest where these things might be leading. And, it has to be said, the Financial Stability Report is not the place to be opining about things that might have implications for inflation and interest rates.
No, that will come in the next Monetary Policy Statement (MPS) to be released in conjunction with the next OCR review on November 29. I'll have plenty more to say about that OCR review nearer the time. All I would say now is I'll be very surprised if the words 'migration' and 'house' are not featured very prominently in that MPS.
To me the mention in the FSR of the rising house prices and the role migration is playing is like a marker. It's holding something up to draw your attention without (yet) offering substantive comment. Look at this, people. It's a problem.
Earlier this year the RBNZ played down the potential inflationary impacts of the rising tide of immigration. I'm thinking it's possibly changed its mind. For how long too, will the RBNZ continue to assure us that house prices are currently 'sustainable'? (No, don't read that as AFFORDABLE!)
New Zealand has elected a National Party-led Government. The National Party has already pledged to gradually restore interest deductibility for housing investors. It will restore the 'bright-line' rule (the capital gains tax that dare not speak its name) back from 10 years to the two years it was when originally introduced by the previous National Government.
The outgoing Labour Government opened the floodgates for inbound migration after saying we shouldn't do that again. It appears most unlikely National - based on what it has said - would reverse matters.
So, what we have is an RBNZ that probably feels it is getting inflation under control, but must be wondering where a fast rising population, a perking up housing market, and a freshly permissive Government are going to take us.
The big unanswered - as yet - question is whether we could or would see a concerted rise in house prices at a time of higher interest rates. It’s clear that the super low interest rates of the recent past were petrol on the fire. But rates are much higher now and so, theoretically should be a handbrake on the housing market, preventing it rolling away again.
But when it comes to New Zealanders and houses, I would never say never. This is a country that could, with closed borders and a foreign buyers ban in place, frenetically bid its house prices up 40% during a pandemic.
Investors have been notably sitting on the sidelines. If they think those ever rising rents are starting to maybe look attractive again even against the also attractive term deposit rates, then they might be inclined to have a nibble again. The Government will be on their side.
And what about if interest rates were to fall again? Petrol, anyone? After the weaker than expected labour market figures were released this week wholesale interest rate markets have begun pricing in OCR falls in the second half of 2024. I don't think that's what the RBNZ would be saying should happen. Not. At. All.
For the RBNZ all this migration-housing-inflation soup is not a problem right at the moment. But it might be soon. If we 'misbehave' with our housing market (yet) again we may yet face the spectre of both inflation and interest rates that are higher and for longer than anybody would like to currently imagine.
What you can say is, just at the time it looks like the RBNZ is getting a handle on inflation, the one thing it would NOT need is the NZ housing market being, well, the NZ housing market..
*This article was first published in our email for paying subscribers early on Friday morning. See here for more details and how to subscribe.
133 Comments
RBNZ be all worried about financial stability..... what about social stability? When people start finding it hard to meet their most essential need (some through no fault of their own, for they will have jobs and be in every sense a willing and ready consumer) things will really to degrade.
It's not that hard to imagine a future where the central bank monitors some kind of homelessness metric to keep some 'tension' in the system, like they do with employment.
Absolutely right. That is supposed to be one of the core functions of goverment along with protecting the country from foreign threats.
Instead, our government (civil service) is influenced (some would say puppeted) by unelected elites in the W.E.F whose publicity campaign trumpets an agenda for car-less cities and a financially class-less society.
If that doesn't tell eveyone where things are being directed, Joe Public isn't paying attention or is deluded in thinking he will somehow escape it. It's moving forward every day both at local body as well as national level.
Each country has varying lending setups so the rates won't be identical. Many American mortgages are 30 years, in NZ, 2-3 years, and most Aussie home loans are floating. So changes to cash rates get felt at different speeds. This is potentially why in Aussie there's many more companies falling over than here - could be mirrored by us but in another 12-18 months.
Any immigration policy this country has, is significantly influenced by the business lobby, to enable businesses to choose from an abundance of workers and to - God forbid - prevent wages from rising too much. (Remember the business lobby including Bridges meeting with Hipkins post-Covid?)
With that reasoning, immigration should slow as unemployment rises.
Would it also be reasonable to assert that an economy that relies on cheap labour is a) less incentivised and thus less likely to innovate and b) less productive per capita?
Add to the mix is the inflationary effect of a growing population and we could assume:
• Interest rates will not drop anytime soon
• Wages remain stagnant and even decline through inflation
• GDP grows a little but diminishes per capita
I cannot see how house prices will rise again long term given the already appalling price to wages ratio that still exists.
The current bump in prices we observe is what I believe to be a bull trap, riding on the momentum of additional demand, NACT-based optimism and the traditional springtime surge.
Let me know how I could be wrong.
The migrants are also needed by the rest of us to:
a) pay taxes so the rest of us don't have to pay more
b) make general domestic goods and services more affordable to the rest of us
So the stream is more likely to be a lot more steady than just waxing and waning in line with unemployment data. It's somewhat self regulating though, in a circumstance where unemployment was say, 20% in NZ, migrants won't want to come.
