This article has been supplied by the University of Auckland Business School*
The idea of a state giving away money to its citizens with no strings attached doesn't sound like a sustainable economic policy, but that is exactly what Finland began doing at the start of 2017. And Business School economist Dr Ryan Greenaway-McGrevy is a fan.
The 2,000 participants in Finland's radical experiment, randomly chosen from those on welfare, will each get 560 euros ($860) a month – and the payment will continue even if they get a job. The hope is that providing a basic income will offer recipients financial security and allow them to make life plans.
It is not the first time a universal basic income (UBI) has been trialled. Pilot schemes have been run in Namibia, Ontario, Manitoba, Utrecht and elsewhere. And, in recognition that technology is displacing jobs, Silicon Valley start-up accelerator Y Combinator has begun a basic income experiment in Oakland, California to provide what its president, Sam Altman, calls "a cushion and a smooth transition to the jobs of the future".
In 2016, the New Zealand Labour Party expressed interest in something similar, citing a scheme proposed by economist Gareth Morgan that would see every adult New Zealander given a basic income of $210 a week. The then Prime Minister John Key was quick to dismiss the concept as unaffordable and "barking mad".
Greenaway-McGrevy counters that the changing basis of economic prosperity demands a fundamental rethink of the way society is organised. A guaranteed income would challenge the notion that people are only valuable to society if they are in paid employment.
"Finding a job for life is likely to become increasingly difficult as technology advances and roles become automated, so we need to think hard about where self-worth really comes from," he says.
"The industrial revolution also caused massive disruption, but over the long term it led to an increase in everyone's standard of living. Technology is a good thing if everyone can share in its benefits."
Greenaway-McGrevy, says many of the proposals to redistribute wealth have strings attached that cause people to change their behaviour, so the assessment of any scheme needs to take account of the wider economic incentives and impacts.
For example, welfare for the unemployed, which is intended as a financial safety net, and which is only paid while a person is unemployed, can act as a disincentive for people to take low-paid or temporary work. A basic income, which is paid irrespective of other income, would remove that barrier.
"A UBI would be a one-shot welfare policy that would replace much of the complicated system we have now and would be far less costly to administer. But the cost of paying every citizen a basic income would be substantial, and so it would need to be implemented as part of a broader restructuring of the taxation system," he says.
Greenaway-McGrevy suggests that such a restructure might include implementing a proper capital gains tax or a land tax, and doing away with progressive income taxation which, at the other end of the pay scale, can encourage tax avoidance. In any case, he says, a flat income tax coupled with the UBI could be quite progressive, because the supplementary basic income would be tax free.
One of the possible side effects of a UBI could be to raise wages in low-paid jobs such as in supermarkets, fast food outlets and cleaning services as these became less attractive to job seekers. As a result, the price of many goods and services would rise, at least in the short term, says Greenaway-McGrevy.
"So, inflation is most likely to come through the wage channel."
He also stresses that many other welfare policies create disincentives for firms to hire people. Minimum wages, for example, can contribute to higher unemployment as firms that are reliant on lower-paid workers respond by reducing their workforces.
"If we agree that it is the State's job to help those who are less well off, let's do it directly, and not force firms to do it by default."
This article was first published in the March 2017 issue of UABS Insights, and is reproduced with the permission of the University of Auckland Business School.
By David Hargreaves
ANZ says it's still on track with its planned NZ$660 million sale of UDC Finance to Chinese conglomerate HNA Group.
Meanwhile, ratings agency Standard & Poor's, which downgraded UDC's ratings in October simply on the prospect of a sale, and again in January after the sale announcement, has reiterated its earlier comments that the UDC long term rating may drop as much as four notches to B+ from BBB after the deal goes through. UDC's credit rating has already been cut five notches since October when it was AA-, equalised with its parent. See credit ratings explained here.
However in an updated report out this week maintaining UDC's ratings on creditwatch, S&P has also somewhat beefed up the negative outlook for UDC post-ANZ ownership by saying in new comments that ultimately UDC's funding and liquidity profile "could diminish" as a result of the change in ownership.
