What happened Monday

A review of things you need to know before you go home on Monday; many rate cuts, a record crowd, BNZ borrows $575m, mixed crowd funding success, bumper services, local government booms, swap rates hold, NZD stable

15th Jun 15, 4:00pm by David Chaston

Here are the key things you need to know before you leave work today.

TODAY'S MORTGAGE RATE CHANGES
TSB, Westpac, Police Credit Union and NZ Home Loans all reduced their floating home loan rates, all a cut of 25 bps except Westpac who cut by their key variable rate by -19 bps. (Also note that our initial report on HSBC's Friday reduction was wrong; they did pass through almost all the OCR reduction. Our mistake and apologies to HSBC.)

TODAY'S DEPOSIT RATE CHANGES
Westpac cut its savings rates today, as did Heartland Bank. Heartland, Kiwibank and UDC all reduced their term deposit offers. Apart from Westpac, no one cut more than 25 bps.

PERSONAL LOAN RATE CUTS
TSB Bank has announced cuts to its personal loan interest rates. Its unsecured loan rate has been reduced by -16 bps to 13.79% and its secured loan interest rate has been reduced by -25 bps to 11.79%.

A POPULAR PLACE
Last week, more than 60,000 people read our stories in more than 120,000 user sessions, downloading more than 325,000 pages. That was an all-time weekly record for us on all counts.

BNZ NOTES ISSUE RAISES NZ$575 MILLION
On the heels of China Construction Bank's NZ$75 million note issue, BNZ is borrowing NZ$575 million through an issue of five-year fixed rate medium term notes. The BNZ notes will pay investors 4.426% per annum. The notes were issued to institutional investors and NZX participant firms. In comparison, BNZ is advertising a 4.65% five-year term deposit rate.

CROWD FUNDING RESULTS
The Mad Group offer closed on Snowball Effect without reaching its minimum target. It only raised $460,000 of its $750,000 minimum target and a long way from its $1.5 mln goal. The Retirement Income Group's Equitise platform offer also closed raising $455,000, well above its $250,000 minimum, but a long way from their goal of $1.245 mln. You can now see all open and closed crowd funding offers across all active platforms, here.

SERVICES STAND OUT
The PSI for May was 58.0. This was 1.5 points higher than April, and the highest overall value since July 2014. The employment index for May (56.3) reached its highest value since the PSI survey began in 2007. Overall, this was a bumper result in May.

BOOMING BUSINESS
Local authorities' seasonally adjusted operating expenditure increased +4.3% in the March 2015 quarter, Statistics New Zealand said today. Rates and regulatory income rose +4.7%.

ANOTHER 1,000
House building activity is ramping up at Auckland's Hobsonville Point development. In addition to the homes already completed or under construction, there are now 1,000 additional homes in the pipeline in precincts where development is already underway. That brings the total of homes that are either complete, under construction or in the development pipeline to 2,550. Unfortunately the entry price for many of them has also risen. The first lot went for $485,000 but the next tranche will sell for $550,000. In Auckland terms that is low but it is not very 'affordable'. Fortunately LVR restrictions don't apply to newly built homes so tiny deposits are possible if you have the income to support the borrowing.

WHOLESALE RATES HOLD
Swap rates stopped falling today, down by only -1 bp which was in contrast to the end of last week, and despite the Friday moves lower on Wall Street. The 90 day bank bill rate rose by +1 bp again, now to 3.31%.

NZ DOLLAR UNCHANGED
The Kiwi dollar fell below 70 USc on Friday night in New York, but after opening here today it is little changed from there. It is still at 69.7 USc, at 90.4 AUc, 62.2 euro cents, and the TWI-5 is at 73.9. Check our real-time charts here.

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24 Comments

by Kumbel | 15th Jun 15, 4:37pm 1434343060

Government has a bad week

In a week when it seems that the Guatemalan Pig Breeders Association are the only people left in the world yet to criticize this government for its inaction on housing we see yet more floundering in Auckland.

Auckland Housing Accord

Finally, with absolutely no publicity, Auckland Council/MBIE published a monitoring report for the Auckland Housing Accord more than two months after it reached the halfway stage. Given that they collect all the relevant data themselves they had no-one to wait for so the only possible reason for delay would be that they were looking for ways to spin disappointing results. Yes there is still spin but finally it is impossible to paper over the fact that the Accord is failing. Look no further than the Executive Summary where they admit, finally, that they won’t make the Year 2 targets at the current rate.

