Bernard Hickey sees a 'vortex of decline' for provincial New Zealand. Is he right? Can it be stopped?

Bernard Hickey sees a 'vortex of decline' for provincial New Zealand. Is he right? Can it be stopped?

By Bernard Hickey

New Zealand's previous economic recoveries and housing booms used to be spread fairly evenly.

They were often led by Auckland, but the provinces eventually caught up and the 'goodness' of rising house prices would infuse through the department stores, builders yards and hardware stores to create jobs, wages and yet more house price inflation.

But not this time around.

While real house prices in Auckland rose 13% from their 2007 peaks and Christchurch prices rose 5%, real house prices in the rest of New Zealand fell 20% and are still falling.

"People tell me prices never fall. Go and have a look at the prices in the provinces," NZIER economist Shamubeel Eaqub said this week in his quarterly predictions briefing.

Take out a few of the warmer spots such as Queenstown and central Wellington and the price falls are much heavier in real terms in cities and areas such as Palmerston North, Wanganui, Gisborne, Whangarei, Rotorua, Northland, the Coromandel and the West Coast of the Southland.

The reasons for this disconnection aren't obvious.

Many of these provincial areas are nestled in amongst the farming and tourism generating areas that have picked up over the last couple of years.

Most are not as directly exposed to the slowdown in the rest of the world as, for example, Auckland. But scratch a little deeper and there are some heavy weights dragging down on provincial New Zealand.

Firstly, the ageing of the population and the continual exodus of young New Zealanders on their often permanent OEs are hitting smaller towns and cities hardest.

Their populations have been hollowed out, leaving many residents in or near retirement.

They are less likely to be splashing out on new houses and all the household-formation spending sprees that drive a normal economy.

Secondly, a lot of the manufacturing and light industrial job losses seen over the last five years have hit areas outside of Auckland and Christchurch hardest.

The likes of Porirua, Lower Hutt, Dunedin and Oamaru have been slammed time and again by plant closures.

The jobs lost are often the 'best quality' jobs with higher wages that support entire families.

The almost visceral reaction by Dunedin's civic leaders of the government's latest plan to close the Invermay AgResearch station was a sign many smaller cities have come to the end of their tether.

Thirdly, a lot of the extra dairy, meat and logging income that has surged into New Zealand over the last two years is not circulating in the regions from which it was harvested.

Farmers are loathe to reinvest or spend their windfalls, choosing instead to either repay debt or store up the savings ahead of the next downturn, particularly in sheep and beef sectors.

Finally, the combination of the job losses, the internal and international migrations and the resulting house price falls are creating a type of self-fulling feedback loop.

Once the momentum is built up, the economic decline becomes a vortex from which many of these small cities and towns are struggling to pull out of.

Young families leave in anticipation of job losses and the slow drip, drip of house price falls is corrosive. Why buy or build a house when its price keeps falling?

That's why the very strong house price growth in Auckland and Christchurch and the massive public infrastructure investments now adding to that activity are so tough to take in the provinces.

They can feel the growth happening at the other end of the state highway and can see their young being pulled into the centrifuges of Auckland and Christchurch, but can do little to stop it.

The final straw would be a nationwide interest rate hike next year to reduce the dangers to the overall economy from a housing boom in Auckland.

Solutions are hard to find and few are suggesting that Auckland and Christchurch should be starved of the infrastructure investment needed to cope with their population growth and earthquake rebuild respectively.

But the pressure will build for more government thinking on regional development and migration policy.

Too much money, too many families and too many communities are embedded in these provincial areas to just let vortex of decline accelerate.

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This piece was first published in the Herald on Sunday. It is used here with permission.

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67 Comments

Interesting Bernard. But I part company with you on Auckland being separate. Partially because house prices are an inadequate criteria. Mostly because I see Auckland as a town that is struggling for income against high cost - no different from the rest of the country. And often my peers there are in much worse condition. With no disposible cash etc. Be interesting to see an article similar - but on Auckland only. The place has lots of tiers. Be interesting to see how you would group those.

If they even got a resource consent, it doesn't mean that it will be built. There are plenty of unbuilt projects that stop having got consent - eg several windfarms, various multistorey auckland projects. It is a "cheap" step to get, or not get, a consent.
"Old folk" are often the people behind projects that don't fit in the location proposed. Its good they stand up to each other - otherwise might just let anyone do anything anywhere.  :)
 
 
 

Zanyzane,
 
It is realtively cheap compared with the construction cost.
 