And the Reserve Bank, as regulator of non-bank deposit takers (NBDTs) has confirmed it is required to approve the proposed new owners, but a spokesman would not say at what stage this process was at with the UDC deal.
The deal, announced in January, is expected to close sometime late this year.
It has attracted political attention, with Winston Peters saying he would block it if he is in Government after this year's election.
Debenture holders to meet
As part of the deal, there will be a meeting of debenture holders, who number about 13,500. Outstanding debentures as per UDC's 2016 annual report totalled about $1.625 billion, but the number has been going down since ANZ put the for sale signs on the business early last year.
Explaining what would happen at the time the deal was announced, a UDC statement said the change in ownership "presents an opportunity for UDC to modernise its financing arrangements which have been in place for almost 80 years".
"We intend to hold a meeting of UDC Secured Investment holders in 2017, seeking their approval to wind up the debenture programme. If that approval is received, investors are likely to be given the option to:
- Roll their Secured Investments into a comparable ANZ product
- Have their investment repaid along with any interest; or
- Apply the proceeds of their investment to subscribe for any new investment that might be offered by UDC under its new ownership."
An ANZ/UDC spokesman confirmed that: "UDC needs to call a meeting of debenture holders to approve the proposal to wind up the current debenture programme. This will enable debenture holders to choose whether they want to redeem their investment early for cash or roll it into a similar investment option at ANZ.
"We hope to update you on the timing of the meeting and next steps, in a couple of months, subject to agreement with the Trustee."
'A range of approvals'
The spokesman said in respect to the sale deal itself there are "a range" of standard regulatory approvals, including the need for Overseas Investment Office approval. "These are in train and we don’t foresee any difficulties."
One of these processes under way is HNA seeking approval from the RBNZ for the change in ownership of UDC.
Applicants in such circumstances are required to give the RBNZ detailed information about themselves and how they propose to structure the acquired business.
This includes providing the RBNZ with a business profile of the owner including:
- Current financial statements;
- Business history;
- Business performance;
- Business strategy; and
- Any financial commitments (including off balance sheet commitments) made to the NBDT.
The applicant must also provide detailed information, showing the impact on the NBDT of any proposed changes to the NBDT’s:
- business activities;
- business strategy;
- financial projections
- plans for merger or restructure;
- governance framework;
- senior management personnel;
- the risk profile of the NBDT;
- risk management plan;
- the funding model (including any change to the split between retail and wholesale funding); and
- other relationships such as Trustee or material third party providers.
The applicants are also asked whether they have acknowledged a breach of, or been proven to have breached, any legislation arising out of the applicant’s participation in financial markets whether in New Zealand or in another jurisdiction. Additionally they are asked if they have ever been been the subject of any formal warning, caution or censure issued by a regulatory authority or a securities exchange operator, whether in New Zealand or overseas.
Evolution of a giant
The privately-owned HNA, evolving from a regional airline founded in 1993, has close ties with the provincial government of Hainan Island, and has become a global giant - and a very hungry one, with assets under control of over US$100 billion. It announced at least US$34 billion of acquisitions in the past year, averaging more than two purchases a month, according to data compiled by Bloomberg late last year. Those transactions included the US$6.5 billion acquisition of a 25% stake in hotel chain Hilton Worldwide Holdings.
The deal-making has continued unabated, with the company taking a 3% shareholding in Deutsche Bank earlier this year - and it apparently wants to buy more of the banking giant, while just this week it's leading a group spending US$2.2 billion on a Manhattan skyscraper. In recent months HNA has also raised eyebrows with a series of aggressive, and much higher than expected, bids for land in east Kowloon, Hong Kong - spending a total of over US$3.5 billion. And there have been numerous other recent moves too.
The company has previously received criticism about the amount of debt it's taking on.
HNA has 'b+ credit-worthiness'
And S&P, when downgrading UDC's credit rating after the sale was announced, said that, while HNA is not rated, it (S&P) assessed the creditworthiness - group credit profile (GCP) - of the HNA Group at 'b+' and believed this could constrain UDC's overall creditworthiness. This is the full January S&P statement.