Although they are confident they can ramp up and achieve targets by the end of the year it is still an uphill task. Remember that the Year 1 target was 9,000, Year 2 is 13,000 and Year 3 is 17,000. The project always assumed accelerating activity. Anyone who has ever taken on a multi-year project or even played sport knows that it very hard to come back once you are behind at the halfway point. So, if they do hit 11,000 building consents/resource consents, that will leave them jumping from that level to 19,000 in Year 3.

The main significance of this news is that the government’s position has always been that red tape is the root cause of housing supply problems. The Housing Accord legislation removed lots of red tape, Auckland Council came to the party with their one-stop shop and…..nothing. What building activity is taking place in Auckland would have taken place anyway and there is no surge of pent-up demand to develop and build. But I wouldn’t count on this government admitting they misunderstood how development works even though their own Productivity Commission told them back in 2012.

Release of Crown Land and Hobsonville Point

The failure of the Accord has been obvious for some time and the government has evidently been beavering away in the background trying to find ways to patch it up.

The flagship policy is the co-development of up to 500ha of Crown land in Auckland estimated to put up to 10,000 dwellings on the market. The government hit two roadblocks this week. The first was discovering they didn’t actually own some of the land they propose selling. Oops. Secondly two heavyweight iwi, Ngati Whatua and Waikato-Tainui are taking the government to court to test the Right of First Refusal provisions in the obscure Ngā Mana Whenua o Tāmaki Makaurau Collective Redress Act 2014. As I have already said the stakes for the iwi are really high: there is a minimum of $100m at stake for them.

The government also announced bringing forward of some development at Hobsonville Point (in the bit being done by themselves). They will up the yield of “affordable homes from 20% to 30% and also redefine affordable from $480K to $550K.

You can see the panic in their eyes. Obviously they created the Crown land programme out of thin air, almost certainly only since early-mid April. There hasn’t been enough time to do proper due diligence and the wheels are falling off almost straight away.

OECD Report

I read the full text of the section on housing. It’s heavy going. On the analysis side there was little I could quibble about. But on the policy side they are pretty shaky. I don’t know why but they just jump to densification and that’s it. Which, of course, just encouraged Bernard to write a pretty excitable piece. But buried deep in there OECD actually hit the right nail squarely on the head and I don’t think they even realise it. On p84 they start talking about the “responsiveness of supply” and recognising that our demand for housing fluctuates a lot. But they don’t seem to me to join the dots properly. Bottom line is that they are yet another organisation urging this government to act on housing.

RBNZ flips government the bird

Amongst all the ballyhoo over the RBNZ dropping the OCR what was missed is that they are effectively giving the government the middle finger and going their own way. They have been hinting, asking nicely then overtly begging the government to act but have now given up. They will do what is right for the overall economy and leave the government to deal with Auckland on their own.

by two otherguys | 15th Jun 15, 4:30pm 1434342625

OPEC?

Don't you mean OECD

by Kumbel | 15th Jun 15, 4:38pm 1434343096

Urggh. Thanks, Fixed.

by KH | 15th Jun 15, 5:23pm 1434345830

Kumbel. i seem to remember some data link you gave about net internal immigration in NZ being out of Auckland. Was that you and do you have that link.

by Kumbel | 15th Jun 15, 5:52pm 1434347579

I think this is the one I gave: http://statisticsnz.govt.nz/browse_for_stats/population/Migration/inter….

It's a 2009 report but a couple of the takeaways are that internal migration is (i) out of AKL and (ii) north to south. Both were news to me. I had always thought it was the other way round.