You need to talk to more migrants from 3rd world countries. Unemployment could be 90% and still there would be a clamour to get into New Zealand or any other developed country with a welfare state. Just try living for a while in a country where your sick uncle has cancer and no treatment and your nieces and nephews have difficulty finding a school that will take them with teachers who turn up and are paid. And if you are unemployed you cannot afford to send your children to school.
As an economist said: a country can have a welfare state or open borders but not both.
I've spent quite a deal of time living in 3rd world countries.
In such a high unemployment environment, all those additional benefits we have, that many other places don't, will also be lacking, making the whole country of less appeal.
Although it's not just the welfare state that's attractive, it's also the larger ability of class mobility and individual opportunity.
I have a family from a 3rd world country. Most of those who are living in NZ like or love it but some would prefer to be back home and have even experimented with returning but once they have either a medical condition or children they then return to NZ.
The country my wife comes from is poor but not overcrowded so it has better opportunities for educated individuals and far greater class mobility than NZ.
Your point about choosing to move to another country based on its unemployment figures certainly applies to Kiwis emigrating but it is NZ's welfare state and the comparatively low crime rate that attracts immigrants. Note those attractions apply to both the top (Doctors, Engineers) and the bottom (criminals, mental health sufferers) and it is up to INZ to separate the sheep from the goats. A bureaucracy singularly incompetent and uncaring; INZ receives no clear policy message from our poliicians.
""The new wave of migrant workers are clearly helping enormously to take the heat out of the labour market.""
Is that really clear? Typically immigrants provide a short-term sugar rush to an economy. They need houses which prompts construction not just of houses but also shops, schools, medical centres, etc, etc. They add to the demand for transport: private cars, buses, delivery trucks. All this extra economic activity requires labour right down to the checkout operator selling them a toaster.
Take another view: New Zealand has had more legal immigration during my lifetime than any other developed country. What has it produced? A big decline in our economic ranking, low productivity by international standards and now 'heat in the labour market'.
Replace 'clearly' with 'debatably'.
PS I am an immigrant and now proud new Zealander.
That statement's not clear to me either.
From what I'm seeing in the businesses I deal with, most (if not all) are either contracting, not hiring new, not offering overtime (or forcing it on salaried staff), and/or not replacing leavers. IMO, the recent influx of immigrants is credited with way too much influence on employment stats.
helping enormously to take the heat out of the labour market
I don't even understand why it is considered a good thing to take the heat out of the labour market for the 'average' New Zealander.
If you're an average worker, then you just lost a pay rise and more accommodating employerment conditions. Add to that higher rents and frankly I cannot for the life of me work out why ordinary workers vote themselves less and less of NZ each election. Where's the benefit to the existing worker? Lower interest rates and some consumable prices? I guess if you have a large mortgage maybe, but renters?
There's a very big difference between a smaller group of people working in cohesion and what we have now.
Back in the day if someone wanted to half arse on a hunt repeatedly (which likely wouldn't happen) they'd end up dead or ejected from the community. Now they can exist because it's too hard to eject them, or at worse can obtain the means of a minimal existence from the state.
Agree on the first point.
Society should just offer everyone a job doing something useful if they want one. If they don't show up or take the piss, withdraw the offer. It's that simple to me. Purposefully creating labour market slack and then slagging off 'bludgers' is abhorrent.
From what I know of tribal society it is almost impossible to be ejected from the community. The main cause would be failure to support the community in warfare (similar to Palestinians shocked by Hamas's barbarity but not admitting it to outsiders) the secondary cause would be breaking the community's incest taboos. If you didn't make a fair effort hunting you were not ejected or killed - you simply received less meat. That's equivalent to American students working in bars and restaurants for tips.
Dealing with the naturally lazy is not difficult for families or tribal villages but is beyond the ability of WINZ.
I can't drag up something I read a couple years ago, but the jist was that while genetic psychopathic tendencies in some individuals may have had some use for combat, the stronger group environment meant it was far less likely to have it manifest environmentally in the same volume of instances of it observed today.
As a potential pointer, here's a study pointing to the much stronger prevalence of it amoung whites compared to minorities:
https://www.ncbi.nlm.nih.gov/pmc/articles/PMC6436062/
Potentially as many white societies live in smaller households, and are more generationally distant from traditional cultural belief systems.
Lol. Mental illness is rocketing because we are not living like humans - we are like the bears rocking back and forth in zoo enclosures.
We were designed to collaborate and form bonded, protective, extended family groups, yet our society is seemingly designed around isolating us and pitting us against each other.
This is a topic that fascinates me.
We are mismatched biologically to the very societies we have created for ourselves. And boy does it show, not just in terms of mental health, but physical too.
Although the capitalist system is arguably the best of the worst, I’m sure we can do far better, (although admittedly I struggle to conceptualise such a system.)
worth a read, Mismatch: Why our world no longer fits our bodies
We are mismatched biologically to the very societies we have created for ourselves. And boy does it show, not just in terms of mental health, but physical too.