In its updated view issued this week, S&P has reiterated that it would lower its long-term rating on UDC to 'B+' and the short-term rating to 'B' "if, subsequent to the completion of the sale, we form an opinion that UDC is not significantly insulated from the HNA group from a credit perspective and UDC's SACP [stand alone credit profile] remains at or above 'b+'."
In its detailed credit ratings definitions, S&P describes a long term 'B' credit rating thus: "An obligation rated 'B' is more vulnerable to nonpayment than obligations rated 'BB', but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic conditions will likely impair the obligor's capacity or willingness to meet its financial commitment on the obligation."
S&P reiterated its earlier comment that it continues to apply a one-notch uplift to its current rating on UDC for likely support from the ANZ group.
"This is because, notwithstanding the likely sale of UDC in the short term, we believe that in periods of distress for UDC in the interim (should any arise, which we do not expect), there remains the potential for some limited support from the ANZ group. That is, we consider UDC to still be a moderately strategic subsidiary of the ANZ group until the sale is concluded. We understand that the ANZ group bears responsibility for UDC meeting its regulatory obligations and that a divestment of UDC is only possible with the regulator's prior approval."
UDC's 'moderate funding profile'
Then there was a new comment: "In addition, we consider that ongoing funding support from ANZ enhances the [stand alone credit profile] of UDC - although UDC's funding profile is of moderate strength in our view - because in our view similar ongoing funding support is unavailable to UDC's peers and competitors within the nonbank sector..."
Further down in the document and on a similar theme, S&P goes on to say that the ongoing parent funding support of similar nature and strength to that given by ANZ and which currently enhances UDC's SACP--may not be available to UDC under the new ownership.
"...Ultimately we believe that UDC's funding and liquidity profile could diminish as a result of the change in ownership--a profile that currently rests heavily on a combination of debenture funding and the committed credit facility from the strongly rated ANZ group."
*This article was first published in our email for paying subscribers early on Thursday morning. See here for more details and how to subscribe.
By Greg Ninness
Buying a home became slightly more affordable for typical first home buyers in Auckland, Hawke's Bay, Manawatu/Whanganui and Taranaki last month, as falls in the lower quartile selling price more than offset rises in mortgage interest rates, according to interest.co.nz's Home Loan Affordability Reports for February.
However first home buyers in other parts of the country weren't so fortunate, as the combination of rises in lower quartile selling prices and rising mortgage interest rates took their toll (click on the links from the list below to read the full reports for all locations throughout the country).
The average two year fixed mortgage rate has risen steadily since it bottomed out at 4.35% in May last year and was 4.84% in February, taking it back to where it was in October 2015.
That is still extremely low by historical standards, however the trend is upwards and that will be pushing up mortgage payments.
The Home Loan Affordability Reports track the REINZ's lower quartile selling prices throughout the country and calculate how much of their take home pay a working couple aged 25-29 years who earn the median wage for their age group and location, would have to put aside for mortgage payments to buy a property at that price, using the average of the two year fixed mortgage rates offered by the major banks.
In the Auckland region, the lower quartile dwelling price (the price point at which 25% of sales are below and 75% are above), has declined for three months in a row to $669,700 in February, down by $47,500 (6.6%) since it peaked at $717,200 in November.
|Separate Home Loan Affordability Reports are available for each of the following regions and cities (click to view).|
|Waikato/Bay of Plenty Regional|
|Hawke's Bay/Gisborne Regional|
|Central Otago/Lakes Regional|
|All of New Zealand
The combined median take home pay for an Auckland couple aged 25-29 is $1602.36 a week, and the mortgage payments on a lower quartile-priced home would be $724.87 a week, or 45.24% of their take home pay. That's before allowing for other property ownership costs such as rates, insurance, repairs and maintenance.
The threshold for affordability is when mortgage payments take up no more than 40% of take home pay, any more than that and the mortgage payments are considered unaffordable.
