Adrian Orr to consider Grant Robertson's call for the RBNZ to take account of house prices, but says: 'Our monetary policy actions have been, and will continue to be, effective in supporting the economy'

Adrian Orr to consider Grant Robertson's call for the RBNZ to take account of house prices, but says: 'Our monetary policy actions have been, and will continue to be, effective in supporting the economy'
RBNZ Governor Adrian Orr

The Reserve Bank (RBNZ) says it will consider the Government’s suggestion for it to take house prices into account when formulating monetary policy.

Finance Minister Grant Robertson on Tuesday morning wrote to RBNZ Governor Adrian Orr, suggesting the Monetary Policy Committee’s (MPC) Remit be tweaked to require it to “avoid unnecessary instability” in house prices.

The RBNZ, at around 4.40pm, published a letter in response.

Orr welcomed the opportunity to engage and said he would "respond with considered feedback in due course”.

But he also defended the MPC’s actions.

He noted lowering interest rates to boost house prices was a key way for the MPC to try to meet its inflation and employment targets.

“I can assure you that the MPC, in making its decisions, gives consideration to the potential impact of monetary policy on asset prices, including house prices. These are important transmission channels that affect employment and inflation,” Orr said.

“Housing market related prices are also included in the Consumer Price Index, for example rents, rates, construction costs, and housing transaction costs.”

Orr also pointed out the RBNZ was consulting on reintroducing loan-to-value ratio (LVR) restrictions to curb bank lending against property two months earlier than it previously said it would look at the issue.

“Higher-risk lending for housing purposes is also an important consideration for financial stability. We have for many years identified the risk that highly-indebted households and businesses can pose to the financial system. This concern is why we recently signalled our intention to reinstate loan-to-value ratio restrictions for higher risk lenders, in particular, property investors,” he said.

Orr put some of the onus on the Government to address house price inflation. 

“As I’ve said publicly on many occasions, monetary and financial regulatory policy alone cannot address this challenge. There are many long-term, structural issues at play,” he said.

He ended the letter: “Our monetary policy actions have been, and will continue to be, effective in supporting the economy through the COVID-19 economic shock.

“Effective monetary policy is incredibly important for our shared objective of promoting the prosperity and wellbeing of all New Zealanders."

Orr's letter prompted the New Zealand Dollar, which spiked on the back of Robertson's announcement, to fall back a little from 69.9 US cents to 69.7 US cents. 

See a copy of the letter here.

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88 Comments

48
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“Effective monetary policy is incredibly important for our shared objective of promoting the prosperity and wellbeing of all New Zealanders.”

No its not - its creating wealth divisions and destroying social cohesion.

21
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No its not - its creating wealth divisions and destroying social cohesion.

It's also destroying the NZD as a store of value. Monetary debasement. Doesn't affect the old farts as much but brutal on young people.

10
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Untrue; GBP/NZD post float average = 2.57, currently 1.91, NZD/USD post-float average of .6366, currently .6974, NZD/AUD post float average .85, currently .95

So I would say the currency has performed pretty damn well, you'll have to find another reason to hate NZ.

Nice try to explain away monetary debasement by using a strawman.

Strawman, that's all you can come up with? Quite embarrassing frankly.The RBNZ has preserved the value of the NZ$ admirably against our traditional allies and trading partners, an inconvenient truth for the haters.

Yes. Strawman. Exchange rates at different points in time are not a measure of monetary debasement.

Different points in time??? The Kiwi is near all time highs against the A$ and well above the long term average. If the RBNZ are debasing the currency as you state, this would not be the case.

I am weary of the relentless criticism of the RBNZ, they have done a better job than nearly any other central bank. The issue with NZ property is a TAX issue - you know the difference right?

Tax + uncomfortable reform of council incentives to undersupply land required. I like how Orr is mentioning this. Robertson is just jumping on the current RBNZ bashing bandwagon because that seems to be this Labour government's go to. Get elected to fix housing then spend 3/6/9 years blaming everyone else

Don't worry JC is leading up to another rant about bitcoin and its advantages

J.C...don't the vast majority of kiwis who earn NZ dollars spend most or all of them in NZ? For them currency fluctuation has no effect on store of value.