Potentially the opposite, we have built a system designed around catering very specifically to our biology, whether it's the lure of sugars and fats, sex, or scrolling in a hunt for that next click online.
Previously humans would have to meet their environment, making finding balance almost self regulating, instead of now where most people have to exercise discipline away from the abundance, comfort and habit that is very easily accesible.
I'm talking about personality disorders, which aren't the same as mental illness. If someone wanted to be antisocial or sociopathic historically, they'd generally end up dead or ejected from the group. Now, someone can be a prat their whole lives and the only consequence is that they have few friends, or maybe a handful of sycophants to fluff them up.
Your context read more like it was pointing towards general mental illness like anxiety or depression.
If trauma was the prime driver that isn't mirrored in the observable distribution, because it's most prolific in the safest sectors of the most peaceful society ever.
Just as suicide rates were at all time lows during WW2.
Put a healthy plant in bad soil and it will wither and die (our mental health issues).
We need to fix the soil then the plants will flourish.
The soil (our social/financial environment) is the problem - not the people. The people will flourish if we put them in the right conditions with the right opportunities (for growth) and the right care.
This is an assumption I made hiring people for many years, at my own peril. The problems are ingrained well before working age. I can teach almost anyone the skills and knowledge to carry out work to a high standard, but I cannot teach someone dedication, reliability and to care.
What is really absent is a sense of shared ideals and values, which is at direct odds with some of our law underpinnings of individual rights, and philosophical tendency towards hard materialism as a guiding principal of thought. This is why a culture such as the Japanese are more capable of building efficient, functional society, but with some other downsides.
Typical and atypical according to whose thought?
Dysfunctional and counter-intuitive according to whom?
As someone who studies personality disorders, because apparently I have one, it all depends on who makes the rules.
Many studies suggest those in power exhibit more sociopathic and narcissistic traits, yet those considered "disordered" simply don't fit in the bell curve of "societal norms". It would appear that either end of the spectrum stems from some level of trauma, yet one end is revered and the other marginalised.
As my comment above implies, it could be that the societal norms are the problem.
So again, who's mad and who's sane?
Typical and atypical according to whose thought?
The same sort of medical science that would deem a blind person to be atypical. If a condition like schizophrenia was standard human behaviour, we wouldn't have got this far, in this way.
Many studies suggest those in power exhibit more sociopathic and narcissistic traits, yet those considered "disordered" simply don't fit in the bell curve of "societal norms". It would appear that either end of the spectrum stems from some level of trauma, yet one end is revered and the other marginalised.
There does seem to be a lot of commentary suggesting cluster b type personalities are more drawn towards leadership roles than those considered "normal". Part of these disorders is the ability to present well and say what the individual believes others want to hear, and thus such people are able to obtain some level of fan base. Other people with such disorders can just be your garden variety prick.
As my comment above implies, it could be that the societal norms are the problem.
Subscribing to group norms is a fairly established component of human existence. We are in many ways mirrors, and our ability to work in groups is a pivotal part of our ability to compete as a species. No societal norm I've encountered I'd consider 100% sound.
So again, who's mad and who's sane?
I'm not really sure what you're trying to establish. There's sanity, which is the soundness of mind, then there's ideas, views, thoughts and beliefs, which can be of varying truth and efficacy, or subjectivity.
And again, still prescribing in theory, one rule of thought, which in your very words is illusory.
Blindness isn't exactly a mental function so not the best basis for defining typical and atypical mental functioning. Obviously my first question flew too high.
And if the group norms reach a point where they're causing more harm and destruction over wider areas of life, over a larger number of species, having more detrimental consequences to human and nonhuman health and wellbeing, should one still adjust themselves to those group norms? Hence the original quote still fits.
Group norms don't know how to deal with the outliers, who in many cases are either the canary in the coal mine, or the ones to lead the group in a different direction. There's some interesting info about the true nature of schizophrenia according to different cultures should one choose to expand their mind and not just follow a limited medical science.
You're still conflating medical conditions with belief. I used blindness not as a mental function but another medical condition.
Or are you saying that something like severe autism where the person can't speak, drive or cook for themselves isn't actually abnormal, but instead living life in potentially a preferential way?
We were discussing mental functioning not medical conditions. Note the use of the word conditions. Placing conditions on others.
It's the inherited "beliefs" and limited/conditioned human perspectives and understanding that creates the division, the seperation of the other, the labels and classification for comparison, to distinguish something as abnormal, as a medical condition to be fixed, an ideal that everyone should live up to, should conform to. In many ways it can limit ones true potential, ones authenticity. As Einstein said - expect a fish to climb a tree and he'll always be considered stupid.
Nature doesn't do this, only humans choose to consider something "abnormal" and create prejudice, choose to not understand something and shun it through fear. In some animal species an "abnormality" may not be conducive to survival but this doesn't apply across all species and humans have the ability to choose to treat their fellow humans with dignity and respect, compassion and inclusion, no matter their defects. That is one of their contributions to society.