We don't have to take any development that comes along and is proposed with outside consultants extolling its' virtues. They are just hired guns. Bang bang!

It's just the wrong place for the project - a dead end road in the wilderness (aka your "nothingness"). :)

ZanyZ - that's spin and horsepoo.
 
Whenever I spot the word 'vibrant' - which means exactly nothing - I know the speaker is pushing a dinosaur view. Sorry, but peak energy globally meant peak work do-able, and efficiencies can never mitigate the downside of the Gaussian.
 
So Dunedin is fine hosting cruise-ship tourists, while the fiat-fiscal system stays intact, and their dollars let them cruise. Ships will outlast aircraft - we've alreadt once visited the inflexion-point where airlines go belly-up (it's shy of $148 US in 2008 terms). There's no point building for aircraft-delivered tourists. The 'investors can't take their 'asset' with them, of course  - so the question is whether the shell is of any use to Dunedin with the water lappin it's foundations in 50-100 years time.
 
The answer is - almost certainly not.

While the tunnel idea had merit, it causes a whole lot of other problems that communities would need to deal with - while probably getting none of the profits or the benefits. Just hw much is a job worth in terms of breeding places and fish habitats? What's the equation?
 
MOST proposals for consent don't get turned down - they get approved with conditions. The bigger and more controversial the project, the more media it gets. So when the one or two that get turned down each year, do get turned down, then we are considerd an "unfriendly development environment". Its just BS - we need to be very selective in choosing the projects that will actually enhance our environments - because without the environment, there is no economy.

Happy Father's Day Bernard , and " a pinch & a punch for the first of the month " ....
 
.... here's the Gummster's take on that chart ( we love our charts , at interest.co.nz ) , if Auckland and Christchurch weren't " special cases " in this housing cycle , I reckon they'd be down a healthy 20 % in average house prices too ....
 
To me , it's a correction in the overall market ( excepting for Christchurch's earthquakes , and Auckland's radically constricted land supply by the bureaucracy ) ....
 
.... we are seeing a multitude of small towns which are getting a shot in the arm from industry , the Synlait plant at Dunsandel , the Fonterra plant near Darfield , the big vineyard plantings from Waipara through to Cheviot , construction of a Countdown supermarket in Amberley , the expansion of Barkers food processing in Geraldine , the ramping up of the Rangiora bakery to export contracts , and so forth .
 
... it just isn't happening in an even manner across the whole country .. ... but it's more sustainable for those communities than having some bureaucrats drawing up their model for regional development , and forcing it upon everyone ...

Yes, I agree. The regions are the export producers and have been struggling with a high dollar and high house prices. Here in Nelson we are highly export exposed and very low government exposed, which is great. What the regions need is a lower dollar and higher interest rates and a reduction in barriers to change. Why have National been so slow to actually allow change? What is the fascination with glamour projects and stagnation?

I wish I was clever enough to engineer a lower dollar at the same time as having higher interest rates ... the Holy Grail of finance ...
 
... but I am not a banker .... just something that rhymes with it ...

An anchor?

Well put up interest rates, say an OCR of 6 or 7% to kill the illusionary inflation bogie man, watch our heavily indebted first time buyers wither and default Then bank runs, you'd let them fail surely?  Carrying on from that watch economy collapse and everyone sell the NZD dollar...say to 0.5 or worse....petrol is then $3 a litre, badly hurting our energy intensive economy....0.4NZD v USD by then?
Given your sort of austrian outlook I would have thought you could achieve the above easily GBH...
regards
 
 
 

Australian outlook , steven , not Austrian ...
 
.... have a coldie , mate ... ( and I'll give you a tick too , 'cos I know you're not getting your fair share ! )
regards

Yes, that's what will be forced upon us as we will not mend our ways voluntarily. Inflation is not the bogeyman, debt is. Debt is negative wealth.

Our exchange rate is too high because we borrow to pay the interest on our debts. NZ has been doing this since 1973. If we actually ran a current account surplus by spending less than we earn then we must have a lower exchange rate. The two are locked together by an accounting identity. The assumption that interest rate rises lead to a higher exchange rate is only true sometimes. Higher interest rates might lead to a higher exchange rate initially but once Aucklanders start paying down their mortgages like everyone else then the repayments act to pull the exchange rate down. The trouble is the remedy is unpleasant so we will put it off until it is forced on us.