Currency fluctuations are not a measure of monetary debasement.

J.C..OK you have lost me. How is currency debasement brutal on our average young kiwi? I don't get it.

It's true the NZ Dollar has gone up against the US Dollar - though after the GFC it was hovering around USD 0.90 cents.

*J.C. SEEMS to be suggesting ALL Major currencies are deflating/debasing -- therefore measuring one against another is largely fruitless in as fast as they are all becoming less valuable [purchasing-power-wise].
* J.C. is unquestionably RIGHT, as charts shows the US Dollar is worth approximately 90% less than it was 50 years ago.

HOWEVER: J.C. fails to mention that all the 'Money Printing' in the world might NOT cause 'Money Debasement'. The RBNZ could 'Money Print' One-Trillion-Dollars tomorrow .. but if they just credited it to my account - IT'S NOT ADDING to the domestic economy, it's just sitting there .. "On The Balance Sheet".

Also J.C. fails to mention that if 'Printed Money' is used to pay off debt, as the debit is paid off, the quantum of money in the system slightly diminishes.

Conclusion: J.C. is right in the long run and will probably have the last laugh. Also BTC is a great store of value.

As a less crude measure, you can measure monetary debasement through the price of gold over time. Labor exchanged for a representative basket of food and shelter is also another measure. Still relatively crude.

HOWEVER: J.C. fails to mention....

Regardless, the money supply and monetary debasement are perverted primarily through mortgage lending (https://positivemoney.org/2012/10/sir-mervyn-king-banks-create-money/).

Zack,
"Also J.C. fails to mention that if 'Printed Money' is used to pay off debt, as the debit is paid off, the quantum of money in the system slightly diminishes."

I think u got that wrong. Money supply would increase by the amount printed.

When people repay their loans, that money disappears from the economy. Loan money that is repaid to the banks cannot then be lent out again because as the original loan money was created from nothing it must return to nothing. In banking terms money is “destroyed” when people repay loans.

The implications of the above TRUTH are staggering AND unconsidered, even by the most financially literate.

If i borrow $1 million from u and buy a house, the seller gets the $1 million, and i have a debt .
The debt is not money, its an IOU.
If the rbnz loves me and prints $1 million to pay off my debt , then theres now $2 million.

What u are describing is how credit is " destroyed" when it is repaid with money ( Inside money ) already in existence.

What if you borrow $1 Million from the bank?

We are both right depending on the interest/-interest rate of the money used to repay debt [in our thought experiment]:

All fiat money is created out of debt, so in your scenario the Million Dollars I loaned you was originally created out of debt. Fiat money is debt .. debt is fait money. My 'Million Dollars' will need to be paid back/'destroyed' at some point.

Bankruptcies can aid in cleaning out bad debt - it's called embracing a recession .

However you are right in the sense that there is an ever increasing debt burden. When somebody takes out a loan, the debt is larger than the amount credited to the borrower [due to interest]. Aggregated globally this is concerning. Ponzi thinking has always been to increase inflation, print money to pay the debt and now negative interest rates [time travel aka magical thinking]. Anything to avoid facing consequences.

But reread my comment: if 'Printed Money' is used to pay off debt, as the debit is paid off, the quantum of money in the system slightly diminishes.

I said: quantum of money AND slightly diminishes

"The debt is not money, its an IOU."

Completely nonsense
All money is Debt
all just a claim on future output .... ie an IOU
The claim is destroyed when the Debt is cleared

Correct, but it's better to say, "all Western fiat currency is debt". As the likes of Gold, Silver, BTC are arguably not created out of debt.

Ham and zac.
Do u understand the concept of inside money and outside money.
Inside money is credit creation ... Credit is debt instruments that we use as money.
Anyone can create credit, but thats does not mean it can be used as a medium of exchange.
Private sector banks create credit which we all accept as a form of money.

Outside money is different. It is money. It is created by central banks. In reality its not a claim on anything.
Its not a debt
In creating money central banks , essentially, dont really incur any kind of liability, even thou technically balance sheet accounting shows a liability.

