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Tony Alexander expects the govt to tighten immigration rules, house prices to keep climbing, mortgage rates to keep rising at an uncertain pace and NZ to remain friendly yet not tight with China

Tony Alexander expects the govt to tighten immigration rules, house prices to keep climbing, mortgage rates to keep rising at an uncertain pace and NZ to remain friendly yet not tight with China
Tony Alexander

A turbulent week into Donald Trump taking office as US President, BNZ chief economist Tony Alexander shares his views on how New Zealand fits into the new world stage.

Alexander draws the following conclusions in his latest BNZ Weekly Overview.

NZ economy unlikely to be badly stung by nationalist movement

"The new US President is in place signing so many executive orders he probably reckons he does not need to bare chest and wrestle a bear to win popular support as President Putin does.

“The world is moving away from the guilt-focussed victim-seeking liberal agendas of the past few decades towards individual self-interest, nationalism, liberal criticism, and a challenge to political correctness.

“What does it mean for us that nationalism in particular is on the rise in the US, UK, Europe, China, Japan, Turkey, Russia, Australia etc.?

“Probably nothing in terms of foreign investment in New Zealand as although in theory outward flows from the United States will decrease as investors fear special tariffs being placed on goods imported into the US from foreign factories, in truth we traditionally attract little greenfields investment from offshore. Mainly we sell people our existing assets. No big economic loss there if such flows were to ease.”

Government to tighten immigration rules, but population will keep being boosted by returning Kiwis

“Some people think the change in conditions offshore will bring a flow of migrants to New Zealand. Our cultural cringe and sense of smallness make us pay attention to such theories and get a warm feeling in our tummies. But unless they are Kiwis they will have to join the queue to get in.

“Foreign migration to NZ is not going to be boosted unless our immigration rules are loosened. But the world is moving against free migrant flows and given that there is a general election here this year the chances are we will see some further tightening of the rules applied to people wanting to come here.

“But there are one million Kiwis offshore and 4.5 million or so here and it seems reasonable to expect that being a liberal, fair-minded bunch of egalitarians we will not feel comfortable with a lot of what is happening offshore and will choose to come back here or not to leave.

“That means net migration flows into New Zealand are likely to remain high over the next few years and that will put pressure on government to boost infrastructure spending, speak deeper words about housing affordability (yet achieve little), and revise downwards estimates of the taxpayer burden from an aging population because of the extra workforce growth strong migration flows imply. People who migrate tend to be working. People over 65 staying in the workforce will also boost tax revenues and reduce fiscal burdens.”

Auckland house prices aren’t on their way down

“Potential buyers need to look at the fundamentals, not the valuation measures and the simple fundamentals for Auckland...

“House construction fell below levels required by population growth in the mid-2000s. That under-construction got much worse post-GFC when house building around New Zealand fell to levels of the 1960s. Even though construction is now rising it still is failing to keep up with population growth.

“Migration flows added about 42,000 people to Auckland’s population last year. With an average household occupancy rate of three people per house that migration surge necessitated construction of 14,000 more houses. At best 9,000 were built. Auckland’s housing shortage continues to grow.”

Mortgage holders should fix at three years

“Last year we saw rising bank funding costs and higher US bond yields following victory for Mr Trump. This prompted a rise in NZ home mortgage lending rates...

“Will this pace of rises continue? You cannot rule it out because we simply don’t know to what extent policy changes by President Trump will boost US growth and inflation and the pace of tightening of US monetary policy. This is a new source of global uncertainty for the financial markets and something which people should take into account when considering their management of interest rate risk.

“In a nutshell it has become more risky to sit with the bulk of your mortgage floating and/or fixed for only one or two years…

“If I were borrowing at the moment I would have one-quarter to one-third floating and the rest fixed three years at 5.09%. If you are conservative then you might jump to five years at 5.79%.”

Cultural differences will prevent NZ getting heaps closer to China

“Will we respond to global changes by getting much closer to China? Probably not though our economic dependence upon them will likely grow…

“As analysts are increasingly finding when they examine the likes of Brexit and Mr Trump’s victory history, values and culture matter – and they matter a lot more than economics.

“There are big differences between Kiwi and Mainland Chinese CCP-driven cultures and in the event where we might have to choose sides in conflict between the United States and China, it seems fairly obvious who’s ships we will position our personnel on and alongside. God forbid we reach such a point however.”

New Zealand dollar to remain strong

“We enter 2017 with well above average readings of consumer and business confidence, employment and investment intentions, dairy prices well off their lows, booming tourism, booming construction, population growth near twice the long-term average, a current account deficit only 2.9% of GDP, and lots of political and fiscal stability.

“While we should fully expect lots of currency fluctuations as a result of the approach taken by President Trump to any issue… underlying support for the NZ dollar looks strong…

“So, if I were an exporter, I would look to take advantage of the occasional wave which comes along to push the NZD lower… to get extra hedging locked in.”