Blindness whether caused by an accident or during gestation is only a medical condition because humans say it is. I know a woman blind from birth, with physical "defects" who has developed a wider range of abilities and perception far beyond human comprehension. Is she to be looked down upon, treated as inferior? She has far more to offer than many humans I know.
Classifying a severely "autistic" person as abnormal is a reflection of us not them. It's no different to the official orders of the Doctrine of Discovery that said any peoples found in other lands were to be treated as savages and non human. Who were the savages?
If anyone is conflating anything it's not me. Do some more research, dig deeper outside of human group think, I believe you're clever enough. We're all limited one way or another by cognitive bias (me included), unconscious fears, going against the norms etc.
Kainga Ora tenants that trash the houses and generally disrupt the neighbors come to mind. These people cannot get themselves a private rental property, therefore the state provides as a means of last resort. To be evicted from one of these properties demonstrates you're unfit for society, so where do they go? Down the road to torment the next group of neighbors?
Maybe we need housing facilities tacked on to prisons. They're free to come and go, but the "houses" are built like prison cells. No creature comforts. You go live there for a couple of years, and then you can reapply for a KO property.
Good god. I am to going to use a crude analogy here to keep things simple.
Think of people as kernels of popcorn (bear with me).
In normal human environments, the kernels bob around together, sorting stuff out, doing what kernels do, playing songs round the campfire (but not getting too close!) Occasionally one of them might pop and be anti-social or harmful to others, but things soon calm down, because it's not too hot in those normal environments. Like my home, and many of yours.
Now, start turning up the heat on those kernel communities - demand taxes and rent from them but don't give them all jobs, surround poor kernels with rich kernels who rub their wealth in their faces, subject them to state violence and harassment. Go on the television and express disdain for groups of kernels because of where they live or how they choose to live. Guess what happens when you turn up that heat?
Yes, a few of them start to pop. And, when one pops, the kernels next to them get bumped around and they start popping too - because, damn, it's hot in those communities. Now, what do the people in charge do when the kernels pop and start causing trouble? Throw them in a hot prison (pop, pop), take some of the baby kernels away and put them into state institutions (pop, pop, pop). And, the more things go wrong, the more the State turns up the heat... pop, pop, pop. And, the more the fools shout from the sidelines, "Make it hotter for those bad kernels, lock 'em up, starve them, give 'em hell".
But, wait, what, do we have an answer? Are we going to reduce inequality and cool everything down so that kernels don't go pop as often?? Wow!
Nope, sorry, we are going to pay some rich kernels to try and squeeze the poor popped corns back into their kernel. We can pay them $20 for every success they have. We could give it a pop-corny name like 'social investment'. Yes, that feels righteous. Meanwhile... pop, pop, pop.
You know what's funny though? We're not demanding a lot from these "kernels". They have rents capped at 25% of their income, they don't want jobs, many (not all) are selling drugs on the side. They're not anti-social and harmful to others because society has the screws on them, it's because they're a bunch of bottom feeding scrotes that get away with it because rather than deal with the issue out come the all the excuses under the sun.
Even when that baby Ru was murdered, "why didn't the state do enough?". Maybe it has something to do with the "f##k off" written all over their front windows. Wouldn't surprise me if OT arrived to uplift and were met with huge hostility and threats.
No we're not demanding a lot from them, just that they don't act like thugs to their neighbors and look after the properties that are so dearly sought after. If they want to act like thugs, then move them to a place where other thugs live.
Not sure why you're so eager to defend these people?
Even when that baby Ru was murdered, "why didn't the state do enough?"
A few years ago, there was a shit fit about CYFS taking kids from homes. Now they're less invasive, and CYFS aren't doing enough.
There cannot be enough state services to fill the void of dysfunctional families.
Read on a post on the "Kiwis Moving To Aussie" group from someone who was thinking about moving to Australia but didnt want to give up their $200 a week 4 bedroom KO house that they were living in because they wouldnt get it back if they move back. Social welfare benefits hold people back from achieving things on their own.
As for OT - they no longer uplift Maori children as its "racist". And today, another dead kid in South Auckland. Just one of the many examples of woke ideology being implemented regardless of the harms it causes to those they are supposed to help. Much like how there was a 51% increase in the number of Maori on JobSeeker under the Labour Govt. I see Stuff finally had the gumption to write an article on this.
https://www.stuff.co.nz/national/301001586/jehan-casinader-oranga-tamar…
That is changing though. At a party this last week - two attendees were facing possible redundancy early next year. One is restructuring to save costs (though we debated if that would actually end well when the company finds out 3 months later they needed those positions so they're back as contractors), and the other's company was no longer experiencing difficulty finding staff but customers, so their job security walked out the door as the immigrants walked in.
They were youngest and third youngest workers present , and both had masters, 5+ years experience in their professions, and were renters..
High immigration => increased rents + reduced wages/job security => young people leaving. As one gen-X present remarked, 'our country is f****d'.
I've heard a similar story from my son-in-law; his company is quietly dropping a person from each of its stores because turnover is down. These about to be unemployed will not have master's degrees because they will be checkout operators, cleaners, shelf stackers, security guards. At least your young unemployed with master's degrees can take the escape route for educated failures: become teachers.
