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BNZ chief economist says targeting housing market by trying to alter migration flows 'well down on list of things that could usefully be done for housing affordability'

Property
BNZ chief economist says targeting housing market by trying to alter migration flows 'well down on list of things that could usefully be done for housing affordability'
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Tinkering with New Zealand's migration policy could make matters worse, according to BNZ chief economist Tony Alexander.

The Labour Party's suggesting controlling migration levels in the face of a surge in inbound migration that could see a net gain in migrants in excess of 40,000 this year.

In his Weekly Overview, Alexander said history showed that when a government used fiscal policy to try to smooth the economic cycle the outcome was usually a worsening of the cycle.

"That is because by the time the need for policy change is recognised, decided, implemented, then becomes effective, the cycle has usually turned anyway.

"So upsides are exacerbated and downturns worsened.

"One suspects the same outcome were our migration policy altered to try to influence the economic cycle, though with the extra negative of painting NZ in the minds of potential migrants as an unreliable destination liable to shut the doors at any time, even if one has spent a year going through various pre-moving steps.

"Actually that would probably just cause our perceived attitude toward migrants to match our actual attitude toward foreign capital. Unwelcoming."

Alexander said anyone who "may feel attracted to the idea" of trying to control house prices by tinkering with migration rules first needed to demand of the policy proposers what their underlying population policy was.

"In particular, if they have some desired rate of population growth in mind, how does it manifest itself in terms of desired rates of growth in the various population groups - Asian, Maori, Pacifica, European descendants etc. and one must also give thought to the regional component of one's population policy. See why no-one has a population policy? Icky."

Alexander said targeting the housing market by trying to alter migration flows was "well down on the list of things which can usefully be done to try and make housing more affordable over the long run in New Zealand".

He said key parts of the solution to housing affordability could include:

  • removing residential and rural land designations
  • buyers choosing standardised designs from rather than individually architecturally designed abodes
  • councils abolishing development and infrastructure fees and placing costs back on the existing rate paying base
  • reducing construction standards with regard to insulation, earthquake preparedness etc
  • banning developers from imposing rules for houses built in their new subdivisions
  • removing restrictions on placement of multi-storey buildings.

"See why affordability won't improve much if ever from current levels? Most of these things are complete non-goers which I personally would not support."

But these measures would have a far greater sustained impact than restricting foreigners buying houses, Alexander said - though he does support that policy "and think at least getting a register of which folk offshore are buying our homes would be a useful and logical thing to do".

Alexander said he had noted and warned 18 months ago that with house prices having risen so much during a period of below average migration flows, "one should imagine what would happen when those flows turned upward, as they have now done".

He said that in the same vein house prices had risen firmly during an extended period of minimal wage and salary growth for a great number of people.

"Imagine what will happen from now on as remuneration growth naturally accelerates because of the tightening labour market and the balance of power shifting from employers running the same stories of cash flow woe as their profits rise, to increasingly empowered and employees regaining their individual and collective strength. House prices keep rising.

"...And just a reminder. You don't need either high turnover or high lending growth for house prices or the price of anything to rise at a fast pace.

"So don't be fooled into thinking that just because residential real estate activity has fallen 9% in the past six months on a year ago, or that lending growth is not accelerating that the house price cycle has finished.

"It has a long way to go, especially as young people start creeping back out of the woodwork after running away as soon as the LVR rules became effective in October."

Further on in the same overview Alexander said that New Zealand was a country where generally there was an unwillingness to grasp the big picture and enact huge policy changes. (No population policy debate for instance.)

"In fact we strongly tend to vote for political parties which promise to maintain the status quo rather than those with a vast policy platform of reform. We vote out those who look like they are getting above themselves with too many changes.

"Improving the housing situation in New Zealand and avoiding the social woe we have been warning about for a number of years now is simply beyond our willingness if not ability to tolerate. The changes in the likes of housing regulations would be huge.