The point being that you put interest rates up in order to change the behaviour from borrowing to saving. So do it in a big jump. You can then happily put the interest rates back down again, just as long as people keep saving.

And there lies the guts of the problem in a few innocence words, we just arent borrowing enough as a country

Irrevelant but solid contribution as always Zanyzane

The point is that borrowing in itself is not necessarily a problem. If you borrow to buy or create an asset that is productive enough to pay the interest and and pay back the loan over time it is a sound investment.
 
My worry is that what we have done is borrow $150 billion or so to bid up the prices of each others houses and then we have elected a government that has borrowed another $50 billion so we don't implode as a result. Have we changed our bad habit of borrowing to pay the interest on our loans? I don't think so.  I think we have settled back into our long standing habits. So we are getting slowly poorer year by year. Stagnation is comfortable at first.

Personally I'm pretty much against using tax as the tool. My experience is that left leaning governments usually take this route and you don't have to be very clever to figure out how to take advantage of the loopholes and distortions they create. Trouble is these loopholes and distortions cause long term crippling damage by encouraging more mis-allocation of capital than they prevent. Did the countries that have had more serious problems than us recently have capital gains taxes, for instance? I think Ireland, California, Greece, UK etc did. To me capital gains taxes are just a desperate attempt to find someone else to blame. Our problem is a desperate shortage of capital and the knowledge and ability to allocate it well, so why punish those who at least have some ability in these matters?

But we already have a significant land tax called rates. It has funded the expansion of one of the most damaging institutions in the country - the local councils. Don't get me wrong, a lot of what councils do is good stuff, but they have become a significant force for stagnation. I think central government dumped a lot of poorly thought out ideas on them precisely because the councils had the income from rates to support those ideas.

And the problem with capital gains tax is that it takes capital from those who at least have some idea what to do with it and gives it to those who do not.

Ah, no. I only consult for myself. I don't see why others should suffer for my mistakes. A lot of the time what I say is exactly against my own interests. I borrow from banks and I lend as little as possible to them. We live in an upside down world. I am currently rather pre-occupied with trying to understand how these pieces fit together and what is wishful thinking and what happens next.
 

That is what we need to do Roger.  Pay down some debt.  Better still.  Have people owe us.  Would be quite good for the exchange rate.

I strongly agree with Gummy, the house prices look like a natural correction outside of Auckland/ Christchurch. When the census subnational figures come out, that will be when we have the data for a discussion of is it a non-Auckland decline or a rebalancing.

If the regions are indeed older than Auckland then does it follow that artificially low interest rates act as a transmission mechanism whereby money is transferred from the regions to Aucklanders? If so then Auckland really is sucking the regions dry.

Steal, enslave and enrich. I'm getting a bit carried away now, but is that the effect of our current policies after Mr Unintend Ed Kon-See Quences has done his thing? Low interest rates Steal from savers (typically 40+ and living in the regions); Enslave young Aucklanders with mortgages and student loans they can never repay; and Enrich those most deserving Aussie Bank Executives we all adore. Couple that with, what is it now, $50 billion of government debt for election bribes of one sort or another.
 
How did it come to this?

Melbourne - The Parasite Economy
Interesting, seems a similar issue but at a more advanced stage.
 
http://www.macrobusiness.com.au/2013/09/melbourne-the-parasite-economy/?...
 

Cancer City
Cancer is known as a malignant neoplasm, a broad group of diseases involving unregulated growth. The cells divide and grow uncontrollably, forming malignant tumors, invading nearby parts of the whole. The cancer may also spread to more distant parts.
listen to the song http://www.youtube.com/watch?v=Rjwk6hWoxlo

AE has a suitable comment I believe,
http://www.theautomaticearth.com/Finance/the-global-economy-suffers-from...
Context, NZ wide hypothermia means that yes we'll see the edges (rural) decline unless they can fend for themselves.
Globally NZ is in the same boat, world wide hypothermia means that yes we'll see the edges (small, insignificant or undeveloped world nations) decline unless they can fend for themselves.  I odnt ownder that the underdeveloped nations since their economy and lifestyle is a lot more basic that they may in the long term fair better than many developed ones.
NZ could go either way....per capita we are pretty bad in energy use and emmissions.
regards
 

The big picture here is New Zealand is still dependent on agricultural exports. This is doing well, but is not a big employer, hence the aging and stagnating regions from a population point of view. Auckland decouples from the regions because its economy runs on imports and migrants.
 