Your last paragraph - absolute agreement. Why can't our politicians see it?
I'm retired and high immigration is great for me - property prices high, good rental income, cheap coffee delivered with a smile - but not for my children and grandchildren.
RBNZ are literally counting on the housing market picking back up again - and soon. How so?
The RBNZ & Treasury forecasts for Govt spending, current account deficit, and GDP growth are only feasible if the banks start pumping freshly created credit money into the economy again. Without that flow of new money, where will the money come from to pay the wages of the new migrants? Are the new migrants bringing millions with them to spend into the economy? Are rich kiwis going to start cracking open their term deposits and spending down their savings? Are the new Govt going to tear up their austerity plans and start spending big?
Somewhere in the RBNZ and Treasury models they assume how total private sector debt (mostly mortgages) will change over the forecast period. If my maths is right, they are assuming that private sector debt will remain at around 140% of GDP over the next four years. That means an increase in private debt of about $25 billion this fiscal year (2023/24), a bit over $30 billion the following year, and around $40 billion the year after. You can see this graphically in this chart (see how Govt spending and bank lending combine to juice GDP).
Now, here's the issue... Private debt increase so far this fiscal year (first 1 July 2023 to 30 Sept 2023) has been just $3 billion. Do we really think we will get a $20 billion+ increase in private debt over the last 9 months of the year to 'achieve' the increase that our economic forecasts are based on? We would need to see the housing market booming like it was 2021 (or pre-GFC).
This is why I think a recession is absolutely inevitable. I just don't see where the money is going to come from. It's also why I see a situation in early 2024 in which RBNZ is facing a choice between::
- Dropping interest rates to restart our dying economy (while other countries are higher for longer because their high rates are having less impact on unemployment and aggregate demand), or
- Holding interest rates up to protect the NZD.
The smart move for Govt in this scenario would be to invest big in infrastructure, green tech, waterworks, job guarantee schemes in rural areas to support climate adaptation projects etc - i.e. use fiscal stimulus and deficit spending instead of relying on private sector debt growth. Will that happen? Nope.
What's crazy is when it gets to the point of people 'cracking open their savings' - it's the ones who can least afford it who have to do so first.
A mortgagee can defer their payments with significantly more flexibility than a renter, has access to extra credit if required, and the bank will take months, if not years, to foreclose.
A tenant faces extreme pressure once they are two weeks behind in rent, has much lower equity to start with, and very little availability of usable credit.
With higher [normal] interest rates, it's a race between the over-leveraged of the first group running out of will from their lender, and the second simply running out of money. I predict the latter will happen en masse before the former.
It's the parable of the ungrateful servant played out at a national level.
And as someone who has lived through (by NZ standards) some fairly significant food/housing hardship: I will tell people to prioritize their food over all else, then power, then rent. The over-leveraged need to beware - if interest rates reduce, the reason will not cause the pleasant outcome you think it will.
Without that flow of new debt - fixed it for ya :)
And then there's this;
Broker tells OneRoof: “A lot of people I’m meeting are struggling at the moment.”
But nevermind according to Corelogic Chief Property Economist;
While the high interest rates were going to hurt for some people, especially with unemployment on the rise, he said so far the process had been pretty smooth.
“There’s been almost no mortgagee sales, there’s no non-performing loans on the banks’ books, it’s been managed.”
When having a home is about getting into the market. Doesn't get more ridiculous really.
https://www.oneroof.co.nz/news/refix-terror-homeowner-has-to-stump-up-a…
The government quietly know that :
1. They can't drop interest rates
2. Immigration will keep inflation going
2. It will create a housing boom like never seen before, with making building costs skyrocketing, with huge competition for existing homes
3. Multiple homeowners will be the buyers that prop up the market, with a cost of living crisis and high interest rates
I'll say it yet again like a broken record:
a) NZ needs a population strategy as the productivity commission recommended. Ideally it would based on improving wellbeing per capita (economic + social + environmental) & as a subset of this gdp/capita (not absolute gdp)
b) Successive governments have failed to implement a population strategy & promote high, effectively uncontrolled, immigration for the absolute GDP sugar rush.
c) We have such significant infrastructure, social and environmental deficits already, we are very very badly placed to cope with further high immigration.
d) The RBNZ can't do anything about non-tradeable domestic inflation. Local authorities (a significant part of non-tradeable inflation) are going to continue to gorge ratepayers to fix infrastructure assets they should have been fixing historically & the new infrastructure to cope with the high pop growth.
e) As Bernard Hickey said NZ is nothing more than a housing market with a tiny economy tacked on the side. The high immigration rate & shift of the bright line test simply reinforces this. We are yet again going to pour scare capital into bidding up land prices, which is the most unproductive use of capital possible.
f) Our politicians are useless & Luxon is simply going to continue this.
g) NZ is going to hell. I've seen it continue to deteriorate since being a kid. Yes we all have better cheaper tech, but that's a global trend and nothing to do with the government.
g) NZ does need a complete change in direction, but not those espoused by the politicians. We need a tax system that promotes the productive use of capital, not one that provides lazy tax-free loopholes.