Factoring in the rise in interest rates and the fall in prices, mortgage payments on a lower quartile priced home in Auckland have declined from $753.53 a week in November to $724.87 in February, leaving a typical first home buying couple better off by $28.66 a week, before allowing for movements in after tax income.
Although that extra money would undoubtedly come in handy for anyone struggling to afford their first home, it doesn't change the fact that meeting the repayments on a lower quartile-priced home will still be a struggle for couples on average wages.
The only other place where mortgage payments would be less affordable than Auckland is Queenstown, where a combination of a high lower-quartile price ($729,282 in February) and relatively low median incomes($1494.85 a week for working couples aged 25-29, just over $100 a week less than the median in Auckland), mean the payments on a lower quartile-priced home would take up 53.78% of their take home pay.
However in most other parts of the country, housing remains affordable for first home buyers.
In Tauranga the mortgage payments on a lower quartile-priced home would take up 33.4% of a typical first home buying couple's take home pay, in Wellington City it would be 31.7% and in Christchurch it would be 27.5%.
Whanganui is the cheapest place in the country for first home buyers, with the mortgage payments on a lower quartile priced home taking up just 9.6% of a typical first home buying couple's take home pay.
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Fair Play on Fees, the group that launched legal action on behalf of tens of thousands of bank customers in 2013 over alleged excessive fees, has quietly settled with a second bank.
"Fair Play on Fees and Kiwibank reached a negotiated settlement of the representative action relating to certain fees. Kiwibank does not admit any liability and all claims against it will be withdrawn. Details of the settlement are otherwise confidential," Fair Play on Fees said in a very brief statement.
A Kiwibank spokesman had nothing to add. The state owned bank has always been very reluctant to even acknowledge the case. Kiwibank was the second bank, after ANZ NZ, that Fair Play on Fees moved against.
The Kiwibank settlement comes after Fair Play on Fees settled with ANZ NZ last October in what was also a confidential settlement.
Amid much media fanfare, Fair Play on Fees' action against the banks kicked off in March 2013, with cases ultimately filed against ANZ NZ, Kiwibank, Westpac NZ and BNZ on behalf of tens of thousands of their customers. The group also pledged to sue ASB but has not done so to date.
Fair Play on Fees described the legal action against the banks as the biggest class action in New Zealand history, and said in 2013 that the "excessive" fees in dispute added up to about $1 billion over six years.
Penalty, or exception, fees in dispute between Fair Play on Fees and the banks included credit card late payment fees, unarranged overdrafts (account out of order fees), rejected payments on deposit accounts (dishonour fees), and exceeding credit limit (over limit fees).
Fair Play on Fees consists of Australian funder Litigation Lending Services, New Zealand lawyer Andrew Hooker and Australian law firm Slater & Gordon. In 2013 Litigation Lending Services, which stood to receive 25% of any winnings obtained through the legal action, estimated its costs at $3 million to $4 million.
Asked about the cases against BNZ and Westpac NZ, Hooker said they are still before the court. Asked if no court case has, or will, be filed by Fair Play on Fees against ASB, he said; "No case has been filed at this stage."
And asked what Fair Play on Fees has achieved on behalf of New Zealand bank customers, Hooker said; "No comment."
Meanwhile, asked about her bank's case with Fair Play on Fees, a BNZ spokeswoman said; "There’s nothing new to report for us." And a Westpac spokeswoman said; "While the matter is before the courts it is not appropriate to comment publicly on it. We [Westpac] continue to encourage customers with concerns about their arrangement to contact us directly."
News of the ANZ NZ settlement last year followed a ruling by the Australian High Court, that country's highest court, in favour of ANZ Australia in two appeals in a similar fees case. Although the Australian case was a separate case, and brought against ANZ Australia by a different group to the NZ case, Fair Play on Fees' cases against ANZ NZ, Kiwibank, BNZ and Westpac NZ had been stayed pending the outcome of the Australian appeals.