The regions will not improve until New Zealand diversifies. How to do that is the big question.
 
I think we should send a delegation from central plus local government and the private sector to Denmark and ask them how they did it. You see in 1900, "Britain took 75% of Denmark's food exports which amounted to 60%of its total exports" Replensihing the Earth by James Belich.
 
Denmark lost this market, for butter in particular, because New Zealand was a cheaper, more reliable and more marketable (Better British) supplier.
 
Since then Denmark's economy has evolved and they have international brands such as Velux and Lego.
 
Denmark has managed to engage with Europe without losing important areas of sovereignty -it has its own currency for example. Unlike Ireland which also has a history on being a specialised agricultural producer for Britain, who did well in the EU -the celtic tiger. But losing control of monetary policy has turned it into the celtic pussy cat.

How to diversify and into what are some of the big questions.

The way to diversify is to create a level playing field , to encourage research and education , to tear away the unnnecessary red-tape and tax distortions ....
 
... and then to sit back and marvel at the vast array of fresh entrepreneural start ups & initiatives which naturally develop ...
 
The Kiwi economy is remarkebly diverse as it is , it's just that the huge players such as Fonterra and Fletchers garner most of the media spotlight ...
 
...  follow Andrew Patterson's articles , and you'll see what I allude to .....

James007 - interesting that you ask the "HOW" question.
 
Sometimes the best way to achieve something is to blunder through and learn as you go otherwise your controlling things and don't get the benefit of learning.
Did you know "HOW" to walk before you could?
 
"HOW" many ways can you do simple tasks like doing the dishes, making a coffee, building a house, schooling your kids etc?
 
Do you think Steve Job knew "HOW" he was going to build his Apple Products or Henry Ford the motor car etc?
 
Giving people the freedom to work things out and find any efficiencies along the way is the most important.
 
So the answer to your big question is -  let people be free to find out what works best for them.
 

What happened to the farms in Denmark?
The big picture here is New Zealand is still dependent on agricultural exports. This is doing well, but is not a big employer, hence the aging and stagnating regions from a population point of view.
I find it hard to find suitable people to work on our dairy farm, and put it down to people wanting a job and standard of living that NZs economy can't yet provide.
Agree with evolving the economy, but as a farmer am confused when hear the need to add value to commodities such as logs, and yet told we should accept foriegn investment into primary resource commodoties, because they bring the capital and expertise to add value and access markets. It seems such companys export logs and milkpowder same as NZ ones. At risk of harping on about a well trodden xenophobic path, can anyone remind me of the benefit of foreign investment in our primary resources in adding value to provincial NZ?

Omnologo good question. I have tried to find out. Belich focuses on New Zealand and the Anglo-saxon countries. Looking on the net, Denmark doesn't seem to acknowledge this economic dependence on Britain in its history, let alone discuss how they moved on. Hence my suggestion of going there and finding out.
 
Historically in NZ hasn't  there been systems in place where eventually through hard work on others farms you can become a farm owner -sharemilking or something? If that system no longer holds true, maybe that is why it is hard to find workers.
 
One of the things Belich talks about is that when kiwis migrated here, they wanted independencies and it become part of our value system. Not just to own a farm, but also a business, there own home etc. When there are barriers to achieving this, like we are currently in, then their is rising unease in our society.

I thought England had to pay an annual tribute to Denmark in silver, or maybe that was a while back.

Ah yes, here it is Danegeld. What we pay the Aussie bankers each year presumably. http://en.wikipedia.org/wiki/Danegeld
 

The current value of exported NZD bank profits cannot be sustained. Adding cheap foreign labour repatriation transfers compounds the implosive impact of not circulating that which is earned here. Read more
 
Tipples said the migrant worker system benefited everyone as they could send income home to families and help farmers maintain milk production.
 
Yeah Right!

Playing devils advocate here Omnologo but since I consistently criticise the PI's it is only fair to be consistent. You say "put it down to people wanting a job and standard of living that NZs economy can't yet provide."  But are you offering your workers the same lifestyle as you enjoy? Or do you expect them to work so your can enjoy your lifestyle at the cost of their time and labour?
 