Imagine a counterfieter who can create money.. he incurs no liabilities with his money printing, which he uses to buy assets... He is not creating debt , and he is increasing the money supply.

Inside money is a claim on outside money, which is to say credit (IOU) is a claim on money.

https://en.m.wikipedia.org/wiki/Outside_money
https://en.m.wikipedia.org/wiki/Inside_money

not a concept im familiar with
Outside money appear to be a security to leverage credit off ...
Which is of no use if you cant introduce it to the money supply
at which point it must incur some debt burden (become an iou)

17
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Orrs problem - which renters have suffer the consequences for - is his actions indicate he is not promoting the prosperity and wellbeing of all New Zealanders.

When the concern was that house prices would fall due to the seriousness of the Covid Recession the Reserve Bank was very quick to remove LVR restrictions for housing investors. Yet now that economic conditions and expectations have changed - house prices are rising - the Reserve Bank is being very slow to put the LVR restrictions back in place (April next year at the earliest for god sake). This has sent a clear message to housing investors that when the RB comes to considering the wellbeing of 'all' New Zealanders that definition of 'all' includes landlords but not renters.

Essentially Orr and the Reserve Bank actions has reinforced the property investor expectation that housing capital gains is a one-way bet. This will further fuel demand for landlords to buy up more houses and for renters -fearing missing out (FOMO) - to pile into a rapidly overheating housing market.

This was a foolish thing for the Reserve Bank to do - they risk losing the public's respect and eventually even its social license.

It seems the big four banks are reinstating lending restrictions on housing investors.
https://www.nzherald.co.nz/business/housing-market-bnz-joins-rush-to-put...

Given that the banks are already moving would it have it hurt Adrian Orr to announce that there is room for the formal reinstatement of LVR investor restrictions to come in earlier?

Gee Brendon that is a lot you have to say but you miss the point that Orr is acting on the mandate that he's been given... he is doing his job, 1 inflation 2 stability 3 employment. This last point being freshly added by the current govt and is the reason interest rates will stay lower for longer... add to that asset prices will be elevated. You can't change that just admit it.

Us renters are interesting. I'm a renter: we are an obstinate bunch .. stubbornly refusing to believe we should have to suffer anything .. yet constantly given, nay shown the short end of the stick.

Think about that some, before replying.

Both of them seem to be firing into the dark, hoping it will hit the target.

37
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The arrogance of this man. He is like a pompous hereditory lord in the UK house of lords. His time has passed. Time to move on Adrian.

15
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Decision for the lord to move on is not ordered by the serfs.

Yes, looks like we have a cowboy on our hands, basically telling all 4 (yes including even ACT) political parties to bugger off and get stuffed. How do we get rid of him ?

no man's fault but the dysfunction of the entire 'democratic' political system.

sigh…

13
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And all the various dictatorship's over the past centuries has produced what exactly.....mass starvation, oppression, total disregard for human life

12
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So if the Chinese govt fucks up something, whose fault is it, and what are the repercussions?
Also, how's that genocide going?

Imagine genuinely thinking that making decision makers less accountable to the populace would result in better outcomes. Lol

Why the performance:
Megaphone Diplomacy in A minor?

Speedy response could suggest early familiarity with the topic.
But whats the condition of the real relationship between the 2?

14
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An exchange of letters at dawn? Seconds to the rear. This government has no excuse now to not get off their arse and actually produce policy. At the moment they are exactly like Ronnie Barker’s depiction of a gardener, that is shifting a hole from one side of the paddock to the other. We are told in clarion, of their much vaunted mandate, well then do something sensible and effective with it.

The housing problem is a specific one created by lack of government action over the last decade. It is not for Adrian Orr to fix.

In my opinion they should introduce something like a stamp duty for a 2 year period and exempt first time house buyers. 5% on properties over $2.5m might be a starting point- not popular amongst some but something needs to be done quickly in my opinion.

Love this PR exercise, genius.

Gaslighting - manipulate (someone) by psychological means into doubting their own sanity.