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I love Tony Alexander BNZ economist as he talks the truth about housing and it's upward trajectory!


It's not as if he has a choice, any substantial downward price movement demands a capital sapping write down of bank mortgage assets.

What else would he do? He works for a bank.


If the growth in housing prices is driven by immigration - how come rentals haven't gone up? Why is housing rentals basically similar to Wellington? The reason is that talk of immigration has created a investment ponzi scheme for Auckland houses which is reaching its peak.

Rents haven't gone up because kiwis are useless negotiators and too scared or too polite ( or too lazy) to ask for rent increases just like me 15 years ago... now every year i increase the weekly rent between 15 to 30 bucks a year and have never been turned down...we need to harden up a little bit and start treating it like a business

Supply & demand is a more likely reason than landlords being too polite. Over 3000 rentals (2 bed) in Auckland today on TradeMe despite record breaking immigration numbers.


“Potential buyers need to look at the fundamentals, not the valuation measures and the simple fundamentals for Auckland..."

But the valuation measures ARE the fundamental. Like rental yield for example.

Sure, 42,000 immigrants to Auckland, but how many Aucklanders left? And perhaps there are more than 3 people in each new house?

The problem with Tony's analysis is that it starts from a view that current values can be supported and works forward from there. Contrast that view with David Hisco's (ANZ CEO) NZ Herald article that calls out that Auckland housing is overvalued and things will get messy.

I enjoy reading Tony's weekly note, partly because it's good to read viewpoints that don't match your own, but I think his role would be a better fit for the marketing department at BNZ rather than economics.

Tony Alexander's views on housing have been proven correct year after year as House prices continue to rise in Auckland.

The detractors and negative people have missed out on years of capital gain thinking the sky is always falling.

Love your deep analysis

"The property boom will end in 12 to 18 months, BNZ chief economist Tony Alexander says" Quote from July 2016.

I'm concerned that he might have got this one right.

That was my point --- what he is saying in todays article differs to what he said in last years article, ergo he cannot always be "Proven right year after Year" Mr Stanton.

If he puts a bet each way he's right 50% of the time.

Last years article he said prices would plateau, this time around he said prices are "not on their way down". Not a change in tune in my books

Actually he said in this years article "house prices will remain well supported and almost certainly (99% chance) rise virtually everywhere around the country this year"

Yes and a rise just has to be on the right side of 0. Therefore his message has not been contrary. Definitely not the grossly differing opinion that you are insinuating

Read the whole thread thefuzz. I was responding to Teds assertion that TA predictions that house prices would continue to rise have been proven correct. For one TA has not always predicted that and for two, in my following post he says all sorts of nut stuff like fixing for 7 yesrs at 7%.

In addition, if you read all of TAs outlook this time around, he is absolutely not implying a plateau.

Point is, bank economists are not oracles.

Yep read the article. So if you seem to understand it more than me, how much of an increase is he forecasting? I think you are trying too hard in using this article to discredit another persons posts (Teds), thereby creating conclusions that are simply not there.
BTW TA is the first to admit if an economist say they know what's happening re. Interest rates etc, they are a liar

Dont have to try at all to discredit Teds posts, he is roundly discredited by everything he ever writes.

Yet he wrote some weeks earlier in June 2016 why house prices will continue to increase

and in this article in late 2015 says "believes Chinese buyers may return to property market in second half of next year"

he uses the "may" word - good weasel word that.

And a couple of quotes

We have two classes of forecasters: Those who don’t know – and those who don’t know they don’t know.

– John Kenneth Galbraith

Forecasts usually tell us more of the forecaster than of the future.

– Warren Buffett

"In recent weeks Alexander has suggested that if he were a borrower, he would fix his mortgage rate for three years. However, recent rate increases mean this approach is becoming too expensive when compared to shorter rates. He chided those that did not fix their mortgage rate for seven years at 6.79% back in mid-March as he suggested then." (August 2009) ... so paying 6.79% between March 2009 and March 2016 would have been a good idea? Looks to me like 1yr rates have averaged ~5% during that time.

Ah yes, right time and time again

His mistake on this one was not telling people to fix at 7% for 10 years from 2009. Bank profits would have been higher.

Dictator - explain how a borrower fixing at a high rate makes bank profits bigger ?

Because the margins are higher. Especially on longer terms. Look at the yield curve and compare with retail rates. In addition, there are obvious benefits from retention to the bank if you're locked in for 10 years.

I agree that there is a shortage of all immigration results in continuously increasing house prices. Firstly, much of the immigration appears to be students who opt for more intensively housing options.