About a month after its settlement with Fair Play on Fees, ANZ NZ announced it was slashing a range of fees, some of which were included in the case taken against the bank by Fair Play on Fees. However, an ANZ NZ spokesman told interest.co.nz at the time the fee reductions had nothing to do with Fair Play on Fees.
By Brian Fallow*
Competitive complacency on New Zealand Superannuation is the name of the political game these days.
The National Party has “reset” its position from “No-one touches super on my watch” under John Key to “No need to touch super (apart from a tweak to residency requirements) for 20 years, and barely even then” under his successor Bill English.
Labour opposes even starting to raise the age of eligibility in 20 years time. Its leader Andrew Little was arguing last weekend that we can ignore scary long-term projections from the Treasury because it is being much too conservative about future economic growth.
Winston Peters meanwhile points to the fact that New Zealand spends a lot less, as a share of gross domestic product, on the public pension than other developed countries.
Long-run projections of economic growth come surrounded by considerable uncertainty, of course. But the trend the Treasury has modelled seems, if anything, optimistic.
It has the annual growth rate in real GDP slowing to around 2 per cent by 2030 and staying just below that thereafter. That is driven by declining growth in the labour force; the assumption on labour productivity growth, steady at 1.5 per cent, is well above the 0.9 per cent we have managed on average over the past 10 years.
But even if it turns out this is, as Little asserts, too conservative, how relevant is that to the sustainability of the current parameters of NZ super?
Certainly stronger economic growth would give us more choices. But that is only relevant if one of those choices is to devote a growing share of GDP to taxation and/or debt servicing.
Otherwise, stronger GDP growth ought to flow through to stronger wage growth and NZ super is indexed to the average wage.
Happy to see a growing share of economic output taken up in tax?
So unless Little is arguing that wages will be increasingly decoupled from economic growth – an odd concession for a Labour leader – or hinting at an end to wage indexation, his point can only be a conviction that New Zealanders will be happy to see a growing share of economic output taken up in tax.
The debate about the affordability of super is about the angle of the slice, not the diameter of the pie.
OECD data supports Peters’s contention that New Zealand currently spends less of its GDP – about 3 percentage points less – on the public pension than rich countries as a whole.
But that is at least partly because our demographics are better.
People over 65 make up 14.7 per cent of the population, compared with 16.2 per cent for the OECD as a whole. The proportion is projected to rise to 27 per cent by 2060.
The flipside of trailing the pack in terms of the demographic transition is that the position will get worse faster.
Not much less than public spending on education
The International Monetary Fund in its latest Fiscal Monitor reckons that the increase in pension spending plus the increase in health spending by 2030 (from a 2015 base) will be 4.8 per cent of GDP in New Zealand, compared with 3.4 per cent for advanced economies as a whole. And that is by 2030, not 2040 or 2060.
To calibrate the scale, 4.8 per cent of GDP is about what we spend on NZ super now (gross of superannuitants’ income tax) and not much less than public spending on education.
And it is not as if the countries that are already spending 7 per cent of GDP or more on the public pension can comfortably afford it out of current revenue. Their fiscal bottom lines are chronically in the red. On average, the IMF estimates, advanced economies will run fiscal deficits of 2.5 per cent of GDP over the next five years, while New Zealand is expected to run surpluses. You could argue they are offloading the higher cost of their pensions onto their future taxpayers in that way.
The IMF’s numbers are not Holy Writ, of course, and the Treasury is more sanguine, at least about the medium term. It estimates the combined increase in super and health spending by 2030 will be 2.1 per cent of GDP.
By 2060, however, if there were no changes to policy settings, NZ Super and healthcare cost would both be more than half as large again as they are now – relative to the size of the economy – at 7.9 and 9.7 per cent of GDP respectively, according to the Treasury’s Statement on the Long-term Fiscal Position released last November.
But won’t raising the age of eligibility by 2040, and drawing down the New Zealand Superannuation Fund, reduce the increase in super costs at least?
Not much, it turns out. Raising the age to 67 by 2040 will cut about 10 per cent from the cost of super, the Government estimates.