28
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Governments are elected to govern for heaven’s sake. Times have changed certainly, but Norman Kirk didn’t hesitate when house prices surged out of control. His government introduced The Property Speculation Tax. It worked. So much so that Muldoon waited a full term and more before it was repealed. This today is typical of government full of authority but empty of responsibility. Even Dr Cullen has had to come out from behind the curtain and say as much, ie the interest rate cuts had already lost any effectiveness when the OCR reduced below 2%.

Mmmmm . . . .
Clearly cooling the house market is not a priority for RBNZ.
Surprising: clearly wider risks associated with rapidly escalating house prices not perceived as either a significant economic or social issue.
RBNZ decisions have been the most significant driver in current market and this bullish attitude is seemingly unlikely to be willingly changed.
Need to factor this into market expectations going into next year.

Great summary/analysis P8

of course not .. their real focus is Global Warming / BLM.

Thus The Green Party was given a clandestine back passage into cabinet and by dint of iron hard undeviating mindsets took control from the huggers and kind people. What a fanciful plot to be sure, but then again.

printer8...yes just like waking up with a hangover and hitting the bottle again. You will feel better for a (short) while but two things are for sure. Your hangover will not be avoided and, when it comes it will also be far worse. Like opium or heroin, Orr can delay the pain.... but not forever.

16
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Orr needs to step down ASAP

Honk Honk.

Orr's response: It's chilly out there and I want to warm things up. How dare you take my gas can away when the fire is just getting going!

by Yvil | 24th Nov 20, 4:08pm
There is only one story today:
"G Robertson asks Orr for suggestions to control the housing market."
A Orr's reply will be the next most important piece of news, meaningless fluff or dynamite?

I think we just got the answer… shame Orr is taking the defensive "I won't change anything meaningful" attitude

It's early days I'd say. Of course he's going to thump his chest and proclaim what a great job he has been doing - pretty standard initial reaction. Might change his tune once he's had time to consider the gravity of the situation.

18
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Orr ended the letter with “Effective monetary policy is incredibly important for our shared objective of promoting the prosperity and wellbeing of all New Zealanders”

On the next page, which he failed to fax through was " who happen to own a house"

Yip it is a landlord democracy - bugger the tenant serfs - their wellbeing is not to be considered...

He talks with the entitlement that just who knows himself privileged can do. Would this be a democratic institution he would have been sacked long ago.

The reserve bank letter was an academic's way of saying "F**k off" Orr is clearly not listening (to Robertson or the mood of the country)

Yeah Adrian Orr has effective said 'F.. O..' to Grant, which may not have been a wise course of action for Mr Orr's career to do.

I get that the housing crisis and stimulating the productive economy not asset price inflation is a big question that will require multiple interventions using all the monetary, fiscal and regulatory levers. But on the specific issue of the LVR restrictions - that is on the Reserve Bank - they chose to remove them quickly and reinstate them slowly - thus reinforcing the capital gain expectations of landlords - which fuels demand from investors chasing a one-way bet and renters 'fear of missing out'.

The answer couldn't be more obvious - Robertson needs to give Orr DTI limits as a policy tool.

Debt to Income ratios affect home-owners. I think he needs to reign back property investors as well. I think maybe very low LVRs for investors or a non homeowner property tax/ rent control.

No the DTI would halt the increase in house prices from a large portion of buyers and keep house pricing aligned to wage growth. Much of the investor wealth and increasing portfolia is based on the percieved increase in value of their investments.

Ive long argued that they could start with a DTI of around 6.5 and reduce it by .2 a year until you get to 5 - 5.5 therefore not causing a shock

He ended the letter: “Our monetary policy actions have been, and will continue to be, effective in supporting the economy through the COVID-19 economic shock.
“Effective monetary policy is incredibly important for our shared objective of promoting the prosperity and wellbeing of all New Zealanders."

Can anyone honestly claim RBNZ monetary actions are achieving the aims embedded in this statement?