The other factor is that if rentals were to increase, then much of the demand would move elsewhere. A lot of the Auckland economy is based on low-wage manufacturing, retail and distribution. If salaries go up then those industries will relocate. We are already seeing middle income earners (such as teachers) opting not to come to Auckland - imagine if that applied to manufacturing.

What I continually hear from the prices-will-go-up advocates is that you should invest in housing because house prices will go up - and house prices go up because people believe house prices will go up - which sounds like a ponzi scheme to me.

you make a good point

I think salary levels in Auckland need to increase over time to help rebalance affordability, but it would also make sense for low wage jobs to move out of Auckland.

We have seen this move with off shoring of manufacturing for years.

Rather than simply sending all our low wage jobs overseas, we may benefit from developing additional industrial centres outside of Auckland. Imagine the boost to Northland if there was suddenly factories that needed large work force in somewhere like Kaikohe,

I wouldn't be taking the advise of a BNZ bank economist on what to do with my mortgages. That's a conflict of interest. Fixing at 3yrs is no mans land. If you are going to fix, fix at 1yr, which generally enough time to respond to the market if need be, or go long and lock in 5 years if you understand the swaps are on the way up from historical lows... the other part of your mortgage should be revolving - cash at a cheap rate to pay for new cars, tax bills or credit card debt. Who'd pay personal lending rates when you can lump it on your revolving line of credit.

I must admit I'm conflicted on my next refinancing. A minority fix for 3 years and often it's too long to react. People can always split their mortgage across different terms.


Are Ted Stanton and Tony Alexander one and the same person?

Only focusing on the FDI effects of nationalism looks a bit odd, and misses the big picture - which is trade.

Slapping a 20% tariff on Mexico (in whatever form) clearly contravenes WTO and NAFTA. When global trade collapses, what then for little old open economy NZ?

Tony seems to be very out of touch with what has been driving the Auckland housing market?? I'm really surprised that he can up with this statement; "Auckland house prices aren’t on their way down'?
How can he be so sure when we can see that the Auckland housing market in clearly on the decline. Has he not noticed the impact of China's enforced Capital Flight restrictions since Mr Trump got in to power? This is likely to last for quite some time possibly even years.

Has he not noticed the recent headlines such as yesterday with Barfoot's having to cancel their property auction due to no Buyers! And that Auckland's property sales/prices have been starting to declining in recent months.

Where has he been? We all know that any FTB and local Investor with half a brain would know to wait until prices drop further to become more affordable and therefore investment valid, especially with mortgage rates on the rise.

CJ099 Do you own properties ?

Yes I do, why do you ask Yvil? I'm not looking to sell by the way, I know how to ride out a property market downturn (I've been there before).

You know which bank economist completely missed the fact that the OCR was about to drop and rapidly? The one from the BNZ. If you want advice that is completely out of touch with reality this is the guy to turn to for advice.

When RBNZ made their first OCR cut BNZ reacted as if a unicorn had appeared.

Bonus points for this comment, so true !

Interesting quote in his piece...
" Valuation measures for shares, exchange rates,houses etc. give no insight into where the price of the relevant asset is going to go. If someone says their analysis shows an exchange rate to be overvalued
by 20% we are invited to accept the view that from here on the currency will fall. But before
getting 20% over-valued it was 5% above trend and did not fall. Then 10% and did not fall. Then
15% and did not fall. Perhaps the only reason it is over-valued 20% is because it is on its way to
being over-valued by 80%"

--- um, if it's on it's way to be overvalued by 80%, does that mean we jump on board? If I understand him correctly, the logic is, it hasn't happened so it can't.

Now, I'm not wishing ill, but we all realize that's what a bunch of people said about US bubble pre GFC, right?

Many of them Chief Economists and RE 'experts'. Enough said.

I'm with you rmc

Using TAs fundamentals to determine the outcome for Auckland house prices is absurd. Simply stating an occupancy rate , does not constitute a housing shortage. There are multiple fundamental reasons why average household numbers are increasing in Auckland, however the multiple of occupants will not determine future house building or future house prices. Buying an Auckland home on this fundamental must be the most ill conceived rationale.


Never trust a man with a perm

David should change the headline of the article to this ^^^

Re: " Migration flows added about 42,000 people to Auckland’s population last year. With an average household occupancy rate of three people per house that migration surge necessitated construction of 14,000 more houses. At best 9,000 were built. Auckland’s housing shortage continues to grow.”

What this means is that Auckland's population was estimated to have grown by 42,000 in 2016 -with the main source of increase being immigration. Not that 42,000 immigrants moved to Auckland.

Theses statistics clearly show that supply is not keeping up with demand. This is probably a factor in why Auckland has a house price to income ratio of 10.0, which makes it one of the least most affordable cities in the world.

I recently wrote an article about Tokyo which in the 1980's had ridiculous property prices. There used to be a saying that the land around the imperial palace in Japan was worth than the entire state of California.