Agree - I think the main beneficiaries of WFF are sole working parents or single income households with children. My understanding is, as long as the household income is low, more children means more benefit (i.e., calculated on a per dependent basis). And yes, once you get two incomes in a household, the claw back is significant. But not sure about that.
These welfare initiatives are so complicated, I tend to agree with you that a single rate, child benefit (as was the case in the 'old days') is a much easier to administer and preferable idea.
It's the same sort of incentive for child birth (and working) that much of Europe has undertaken. The primary benefactor is people with jobs with families, because an employer shouldn't discriminate salary based on whether employees have children or not.
It's not proven to be effective though, because it usually results in a small uptick in births, it falls away to previous levels.
It was never designed as an incentive for child birth (see my comment below), and certainly has nothing to do with any employer discrimination. It was a pure voter buy for the 2005 election.
It didn't act as an incentive to work and many families receiving it were already in work. It didn't address the issues as to why working families were struggling with the costs of living, and much like the Accommodation Supplement is more a subsidy for the landlord, WFF was more a subsidy for corporate NZ.
It's become an administrative nightmare and created more distortions than it has solved.
https://www.nzinitiative.org.nz/reports-and-media/opinion/working-for-f…
If the birth rate is falling then as an employer carrot it has diminishing returns. If it were solely to encourage working by non working parents, it wouldn't have been universally applied. If the government didn't want to positively impact child birth, they wouldn't pass policy like WFF, extent paid parental leave, subsidise early child care, etc etc.
It's pretty easy to say any form of government distribution to citizens is a subsidy for businesses, but that's a fairly flippant stance.
If you give a homeless person 5 bucks, did you help them out, or prop up wherever they spend the money?
Lol did you even read what the purpose and intention of the policies are? Getting solo mother's into work, the cost of raising children, the cost of childcare. It's for children already born and no correlation to birth rates. It was applied universally to those already with children. If it had any link to birth rates it would've been given to childless woman to get pregnant.
It might be a flippant stance if the issues at the time weren't living costs, living wages etc. It doesn't address the issues of why isn't the "market" paying better wages, why aren't the basic necessities affordable for the lower to middle income families. It furthers the syphon up reality and misses that the trickle down theory and raising all boats is false.
If the accommodation supplement was taken away would rents and property prices rise like they have?
I know for a fact much of it was capitalised into property investment. That doesn't really help the majority of those it was intended to. They had to rejig the qualifying calculations and tax rules because of this.
It solved nothing and created more problems as I've already noted.
Lol did you even read what the purpose and intention of the policies are?
Yep. How much advertising have governments done regarding low birth rates, and the consequences? They don't want to scare the horses. Maybe put it another way, why is the government so unfair as to give more lollies to breeders than single loners?
If the accommodation supplement was taken away would rents and property prices rise like they have?
Probably, or there abouts. Something like that gets introduced because people can't afford current rents.
Which doesn't address why people can't afford current rents. It's a band aid over something that requires surgery. Some could suggest that what we've created re rents and home costs is very sociopathic, and it reflects deeper underlying issues, but to address it would require addressing belief issues about getting rich. We can't go there so we'll continue to paper over the issue with inadequate policies that create further distortions. Something, something... insanity.
Lol breeders and single loners. Great choice of labels.
Haha where do governments "advertise" low birth rates or promote more children? Certainly not towards the already "breeding". No government has promoted family unity and a supportive economic environment since the Joseph Savage Labour Government in the 1930's. If it were true now governments would be addressing working hours (maybe to correlate with school hours), enabling a parent to have more years bonding with their child rather than privatised childcare, less financial stress to have the security of a home etc.
Sounds like someone's bought into the economic claptrap - we need more births otherwise our current tax and debt burdens can't be paid, the economy will suffer, we will all have lower living standards and be poor - as if there's not enough depression and anxiety, more fearmongering won't help. It's simple serfdom rather than family and human well-being.
You do get more with more children, and the clawback starts at a higher threshold. The abatement rate, however, is still fairly brutal.
As I worked my way out of the WFF tax range, for example, I got a 10k pay-rise one day. It was very awkward when there were 2 smiling managers present at what was a decent increase for the company - but only an extra $63/week in the hand (and actually, by the end of that tax year income had risen further and I no longer qualified anyway).
Never mind the 10k a year in extra tax we paid/pay as a family vs other families on the same income (yes, I go on about this, but WFF is calculated by family income, but tax by individual incomes).
WFF was introduced in 2004 and has no correlation to promoting natural population growth.
https://www.msd.govt.nz/about-msd-and-our-work/work-programmes/welfare-…
GDP alone is a poor measure.
Destroy a building and rebuild it and the GDP goes up.
Also no point in having high GDP growth if you screw your society and environment at the same time.
Wellbeing is made as objective as possible through cost benefit analysis which monetises everything. It’s not perfect but a lot more strategic than GDP alone.