The importance of monetary policy as a tool to support the real, productive, economy has been evolving and will be recognised in New Zealand law by adding employment outcomes alongside price stability as a dual mandate for the Reserve Bank, as seen in countries like the United States, Australia and Norway Link

Hmmmm...
Westpac New Zealand extended 62% of loans to housing to record a $3.727 billion increase from last year, while lending to all other categories combined fell.Link - page 22 (27 of 145)

Furthermore, international evidence is not supportive:

Japan's most recent decent back into outright deflation, despite massive 'money printing', comes about because we find the global summer slowdown there, too.

Very different COVID experience in Japan, same QE's, ultimately same lack of economic rebound Link

The economy is supposed to work for us, not the other way around.

If we wish to combine monetary and fiscal policy we had better be prepared for autarky.....and we are not

"He noted lowering interest rates to boost house prices was a key way for the MPC to try to meet its inflation and employment targets."

Didn't he say a few weeks ago that it's not his job to fiddle with house prices?

Exactly the govt is basically asking the RBNZ to perform contradictory things from a monetary standpoint.

He flips between "House prices are nothing to do with us" and "We take into account house prices and want to raise them to create the wealth effect". Orr and Bascand are either inept, corrupt, delusional or a mixture of all of these. Nomatter what mix, they have no place as heads of the RBNZ. They and the MPC need to be stood down while the RBNZs mandate is reviewed properly (not some crazy throwaway line added by GR).

“Housing market related prices are also included in the Consumer Price Index, for example rents, rates, construction costs, and housing transaction costs.”

Yes but what about land prices mr Orr. This is where the inflation is, and these are ignored.

The inflation that is sought is wage inflation to service the (unsustainable) debt....if we keep increasing the NZD value we are importing deflation and increased unemployment (wage deflationary)...leading to increased financial instability.

The RBNZ have been doing their job.... the government, not so much.

“I can assure you that the MPC, in making its decisions, gives consideration to the potential impact of monetary policy on asset prices, including house prices."

Open admittance that they have been intentionally pushing house prices upwards, the opposite of their mandate - financial stability. Orr and Bascand have to be held to account for their removal of LVRs. So many of us told them it was bat s*&t crazy for them to do such a thing when we needed financial stability. Ineptitude of the highest order must result in their firing.

Double post.

First sentence says it all. "CONSIDER the Govts SUGGESTION". Robertson should be giving clear directives which Orr has no option but to follow. If there is anything preventing this happening it is time to change it. Direct, strong and meaningful Govt interference is not ideal but it is infinitely better than the alternative.

12
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I am sick of how the conversation goes to the irrelevant "economy "discussion and not to how New Zealanders are doing.
Adrian Orr makes it clear he is promoting the economy, but the New Zealanders harmed by ridiculous house prices don't come into the picture.
It's a bit like the quote, "the operation was successful, and the patient died"

Robertson passes to Mr Orr and Mr Orr passes to government...going round round in merry go round and screwing average Kiwi and FHB.

AS BOTH HAS NO INTENT.

just scrap interest deductablility on residential property. housing problem solved. tax take up. aussie banks hurt. your welcome

70c against USD, and 95c agains AUD is really strong NZD.
If the trend contiunes, we might see 80c against USD and 105c against AUD soon.
I have no clue what this strong rate will do to the economy, but certain it will kill the export market.

Orr has gone rogue. It's like he is being manipulated. Does Bindi have some dirt on him?

He has been trying to get the housing bubble going since he got appointed.

Brock.. is it true that Orr has four properties? If so he has probably made a cool million tax free on his investments just this year.

Mr. Orr & team are correct. RBNZ try their prudency asking for DTI from Nat govt. - sorry, nope.
Silently expect Lab govt - to at least incorporate CullenCGT, specially now, as majority - sorry, nope.
(Lab even cleverer rer.. than Nat, let's put the employment into RBNZ mandate, hence all these forever subsidy)
So why the fuss now about LVR? leave it off, quicken this FLPs, make it open for housing, extend flexi wages subsidy into more permanent, quicken this negative OCR. We beat Covid, Vaccine is here, 20% RE increases should be celebrated, maintain it & give it more into it - The best govt can do at the moment is to remove that phoney Bright line test, completely utter useless for NZ economic recovery post Covid.