"In fact the furore created by the list of eight factors which I published last year shows we are not going to see any sea change to the housing situation going forward. Affordability will worsen on a trend basis and only improve a tad cyclically now and then when financing costs decline in response to faltering economic growth.

"If you understand the Kiwi psyche well enough to understand this then you'll also understand why we will keep favouring investment in housing assets.

"It's almost like one can run a watered down version of the argument: 'They're not making any more of it', which farmers apply to arable land. Understanding this will lead to understanding that a capital gains tax as proposed by the left leaning parties will make no difference. Affordability will only be sharply improved if the cost of building new houses absolutely plummets.

"Not by 10% or 20% but 50% including the land cost.

"Given that surveys I was running last year and earlier this year show that more of us are happy about house prices rising than are unhappy, we're not going to vote for anyone who proposes radical solutions which reduce our accrued equity.

"What will happen then? Governments and local authorities will have no choice other than to help develop a lot more social housing. Hence Labour's policy of building 10,000 state houses a year has strong merit.

"But they won't be able to easily do it because the builders won't be available (remember they want to restrict inflows of migrants), the cost of buying land to disperse state houses throughout existing suburbs will be too high, and they won't want to create new versions of the state house enclaves already in place in the likes of Porirua. They may instead try to boost the state housing stock by purchasing existing houses. That means more demand.

"House prices keep moving upward. The only real uncertainty here is the size of the impact which rising interest rates will have. Given the flattening of the yield curve bringing fixed rates at and probably soon below floating rates, that high financing cost scenario may not even come into play for another couple of years.

"If I Were A Potential House Buyer...... I would see the same lack of reason to hold off my purchase now as I have seen since mid-2009. "

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18 Comments

"Given that surveys [of people (including a large proportion of real estate agents) choosing to reply to my newsletter] I was running last year and earlier this year show that more of us are happy about house prices rising than are unhappy"

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Tony's list of changes to lower the cost of building sound fairly reasonable to me - even if he isn't keen on them himself. 

He didn't mention the changes to the building regulations. The reaction to the leaky homes saga is an hysterical OVER reaction IMHO. Massive amounts of additional detailing, producer statements from everyone involved from ditch digger to designer, engineers calculations for the most rudimentary joints, twenty council inspections for a residential build, scaffold required for anything off ground level and the introduction of the (closed shop) liscenced building practioner regime have all led to simply unaffordable housing.

We are in the process of building - makes me feel sick just writing about it.

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They should look at an insurance scheme to be paid by both builders and home owners in case of leaky issue in the future.  The govt can manage insurance premiums paid. - they have similar scheme in Aust

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That would be a perfect concession that building standards here in NZ are a joke. Why pay insurance when there is already inherint warranty on building materials? Would insurance simply make it easier for builders/architects/material manufacturers skirt around their responsibility?

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TA's point about the lag between policy formulation and application, then acting so late as to exacerbate a constantly turning cycle (business, housing, SX, etc.) is very valid.  We've seen this so many times that some academic must have by now generated a formula for it.  

But the first item on his list - wiping zoning squiggles off the maps - could be done by fiat:  there is no use of the word 'zone' in the RMA outside of the EEZ, and as the old Town and Country Planning Act 1977 was repealed in its entirety - see Schedule 6 -  there's no solid effects-based - er - basis for spatial zoning.  

 

There will doubtless be some Regulation catch-all phrase in the RMA which allows the Government to declare away any inanity perpetrated by dopey TLA's.....which could be used by a Minister possessing the cojones.

 

Hey, we can still Hope....

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Agree that the RMA was conceived with the purpose of moving away from zone-based planning and into effects-based planning. But have you ever read or tried to write an effects-based plan?  It was yet another of NZs great legislative experiments -  one of those first-in-the-world type ideas. And on enacting it, central government provided no guidance to LG about how to write an effects-based plan .. hence generation one plans (in the main) are modelled after the zoning idea - something understood by everyone (planners and land owners alike).