But now Tokyo has affordable housing -its house price to income ratio is 4.7

What is Tokyo's secret? -it is hard to know -but there is a bit more information. Read about it here.

Steve keen thinks we’re turning Japanese. And it’s all about the private debt to GDP ratio. Just like the fuel to air ratio on a Briggs and Stratton lawn mower. If you increase it the mower runs faster until it doesn’t anymore, and so it goes with private debt/GDP and the finance driven asset prices.

NZ tightening immigration seems pointless. The reason NZ immigration has been high of late is because more New Zealanders are choosing to stay home in New Zealand & more are returning to New Zealand from Overseas which is much different than in the past when New Zealanders were moving to Australia in mass droves.

Australia has the highest foreign-born population per capita in the Developed world (28%) of the Australian population or 6.6 million people.

40,000-50,000 New Zealanders moved to Australia annually over the last 15 years. Australia needs to tighten immigration which the population of Australia has grown by 4.4 million+ people since 2003.

Australia should put a tight population cap on the Trans-Tasman border with New Zealand & only let the free flow to continue for New Zealanders leaving Australia to move back to New Zealand.

Tightening immigration is a nationalist policy.

More Americans,British are now moving to New Zealand. The only way I see the NZ Government tightening immigration is if Labour-Greens & NZ First form the next NZ Government after the 2017 NZ Election.

But considering Winston Peters past views of never working with the Greens puts some doubt on that.

Well NZ also needs a Foreign Buyer Tax as a long term measure but this is also the reason why property prices are starting to drop globally: China’s Army of Global Homebuyers Is Suddenly Short on Cash

Election year with tax ponzi changes promised by several parties, and increasing restrictions on overseas buyers promised as well. Cash outflow controls ramped up in China with impact being seen globally. If I was a Chinese speculator in NZ I would sell now and stick the profits in a tax haven, and expatriate the money owed at home pronto before I made the compulsory organ donor list.

Even if we get the promised Ted Stanton wave of Chinese to keep feeding the ponzi it will be short lived and simply make the voting population even more bitter at Nationals complete lack of action boosting the likelihood of a change in November. Que specuvestors sprinting for the exit at some stage but who will bail you out?

Auckland needs a growth pause for 5 years so the council and govt can update its infrastructure big time, otherwise takapuna and St Heliers will be covered in poo all the time, not just when there's heavy rain.

For the Specuvestors, winter IS coming.

Money from China for Foreign Real Estate: Fuggedaboutit

Hmm, might take up knitting.

What if they make past purchasers tell them where the money came from, large sucking sound.

I'm hearing the whoosh of a big, shiny, sharp blade

Oh and now the French are also bring in taxes to reduce foreign property buying in Paris. It's interesting to see how they're tackling the problem using a drastically increased property tax rates on 'non-resident' owned property rather than a Stamp duty tax. I guess it kills two birds with one stone.

The city council wants to stop foreign owners leaving their apartments empty for much of the year and hopes to coerce them into selling them off or putting them on the market for long-term rental.

A measure due to be adopted next Monday by the city council would triple the current 20 percent extra that non-resident owners have to pay in council tax, or taxe d’habitation, to 60 percent.

The number of non-resident owned homes in Paris rose by 43 percent over the last 15 years, while owner-occupied homes rose by just three percent in the same period.

This growing trend is depriving Parisians of homes and driving up rents, the city argues.

interesting, scary times ahead for landlords as accommodation and the costs of it become political around the world
Last year rent caps were a rolled out across the greater Paris region, to the dismay of real estate agents and property owners who warned that they could discourage investment and bring down property prices.

Oh well, landlords here always have to government and the public purse to draw on, just a shame the poor tenant has to be the one go through the humiliation of having to apply for it.

He is a bank economist, if house prices retreat his job could be on the line. Biased article


House Overpriced - being polite, absolute uninformed hogwash

Tony may be the Cheif Economist for the BNZ but having read his columns for 10 years he delivers an unbiased opinion of the facts. No one gets everything totally right but statements based on current info are the best we have. Always refer to other economic commentators to come to your own decisions but I can assure anyone on this site having used the info from Tony for 10 years, he has helped me understand the truth of the markets. The doubters will comment negatively ( they generally are the people who have missed out by not making decisions lead by other doubters ! ) as always but I have made millions with the help of Tony's columns. You don't have to agree with such commentaries, as long as you understand the drivers of what is happening in the market ! Ignore to your peril and end up a cynic or grow up and enjoy ! I look forward to the cynics...

Mr Alexander knows a thing or two, but he still got it all wrong three years ago, what makes you think he knows it this time ? He is making an educated guess, and sometimes that guess is completely incorrect. You can not even blame him, these are turbulent times.

Good to see a sensible article based on a rartionale appraisal of the changing global economic environment we may see under Donald Trump. We need more this reporting.