Mortgage interest rates were the biggest factor in house prices dropping in in terms of real money. Interest deductibility is the second and less immediate factor and the one which might change house prices from sustainable to affordable.
""The National Party has pledged to gradually restore interest deductibility for housing investors."" Having done my own tax returns I know how big a factor this is for Mom & Dad property investorslike myself. My prognostication is that our next treasurer will leave things as they are (50% claimable). It probably didn't matter too much when a mortgage was at 2.2% but now are mortgages are fixed at over 7% it must be highly significant to govt income.
I've been thinking about this too, and wondered if you could give me some examples? I was always captivated by the stories of John Britten and McLaren (apologies if I've spelt names wrong) and their kiwi ingenuity ie building their machines in " the shed". I often wonder why a New Zealand company hasn't started making electric cars. Maybe they need too much capital to start, and maybe prices would always be undercut by the Chinese. I was intrigued by a news story of the company that converts standard trucks into ambulance trucks, and also (I think) converting trucks into Fire Engines. Maybe someone outthere is converting older cars into "new" cars?
I saw a chart which showed manufacturing has decline 50% over the past 25 years. I guess the country is reliant on milk powder exports.
I think they can. Of course even a Term Deposit is a speculation; it carries the risk that a country may fall into hyperinflation.
If you gave me $5m I would invest long term in property. But I know birth rates are declining and building technologies are ever improving so the investment is risky. Trying to guess the market whether for houses or anything else is impossible but property investment is not a bet against the market going up or down; it is more like a horse race with your bet on a specific property. We all have some expertise in housing whereas all other forms of investment leave the average punter at a severe disadvantage.
Thinking about it so would I - I'd keep enough to live comfortably until I die (about 500k) - and share the rest to my six children and most of them would become first time home buyers. So invest in people but people I know and feel responsible for and it still ends up as property but not investment property.
Which people would you invest in? Young students you know or at random??
If that's your plan, might I suggest a better one?
Step 1: Put the $5m in the bank for 3 years @ 6% plus.
Step 2: Go to Uni and get an economics degree with lots of Economics History papers.
Step 3: After you have your degree, see if you can come up with a better plan.
You're welcome.
I go to university - but it is the university of the third age (only in NZ it must be called U3A because it is illegal to be a university without the govt's permission0. And at U3A I have learned the economics of economic history is boring. But history is fascinating.
re ... "My prognostication is that our next treasurer will leave things as they are (50% claimable)."
It's a possibility. Or it could be delayed even further than the Nats are already planning to delay it.
I'd prefer they re-instated it 100% and immediately introduced a) a retrospective Capital Gains Tax payable on realisation and b) a well designed LVT to free up brownfield sites for high intensity building. (Hey. I can dream.)
It is impossible to construct an argument for 50% claimable other than it works. Both 0% and 100% can be defended with logical arguments. I find it similar to the abortion law - legal up to an arbitrary age of the foetus when clearly by logic it should be either legal or illegal up to the babies first cry. Is this fuzzy logic?
Which is what we should still be doing.
I find it ridiculous that people accept there should be one interest rate to rule them all. (with apologies to Tolkien.)
Edited: Tolkien's One Ring inscription reads:
"One Ring to rule them all, One Ring to find them, One Ring to bring them all and in the darkness bind them."
An apt description of the OCR ... IMNSHO. It is a dark force; created by dark forces in an economic darkness; for the benefit of dark forces.
Yep immigration and building consent lines went in massively divergent directions / but now both heading down in parallel.
Contrary to apparently most people here, I am on record as saying immigration will fall quite a bit in 2024. This will limit the extent of a rental Housing crisis
For most of the last two decades granting of permanent residency immigration has been about 50k per year. To match average OECD countries it should have been about 10k to 15k. NZ is a little different since we would manage over 10k just with Kiwis falling in love and bring partners to NZ (I've no idea why Kiwis are so attracting in the international marriage market). I'll remember your prediction for 2024; you are probably correct - some working visas will expire and the immigrant return home; I doubt permanent residency will drop and if it does it certainly will not be to under 15k.
Firstly the RBNZ are not in a "to-the-death" battle with inflation, it was obvious from the start that they could not afford to have mortgage rates going over 8% to protect the property market. The result of this is rates have topped out but inflation has just kept on going. Orr basically crossed his fingers that it would be enough. We can expect high inflation for up to another year.
No, the 20% drop in the prices of imported goods will drop the CPI.
The $30bn taken out of circulation (mostly stuffed in the savings of rich folk) has already dropped consumer demand significantly and is now pushing unemployment up. However, it is highly debatable whether the lower demand / spending is cancelling out the upwards pressure on prices of higher interest rates.
The RBNZ are still waiting for a large number of mortgages to roll over onto the new rates in 2024. Quite a few people are going to get a nasty shock and will have to cut spending dramatically. We live in a strange world where somehow we need to waste money on higher mortgage rates to "Improve things".
- The RBNZ has no requirement to manage house prices. Unless they are causing financial instability. or can be directly shown to be contributing to inflation, the RBNZ will do, need do, nothing.