The Cullen fund was intended to ensure baby boomers made at least a partial contribution to the cost of their own super, but an 11-year-long freeze on contributions has largely nullified that. The Treasury estimates that capital withdrawals from the fund would cover only about 4 per cent of superannuation expenses in 2060.
That trend is not our friend
Assuming taxation remains constant as a share of GDP and no change to policy settings, the primary budget deficit (which excludes interest costs) would be running at 4 per cent of GDP by 2045 and 6.3 per cent by 2060. When interest on a mounting stock of public debt is included the operating deficit would be 8.1 per cent of GDP by 2045 and 16 per cent 20 years later. That trend is not our friend.
Clearly there will have to be a course correction and the later it is left the more hard a-port it will have to be, whether by raising taxes, cutting spending or both.
Even if National wins the coming election and even if it can then muster the parliamentary numbers for legislation to eventually raise the age of eligibility, there will be six more general elections before its proposed start date for raising the age, 2037. And no Parliament can bind a future Parliament.
So the most you can say about the Government’s proposed changes is that they would send a signal to the public.
But people would have to decide for themselves how reassured or sceptical to be and make their financial plans accordingly.
Michael Littlewood, former co-director of Auckland University's Retirement Policy and Research Centre, says that under our overwhelmingly pay-as-you-go scheme it is future taxpayers who will bear the cost of future super payments and they who will decide how much that will be, in light of their priorities at the time.
Today’s taxpayers can only appraise the risk that it might be less per capita than now and plan for that contingency.
And it would be wrong, Littlewood argues, to assume that people are too foolish or feckless to be doing just that.
*Brian Fallow is a former long serving economics editor of The NZ Herald. This is the second article in an election year issues-based analytical series on economic policies he's writing for interest.co.nz.
His first article is here.
Last week we noted a report in the FT that China's reliance on bank debt to fund its economy had breached a notable benchmark.
Bank 'assets' (primarily loans) are now more than three times the level of economic output - as measured by GDP.
Most analysts consider this excessive*. But China is not alone at that level; many European countries like Switzerland (4.6x), Ireland (4.2x), France (3.9x) and the UK (3.75x) all have a higher exposure.
All the same, levels above 3x are considered excessive and carry heightened financial stability risk.
Now that we know the full December GDP data, we can calculate New Zealand's growth of bank 'assets' and GDP.
It turns out that before 1997 both measures were at similar levels.
But they have continued to diverge with 'debt' growing faster than the nominal economy.
However, the ratio seems to rise to a new higher level each decade:
(Data for New Zealand is sourced from the RBNZ, G3 and M5.)
And perhaps we are about to see another rise in this ratio. We have absorbed the 200% level now for eight years with little change.
Compared with Australia we are in relatively better shape. Our problem is that we are exposed to their economy much more than they are to ours.
(And that goes as much for China too.)
(Data for Australia is sourced from the RBA, B11.1 and B1.)
But the central driver of the world economy is nowhere near as exposed to this type of excessive lending:
The data for the USA is sourced from statistics published by the Federal Reserve (H8), and the BEA (nominal).
Maybe hard to believe, but the giant banks in the USA just don't dominate their economy in the way ours do. Not even close.
* This ratio is equally problematic when it is too low.
The release of the December current account data also brings with it the detail of gold exports.
And it shows gold mining is a declining industry here.
In the December quarter, New Zealand exported just $88 mln of 'non-monetary gold'.
This is the lowest quarter in over nine years.
For the full 2016 year, we exported $400 mln worth of 'non-monetary' gold. And that is the lowest level in eight and a half years.
Gold mining is winding down in New Zealand. Low prices affect the export values.
Exports in 2015 were 8.8 tonnes of gold. But in 2016 that had fallen to 6.9 tonnes, a -21 reduction.
In 2016, the average price of gold was NZ$1,792/oz or US$1,251/oz. In local currency, that is +7.9% higher than for the previous year. In US dollars the rise is similar.
In 2015, these averages were NZ$1,661/oz and US$1,159/oz.