 

And over time, the private sector (sub-division developers) strengthened the use/notion of zoning in their own sub-division plans - designating different areas within their sub-divisions to have different rules or covenants. Hence, to accomodate all these different developer-defined space-planning rules - we now see second generation RMA plans often adopting a precinct approach - just another word for a zone within a zone type approach.  So if anything - both public and private development trends have pushed us further and further into zoning and further and further away from an effects-based planning regime. And effects-based plans need national standards - another thing central government couldn't seem to get their head around .. painfully slow in coming .. often taking more than a decade to make decisions (e.g., freshwater!).

 

Problem is - the RMA was conceived/crafted in the effects-based school. Seems to me we have the worst of both worlds - developers moving toward zoning on the one hand and central government still failing to provide the tools necessary for effects-based planning to become the defacto direction.

 

Given we still have few examples (either locally or internationally) about how to write a simple and effective effects-based plan, I tend to think we need to have a big legilslative re-think (perhaps two different Acts - one really, really simple one for the urban/built environment and another one for the natural environment).  I believe one can easily write an effects-based plan for the latter, but not so much for the former.

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Good points, Kate.

 

But - but the kicker is that zoning has massive and pervasive Economic effects, in and of itself.  So arguing about effect-based difficulties is one thing, but letting zoning stand as is perpetuates and entrenches this damage.

 

That's exactly what the Productivity Commish was on about.

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Yes, and its not only that we are letting it (zoning) stand "as is" - we're actually worsening it. The proposed AKL plan being perhaps the 'poster girl' for precinct planning (the zone within a zone type planning regs).

 

Which is why I'm all for a complete re-write of the RMA. All this tinkering just makes things worse - i.e., more complicated and less permissive..

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There are more reasons than just housing to rethink immigration

1 The government has no mandate for it.  When was there ever a referendum on it or a clear pre election policy?

2 It is claimed that we need skilled migrants but many of our skilled citizens have been leaving up untill relatively recently for lack of oppertunities that will advance their lives- it doesnt add up.  If there is such an ongoing long term  shortage there should be lots of opportunities here and no need to leave.

3 How many of the so called skilled immigrants are actrually skilled and working in fields were there are supposidly shortages.  I see a lot of immigrants in very low skilled low paid employment.  This should not be happening if we have a working skills based entry process and real skills shortages.  Or is it just hot air and any old excuse will do to squeesze more into the country to keep the Ponzie ecconomy going.  This whole matter of skills and skilled employments needs a carefull review and modified to include a provisional period where immigrants demonstrate that their claimed skills and qualifications are real and they can provide ongoing value in their field of expertise.  If not go home.  More use should be made of temporary work permits to fill the gaps while we train and adjust the utilisation of our own people.

Why do we allow immigrants to bring in all their relatives?  Seems crazy to me as  it pretty much translates to completely open boarders with no filter on skills and age.  How many other countries have this sort of crazy set up.  Having said that, I wouldn't be surprised if there are a few other countries , as some of the other nations appear to also be run by lunatics.

4 Right now we have both a large jump from about 12-15,00 net inflow to 40,000 plus per year coinciding with a critical home availability and affordability problem.  This no doubt suites Nationals voters but in the interests of the wider comunity it seems crazy to allow this leavel of immigration while we have such a critical house shortage.  Why cant' it be dialled back to managable levels at least until we sort out the housing mess.  Or does the housing mess suit some people and their influence is keeping immigration flowing?

5 Why on earth are we allowing so many retired and near retired immigrants into the country.  They will contribute little and be a burden on our welfare system in a short time.  30 - 35 should be the cut off age.  Or are we really just interested in keeping the Ponzie ecconomy going

 

This whole area needs to be debated accross all sectors of the country ( As opposed to a few Wellington pointy heads, vested intersts and Politicians with debatable motives)  Then the options should be put before the people by way of a referendum.  It is and important matter that effects everybody and in a democracy everybody is entitled to have their oppinion counted.