New Zealand needs an inflation index that includes property. For years prominent economists have been arguing this is an oversight but RBNZ and Government have been too conservative and slow to appreciate the magnitude of this omission.

However this does not mitigate the point that the affordable housing crisis is primarily the cumulative result of compounding policy failures between many governments to address the RMA and incentivise local councils to open up land for development.

Just a couple of minutes ago, Orr on Breakfast TV1, saying he is does what he does to "speed up the economy".
NEW THINKING PLEASE, Mr Orr, we have to stop thinking like that.

Housing and household utilities make up only 25% of the CPI... Is that really realistic?
I would suggest more like 50%
So if the CPI is a false number.. then the RBNZ is nobbled from the start.

For those who despise property investors perhaps a history lesson may soften your views, or maybe not.

In the mid 1990's the government of the day announced that Housing NZ's (HNZ) state housing stock was in such a shocking state of disrepair, due to massively deferred maintenance for a very long time due to budget constraints. This had become exacerbated by the deep recession of the early 1990's.
They publicly stated HNZ could no longer meet it's mandated obligations to provide adequate and safe rental housing to accomodate the growing number of renters.
They actively encouraged "the private sector" to provide rental housing and started selling down their extremely poorly maintained state housing stock to private investors.

At the time I was instrumental in starting the Auckland Property Investors Association and our membership grew due to the governments incentives to invest (like depreciation on residential buildings able to be deducted from the rental income and the ability to offset property losses against other income.)

By investing in rental property we could effectively reduce or eliminate the tax payable from other income ie your day job.

The private sector stepped up as a result and investing became a valid option for mum and dad homeowners to invest for the long term to supplement the pension which we were also told would likely have the qualification age raised from 60 to potentially 70.

So before you blame investors think about that. We did step up and take the risks of investing and meeting the accomodation need yet today we are blamed as the main driver of rising house prices.

Second point to make is that the CPI calculation used to have the LAND component included so the RBNZ could include the value of rising land in the CPI and therefore target inflation to the then 1-3% range.

Funny thing happened though... in the later 1990's property values went down threatening to reveal negative CPI (deflation) . At the time Don Brash RBNZ governor removed the main ingredient from the CPI calculation that was dragging down inflation and that was LAND values. If he hadn't he would have had to resign as his job was on the line if the 1-3% target was breached and it would have been if land values remained in the calculation. We were told this was "only a temporary measure" until land values stopped falling but surprise surprise it was never re-included in the CPI calculation and still isn't.

That is why we appear to have a low inflation environment yet property prices have clearly decoupled from the reported CPI rate since 1999.

One last point todays first home buyers are tomorrows property investors. Why? To provide a better financial future for their children and improve their own chances of retiring from the rat race sooner.

I read all that I and still don't get your point?

Point;
The government created the environment for investors to en masse invest, now they blame the same people for the problem they created thirty years ago.

The government instead should actually provide low cost quality housing (it CAN be done but not by relying primarily on the private sector imo) and at the same time help 1st home buyers with the deposit needed that so many of them struggle to save to get on the property ladder.

For the record in 1987 when i wanted to buy my first home i had zero deposit, so I got two jobs and borrowed the deposit unsecured (credit card and personal loan) then got the rest from a bank on the basis I got 2 flatmates (to also give me cashflow). Everything was disclosed to the bank and they could see my cashflow was strong enough so they approved my mortgage. It certainly was a stretch and sacrifices were made ie eating essentials only, no luxury items to speak of, no holidays away, no restaurants, movies etc,etc but got me started when everyone said you cant get in without the cash deposit. How many 1st home buyers today would get two jobs and live with 2 strangers to get started? Very few i imagine but it's still possible.

My employment contract forbids me to have another job..

Bummer! Not even a part time weekend or evening job?

I pumped gas nights and weekend for ages to keep afloat, it was SO WORTH IT in the end.

Probably not enforceable unless limited to competitors.

He has clearly created a bubble. Every man and his dog piling in thinking they're going to get a 20% increase on some dump they've just bought in Taranaki or god knows where.