And that compares with the average ten years earlier in 2006 of just NZ$931/oz and US$603/oz.
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Seen this Economist chart recently?
It has been reproduced everywhere, after RadioNZ first highlighted it.
How do Kiwis afford to buy houses like this? Last year we bought 90,462 of them from other owners and an unknown number of new-builds (probably about 27,000). All up that is 117,500 transactions.
These 2016 numbers are +2,000 more than for 2015.
So, we are doing more transactions even though there are sharply higher prices year-on-year.
But houses are rarely paid for in cash. They are almost always bought with mortgages. In fact, between 2015 and 2016 RBNZ data shows there were +40,500 additional mortgages over the year, a +2.7% rise. (Just in case you thought it was all those naughty cashed-up foreigners who are driving our markets with their cash-only deals. Apparently those are just random anecdotes and not market-moving trends.)
When you benchmark the actual experience against mortgage payments and rents, the story is nowhere near as scary.
We did that a few days ago and it is worth repeating here. We don't have data all the way back to 1980 to match the Economist chart; our review started in 2007, and looked at changes over the past decade.
Here are the national perspectives again, updated with some main centre detail.
The lines in these charts are indexed to a common point of January 1, 2007 which shows the relative change since then. The values at the starting point are not the same; it is only the index point. That explains why the values displayed will always have the mortgage payment or the rent less than the household take-home pay, even if one has changed faster than the other. The lines reveal the rate of change.
The lines in these charts show the relative changes over the decade from January 2007, and not the absolute values. The ending values are noted to the right of each line.
The bottom line? New Zealand has a recent affordability issue, but it is relatively minor when related to take-home pay.
Lower house prices would help affordability everywhere, but household budgets need to deal with rent or the mortgage payments, rather than the face value of house prices.
The real issues are in Auckland, and that is distorting national averages. In most other urban areas, home loans are affordable for those households on median incomes.
We will add Christchurch charts later.
Auckland is set to lead New Zealand jobs growth over the next four years, while New Zealand’s second city, Christchurch, will slip below the national average as economic growth struggles to stay at rates experienced during the post-earthquake boom, according to economic forecaster Infometrics.
Infometrics on Wednesday released its latest Regional Perspectives report, with forecasts for employment growth and key industries out to 2021.
Auckland will outperform the national economy during the four years, with 85,000 new jobs expected to be created over that timeframe, Infometrics chief forecaster Gareth Kiernan said. The region represents 38% of the New Zealand economy and 35% of nationwide employment (824,200 jobs).
Job creation in the city will be strongest in professional, scientific and technical services (16,450 new jobs), health care and social assistance (11,050 new jobs), and education and training (8,200 new jobs), Infometrics forecast.
But growth will not be limited to the high-end service part of the Auckland economy. “The construction industries will experience substantial job growth as the prolonged response to Auckland’s housing supply issues continues throughout the next four years,” Kiernan said.
“Residential construction activity will be accompanied by the need for ongoing investment in infrastructure in the region as well.” A combination of population growth and further increases in tourist numbers will benefit the retail, accommodation and food services industries, he said.
Northland, Waikato, Bay of Plenty, Nelson, Tasman, Marlborough, and Otago are also expected to exceed 2.0% per annum jobs growth over the next couple of years, Infometrics forecast.
Christchurch construction jobs to drop 10% over next year
In contrast, Christchurch City is facing a slowing growth rate, Kiernan said. Christchurch City represents 8.5% of the New Zealand economy and 9.5% of nationwide employment (224,300 jobs).
“At 0.9% per annum over the next four years, we are forecasting employment growth in Christchurch to lag behind nationwide growth of 1.7%. The toughest period is likely over the next 12 months as construction employment declines by over 10%,” Kiernan said.
Economic activity in Christchurch grew by an average of 4.7% pa between March 2012 and March 2015 as the city recovered from the devastating earthquakes of 2010 and 2011. This growth rate was a full two percentage points faster than nationwide growth.