The data in the US shows similarities. While the New York metropolitan statistical area is a great magnet for foreign immigrants it also has the highest rate of outflow of internal migrants of any city in the country. I suspect that is what is going on in AKL too.

by KH | 15th Jun 15, 7:01pm 1434351661

Excellent source Kumbel. This is information the opposite of the common perception.
1. I am one of those who think turning off the overseas immigration tap will solve the Auckland price bubble. There is no reason to cater for that foreign demand, and the cost of it is killing us. Because this info shows all the population pressure in Auckland is not New Zealanders going there.
2. So may of the common taters on this site think the only place they can make a buck is Auckland. And New Zealanders are queuing to get into Auckland. Seems to be the opposite in practice, New Zealanders are leaving Auckland in net figures. And of course unemployment is lower out of Auckland.

by two otherguys | 15th Jun 15, 7:14pm 1434352488

Freeing up 500 ha of land simply accommodates the consequences of immigration

by MortgageBelt | 15th Jun 15, 7:51pm 1434354714

Well, yes, now we can ramp up immigration to 60k.
That will soak up all the new sections & new builds.
And increase the number of Universities and PTEs lining Queen st & recruit another 20k international students.
.......
Then we'll need more land and more houses .....

Etc, etc Loop

by cowboy | 16th Jun 15, 12:03pm 1434413013

Well the system is a loop, or more accurate a cycle or wheel. It's just a matter of getting the balance right so each step has resources to meet needs of previous step, and not overly affect the efficiency of the next phase. ie we're really looking for bottlenecks and resource stagnation not a unique "solution".
If the housing is overdone, we end up with concrete ghost cities like China, which in the next cycle, they will be technologically antiquated by the time they're populated (causing starvation) BUT the side effect is the extra business in making such cities makes the civil construction sector look more busy than it actually is (causing excess resoures to be channeled into the builders and constructions businesses and construction patrons (eg business owners, shareholders, political influence).

Each step has a "vacuum" effect eg population needs/creates draw on food, accomodation, personal transport.
extra food creates more draw on bulk transport infrastructure, on factory equipment, fertiliser, energy production. and on land or expensive building.

It's easily enough to lay out. (used to do it back in my Dungeon and Dragons days for kicks).

And it needs be done on several levels.
personal. community. trade. political (governence & international).
and on survival; change (increase such as training and development); entertainment; government (legal, ethical, moral). The system I used was old, based on the Pythagorean 4 identities.
cold, unfluid. hot,unfluid; hot, fluid; cold, fluid. once each area was identified, and an arbitrary properties matrix assigned, then the identifying characteristics could be used to fit known demands and sources into the spaces, and the gaps and overlaps identified. Like a modern computer system, each individual person or program is blackbox & isolated, thus interface conditions can be described and monitored; by person and by process, to ensure that the normal spaghetti problems don't occur.
However such things tend to work better on doing grass-roots upwards design, not heirarchical herd dominance common in organic life where the people at the top need to feel like they're in control and most important and thus usually want to ignore the whole grassroots thing in favour of their pronouncements and policies. (which for some reason never quite seem to work "under the duck")

by Kumbel | 16th Jun 15, 8:26am 1434400000

I make no secret of my preference for supply side solutions. While a cut in visa-based immigration may provide some temporary relief it is not a solution. Like whack-a-mole, housing market problems in Auckland will just pop up out of another hole until you deal to the whole game. As I say above the OECD did point to housing supply responsiveness as a significant problem and that is a systemic problem.

On that note remember that the Productivity Commission release their interim report on Using Land for Housing tomorrow (June 15). While I believe that the Terms of Reference will prevent them from delivering a comprehensive assessment of the current situation it will still be interesting see what they come up with.

by Brendon | 16th Jun 15, 9:56am 1434405365

Kumbel while I completely agree with you that wholesale reform of the housing market is needed with particular emphasis on long term supply side issues. But addressing short term cyclical issues like foreign buyers and immigration into Auckland would help and would send a message that the government is serious about providing affordable housing to ordinary kiwis -not some global elite.

by cowboy | 16th Jun 15, 11:42am 1434411722

While it might provide relief, it's like a tank with many holes. If you can't throw out the tank you have to plug the holes, where one starts isn't the issue, although bureaucrats love to get paid debating that point indefinately because they fill their pockets while looking busy, and no answer is wrong or right in their context. What needs to be done is the wholes patched starting at the first and working through, the first can be entirely arbitrary if needed (although a list of the factors, would allow me to solve the linear equations to get optimised answer) but the most important thing is to make a start.