- One needs to take great care suggesting the RBNZ can target non-tradable inflation. Salary and wage demands are affected by all types of inflation, irrespective of its source. (Another reason why the CPI used by the RBNZ should never be taken in isolation. The real cost of living is better captured by StatsNZ's HES (Household Economic Survey.))
Saw this coming... of course we are not at the peak of interest rates. And we are only just into recession. Net immigration was 80,000 just for October. As another poster said, INZ has been given no guidance from the government, and immigration is going to be well over 200,000 pa for the foreseeable future. Inflation is going to reboot and head higher. I think we are going to have an inflation problem for much longer than the USA. Auckland in particular is looking ripe for capital gains, and rent increases helping yields become more attractive.
We wouldn't be having half the conversations or almost none of the problems if the Govts. had not changed land use policies that caused land and house prices to be many more median income multiples than the 3x median income they were prior to the early 1990's.
All the money that has gone on extra mortgage costs would have been available for health, education, savings, and investment into businesses, and also housing upgrades like Passive Housing reducting energy costs further, and providing ling term reslience in the face of any climate change (manmade or not).
And immigration would have had far less effect on house prices as those juridictions with functional and stable land use policies show.
To paraphase an old saying, 'If you get the land use policies wrong, then everything else will be wrong.'
Whilst a significant factor it can't be as simple as just land use policies. One needs to take into consideration the introduction of neo-liberal economics in the early 80's, the psychological effect of the '87 crash, the promotion of property as a means to get rich. Add the very penalising welfare reforms of the early 90's and the state housing sell off.
As a kid/teenager growing up in West Auckland and probably considered working middle class there wasn't such a wide gap between families and people, neighbours knew each other, shared, socialised and supported each other. Kids of all colours played happily in the streets. The was no keeping up with the Jones's, no property ladder to climb.
Roll on to the 2000's and we've got hyper promotion and competing of everything - getting rich, property investment, 7 figure this and that, having the most homes, the most money, the biggest and most expensive house, boat, car, the most gadgets, and an overarching narrative and image of success and being successful. Governments can't compete against this and most politicians are immersed in it so aren't willing to offer anything that might upset the status quo. Nobody sees the feedback loop that requires bigger numbers to feed it.
It's all connected.
Yes of course it's all connected, but some connections are 'first principle' connections. IE everything following is a reaction to that first principle connection.
For example, going with the physical part of the land, the quality of land affects the type of foundations you need, and that cascades onto how you need to build the rest of the building. To overcome a deficiency in bad ground or poor foundations that you may have deliberately ignored or are ignorant of, your focus is then to build a stronger frame or roof to compensate.
So what the likes of Adam Smith, Alan Evans et al show is that if the land use principles and policies are wrong, then everything following that is wrong in achieving affordable housing.
All the things like immigration, interest rates, neo-liberal economics etc. wanting expensive this and that, that you mention have very little effect in preventing housing from being affordable in jurisdictions that have stable functional land use policies.
The old developer saying, 'if the land is wrong, then everything else following will be wrong,' is true.
We don't have a free market in NZ, and our land-use policies are very restrictive, thus our housing is very unaffordable by first-world standards.
Fix land use policies and you will fix 90% of our other problems caused by these poor policies.
I understand where you're coming from. What do we do now that that horse has truly bolted?
Rentier capitalism etc, everything that Adam Smith and the like pointed out not to do is now the raison d'etre. The powers that be, the economics industry have cherry picked the "flawed" economic beliefs and ignored the sound intelligent counteractive reasoning. Why would we expect them to alter this now? It's become a belief system and trying to tax it into oblivion is beyond delusional. We can already see the results of using tax to manipulate people's behaviour - it just doesn't work that way and creates more distortions than it solves.
Yeah I don't have the answers but it would also appear that the answers we've been trying to use throughout history don't work either.
Hows that member that has a large case of the "Im so greats" about his development of land out west. There were queries about its flood risks. Seems the council has slammed the door on chunks of land out there and in other flood prone areas. Majority of the Council and the Mayor supported the removal of the designations which had been in place for five years, some of which were scheduled to be rezone in the next couple of years.
https://www.stuff.co.nz/national/politics/local-government/132739837/au…
That's me...hahaha. I've bought land in Riverhead.
I've just been informed by a neighbour of mine who's a developer that a large tract of land has very recently sold for housing just down the road from my purchase, so I'm definitely on the right track to make a killing. He knows because he put a tender in for it but missed out.
The only thing stopping more development around Riverhead is the roads and intersections, but the Council has already started widening the road from Kumeu to Waimauku. There's a lot going to happen there, a massive retirement village has been approved, road widening through Riverhead is also on the drawing board, adjacent to State Highways 1 and 16, and it's near to the ever-expanding Westgate Shopping Centre. A Fletchers Consortium want to build 1,800 houses. Riverhead is right next door to NZ's most expensive suburb, Coatesville.
If anyone here would like to make a shitload of money, that's the place to start looking.
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