“But with residential building activity having peaked in 2015, and signs that both non-residential and infrastructure construction are also tapering, economic growth in Christchurch has slipped back below the national average. This struggle to keep up with the performance of the broader New Zealand economy will continue throughout the next four years,” Kiernan said.
The post-rebuild slowdown will be felt most acutely in the construction industries, he said. “Between 2017 and 2021, we are forecasting the loss of 4,200 jobs, or 15% of the workforce, across the building construction, heavy and civil engineering construction, and construction services industries.”
Other parts of the Christchurch economy that are likely to come under pressure include motor vehicle retailing and manufacturing. “Manufacturing activity in Christchurch has been under sustained pressure from the weak Australian dollar and soft economy across the Tasman,” Kiernan said.
“Demand from Australia is a significant driver of manufacturing activity in Christchurch, and although both Australia’s economic performance and the exchange rate are likely to become more favourable for exporters over the 2-3 years, the city’s manufacturing sector is unlikely to grow rapidly.”
There were bright spots for the city. “Strong performances by professional, scientific and technical services (2,850 more jobs over the next four years), health care and social assistance (2,950 more jobs), and education and training (1,650 more jobs) will be big contributors to new job growth,” Kiernan said.
The grey wave
Meanwhile, ageing baby boomers should boost nationwide demand for healthcare jobs in coming years, Kiernan said.
“Of the 30,900 additional jobs created in the health care and social assistance industry over the next four years, we expect just over half to be in Auckland (9,900 jobs), Wellington City (2,000 jobs), and Christchurch (3,300 jobs),” he said.
“Outside the three largest cities, Hamilton (2,000 jobs), Tauranga (1,300 jobs), and Dunedin (1,000 jobs) will also record significant increases.
“Provincial centres, such as Whangarei, Wanganui, Palmerston North, and Masterton, with hospitals offering mid-level medical care to a catchment that extends well beyond the town in question, will also benefit from the industry’s growth.”
“The grey wave of aging baby boomers represent not only a political bargaining chip, but caring for these people will be one of the key sources of employment growth in provincial centres over the coming years.”
TSB Bank has raised most fixed home loan interest rates across the board today.
These changes involve rates from six months fixed to ten years fixed, but excludes their 18 month and two year rates.
And this change does not include their floating rates.
Nor did they change any term deposit rates; the last change to those was on March 8, 2017.
Today's mortgage rate change is TSB Bank's first since February 14, 2017.
Today's change sees their 6 month rate rise +10 bps to 4.85%.
Their one year rate also rises +10 bps to 4.55%, and a similar increase has been applied to their three year rate which is now 5.15%.
Their four year rate is is +20 bps to 5.65%.
And their five year rate is up +29 bps to 5.79%.
This rate rise round also includes an increase for their ten year rate, up +24 bps to 5.99%. This is the first change to their unique ten year fixed rate since October 16, 2015.
Wholesale rates have changed little since the last round of TSB Bank fixed mortgage rates on February 14, 2017. In fact they are basically unchanged for terms of one, two and three years, are up +6 bps for four years, and up +10 bps for five years. But more importantly for a bank like TSB Bank, retail deposit rates have been creeping higher for the shorter terms and these have a much more important impact on them.
Today's changes do not alter who has the leading carded rates for mortgage borrowers. HSBC Premier has the market leading position for all terms at this time except for six months where the Co-operative Bank has a 4.80% rate, and 5 years where Westpac's 'special' is lower. Other than HSBC Premier, ANZ now has the lowest rate for one year, four banks are on 4.75% for an 18 month rate, TSB Bank and SBS Bank have 4.75% for two years, ASB, BNZ and Westpac all have 5.09% for three years, and ASB has 5.49% for four years.
A snapshot from the key retail banks is:
|below 80% LVR||6 mths||1 yr||18 mth||2 yrs||3 yrs||4 yrs||5 yrs|
In addition to the above table, BNZ has a fixed seven year rate which is 6.15%.
And TSB Bank now has a ten year fixed rate of 5.99% which was raised +24 bps from 5.75% today.