Likewise with supply side. Looking at our shop shelves compared to the old consumer/bespoke side there is rugged proof that some of it seems to work, if a little wasteful. But they do have to make sure they're supplying the right product - eg making cheap housing while foreign funds are seeking homes will just result in more property ending up in foreign hands, and not actually solve the real problem. That bureaucrats are having issues finding a solution points out that they don't even know what the real problems are.
So plugging any of the biggest leaks while they look for that question, is one obvious start point.

Also, foreign money -isn't- floating our economy as someone else suggested because that's actually impossible. IF it was feasible, then for it to happen, almost be the definition...it would mean we don't actually have an economy any more !!!

by Zombie ponzi | 15th Jun 15, 6:25pm 1434349544

Nice summary thanks Kumbel

by meh | 15th Jun 15, 6:52pm 1434351145

"The government also announced bringing forward of some development at Hobsonville Point (in the bit being done by themselves). They will up the yield of “affordable homes from 20% to 30% and also redefine affordable from $480K to $550K"

It's a shame that a 92sqm, 2 bedroom on a 157sqm plot starting at $550K isn't suitable for a family with more than one child. Could be worse. It could be one of the 2 bed apartments which is the only other option at that price. Even more of a shame that it isn't as affordable as the 100sqm, 3 bedroom on a quarter acre that my parents were able to afford on a single average income. Just sayin.

by Kumbel | 15th Jun 15, 7:08pm 1434352111

I'm assuming they will build more of those ghastly semi-detached units or mid-density complexes of townhouses to get that many buildings on that footprint. Same for getting a yield of 20 dwellings/ha out of the other Crown land they propose developing.

Let's not dress up these up as anything other than what they will be: expensive fringe slums.

From my point of view you hit the nail on the head. These are not the dwellings that people want.

by meh | 15th Jun 15, 7:29pm 1434353361

Depends which people I guess. The stuff appears to be selling. Does the market ever really provide what the people want or does it just tell them what they want? Herd mentality? Ignorance?

by steven | 16th Jun 15, 9:03am 1434402213

"Want" and "can afford" are usually mutually exclusive.

by Stephen Hulme | 15th Jun 15, 4:43pm 1434343384

BNZ NOTES ISSUE RAISES NZ$575 MILLION

Somebody had to soak up the NZDMO's NZD 358.09 million half year coupon payment on this issue.

Does this confirm some international observations:

“The monetary transmission mechanism in the major economies is functioning again: G7 private sector credit growth is expanding.”
“Credit growth will reinforce the economic recovery, and…contribute to upward pressure on global real bond yields.”
“The uptrend in bond yields has further to run on a cyclical basis.”

China held the torch with massive, broad stimulus when the rest of the world was flat on their collective backs. China undoubtedly needs/wants a little down-time after gross debt ballooned from 150% of GDP before the crisis to close to 250% of GDP currently. Read more

by Stephen L | 15th Jun 15, 5:28pm 1434346134

David, well done on being a "popular place". 60,000 unique users sounds pretty impressive. You would seem to have created an important part of NZ's financial dialogue.

by Guido | 16th Jun 15, 1:42am 1434375777

But only a handful of up-votes for each comment.
Maybe it would be a good idea to let guests vote as well.

by steven | 16th Jun 15, 7:33am 1434396810

in which case its a piece of astro-turfing. It would probably also be codable so one person could get a lot of votes for him/herself. Bear in mind also its what ppl like and not what is correct.

by MortgageBelt | 15th Jun 15, 6:14pm 1434348856

Interest rates will stay low for years to come
http://www.morningstar.com.au/stocks/article/years-to-normalise/7117?ut…

by steven | 15th Jun 15, 7:24pm 1434353051

Well lets clarify that a bit. For me the OCR as a long term trend, yes, I dont see it ever going above 5% again, ever, and I wonder on 4% not unless the RB wants to commit Seppuku. Interest rates however I cant see why in the event of a financial crisis of magnitude we couldn't see a short term spike as investors run, aka Greece and no one wants to lend to us in the wholesale market. Why is that not possible?

Interesting of course some have been posting on the hyper-inflation of 2017 that zerohedge / Grant sees. Same same since 2008, two very opposing view points.

by sharetrader | 16th Jun 15, 8:20am 1434399604

Greece is interesting in that its only a matter of time before they exit the EUR. then what will happen who knows will we see another freezing of the money market, very likely, will that lead to more QE who knows some countries are ok now and not exposed this time its mostly Germany and France.