 

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There was no mandate for mass immigration into the UK either and still residents are having to put up with huge numbers coming in and taking work from our youth. The government love large immigrant numbers because it inflates the economy in the short term. Its for this reason that they are reluctant to do anything about it even though it is recognised as being the prime concern of the electorate. The latest batch of EU immigrants to come here are from Romania whose numbers are expected to reach 50,000 every year despite government figures to the contrary. To avoid what the UK has gone through by deliberate mismanagement of immigration issues, the New Zealand people need to take control of their borders and tell the government what is an acceptable level of immigration and from which countries immigrants should be barred from entry.

 

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Where foreigners and house prices are concerned, Tony Alexander, read my lips - FOREIGN, NON RESIDENTS. Now, can you please explain what part of that you do not understand.

Having said that, not one single solitary commentator who advocates immigration has said a single solitary word as to what sort of population they think NZ should have and how fast. I really hope not faster than we can sort infrastructure and housing - oops too late.

Grow grow grow has to go go go

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The people with the microphone hide behind the mirage of growth - or should that be they issue forth with feel-good thought bubbles that propagate a mirage that "growth is good"

 

Trouble is this .............

 

Take an econometric model comprising 1 local person who has an income of $50,000 pa, then

(a) GDP is $50,000, and

(b) Per Capita GDP is $50,000

 

However, if you bring in a (skilled) migrant who earns $40,000 pa then

(a) GDP is $90,000, whoopee thats good, thats 80% growth, but

(b) Per Capita GDP declines, becoming $45,000, oh dear, thats not good

 

If the migrant brings in 1 elderly parent then Per Capita declines to $30,000

If the migrant turkey's back to their homeland leaving the parent behind PC GDP becomes $25,000

 

Now go and have a look at the GDP data since 2000 for NZ compared to Australia, for

(a) GDP

(b) Per Capita GDP

 

You'll get the idea ....

 

It appears New Zealand isnt achieving anything from inbound migration at all other than simply increasing Total GDP to no effect, thus perpetuating the myth that we are growing

 

So next time GDP figures are released, immediately check out Per Capita GDP

That will tell you if you are getting any benefit from increased migration, how many more cows you have to milk, how much stress on your infrastructure health and schools you have to bear

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Is GDP trhe best measure.  It's exports that matter in NZ, and largely they only come from primary based industry and Tourisim.  Thousands more imigrants in Auckland add nothing and are along with the rest of Auckland a large and ever growing drain on the real wealth earners of the country.  If we pump thousands of people into Auckland, sure the GDP will rise.  We could all stand arround scratching each others backs paying each other a fat salary for the privlage, but somebody somewhere has to produce the exports to pay for the new houses, roads, petrol, flat screen TVs etc that we will want.

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Postcard from across the creek

 

A taste of the what's coming your way

 

In its 2014 Budget the Federal Government has cut $80 billion from the education budget and de-regulated universities in an attempt to get them to lift their game. They will be required to become more self funding

 

Fees for "B Grade" degrees are expected to rise from $50,000 to $100,000 and "A Grade" degrees, law and medicine, will rise from $100,000+ up to $300,000

 

The changes come into effect as from 1 July 2014

 

And the implications for New Zealand

Expect a shift of International students seeking a Tertiary education away from Australia to New Zealand, a squeeze on positions available for local resident kiwis, and the obvious, a further increase in pressure on property prices as the princelings buy their way into accomodation in the inner city precincts

 

Meanwhile the locals are rioting in the streets now

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Move to buying a licence to print money, rather than paying for education and research.  Sounds like a way forward for modern culture.

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What i fail to understand; is why fundamental economic principles dont apply? If we build more houses, to drive down prices, will demand not increase?

Limits on internal mortgage lending help but immigration and foreign money must also be addressed. 

Not good for lending institutions and our economy, growing its way out of un-funded government spending.

 

 

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This article is worth a read from Nouriel Roubini  http://www.cnbc.com/id/101722479

 

 

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