Offer your workers the same lifestyle that you enjoy and see what quality of worker you attract.

It's not just about $ for farm workers - location and size of farm is a big factor for young kiwis.  Some don't want to move to a particular area and be miles from a decent social life - it is not uncommon to find migrant workers in the more 'remote' locations.  Opportunity for further education (usually via Ag ITO) is also a consideration.   The staff on our farm took our sharemilkers job because they wanted to be closer to family and work on a smaller farm.
 
A farmer with a large farm, recently asked the question of a senior politician what the government was going to do about making it easier for him to find farm workers. I was surprised the guy had to ask, as the answer was in his own hands.  Split the farm up into 4 x 500 cow units and put sharemilkers on, would have been my answer.  :-)

Probably a better one, as they have more time off. But I take your point, CO and Brendon and others also make good points about the dynamics of rural employment, something I'm going to have to get to grips with.

Yes some great points, I agree. This is when interest.co is at its best. Good point on problem solving rather yourself rather than looking externally. To be honest I haven't lived in the suburbs for a long time now and probably couldn't but being an introvert is part of that. Seems to me that building social networks in the country is the way forward and to be honest I think a lot more fun is to be had away from bureaucracy.
 
Good the Brendon brings value into it, it is my Scandinavian heritage that counts for a lot of what is behind my sometimes pointed posts. Those that take the bait are usually those without any. The interesting thing is that Scandinavians meld together well with Pacific Island and Maori, probably a bit closer values to their own.

When I was a kid and got thruppence a week pocket money you could still go down to the wharves and watch frozen lamb carcasses being hoisted in a net into the holds of cargo ships destined for the UK. That was agricultural exports.
 
Now we ship cuts of beef and lamb in dinky little boxes all over the world. The point is (as I make below) that it is city-based value-add where the money is - even if we need farmers based all over the country to create the raw materials. The value-add involves food scientists, marketers, computer programmers, designers. While we do make our money from the agricultural sector we could easily apply the same secondary skills to any primary input.

Lego's home is not a big city, read about it here
 
Note the above link discusses how the local region put in place a policy for affordable housing quite early in Lego's history. So there might be a link between regional development and housing affordability.
 
But what other factors are important for how a small place can compete against a big place?
 

  • 30% of Denmarks taxes goes to Local government. So the regions can control their education system -Denmark is a very educated place and as Kumbel says it is the added value of design, marketing etc. where the real money is.
  • Denmark has the flexi-security labour market.
  • ???

Good point. I really hope the government resists the urge to "fix" the regions because they will botch it big time. And the regions need to give up any "cargo cult" reliance on government largesse. If government would relax its iron grip on local government as you say we might see some innovation and revitalisation.
 
I am reminded that Mondragon got unfashionable over the last 30 years. Maybe its time to dust it off and have another look there.

Its quite simple really.
Regardless of what Tony Alexander says the housing market in Auckland is mainly effected by Chinese dirty money purchasing anything around a decent school. They have no interest in the sticks - Chinese knowledge of the dairy industry mainly consists of adding Melamine to the milk to get the numbers up - a few babies here and there - so what. What is happenning out there in the hinterland (as Jim Bolger used to call it before he took off to Washington following his dangerous relaxing of the building codes - muck up, go up anyone?) with house prices during a period when the milk industry has been running red hot simply shows how much the Chinese are influencing events in Auckland. 
We make Australians look clever. Kiwis so dumb la!

Provincial NZ is dog tucker and the feebles in Wellington can do nothing about it. This is an internet story being played out all around the developed world not just here.
 
It is ironic that the net (and IT in general) which lets everyone participate regardless of where they live is also driving the growth of big cities at the expense of the provinces.
 
We are used to the idea that we now order on-line and get a courier delivery the next day (whether it's a passport or a cam belt). So we don't need local warehousing or branches the way we used to. One strike against provincial towns.
 
We are used to the idea of the global supply chain which now is totally dependent on instant 24*7 free communication. Manufacturing and some service jobs have left our provinces for China, Indonesia, and Mexico. Strike two against the provincial towns.
 
Strike three is a little less obvious. Consider a can of infant formula sold in China. If you took the retail price and divvied it up between farmers, Fonterra, the value-added processor, logistics and retailer you would find the farmer's share is  small. The proceeds are going to the glass towers in Auckland and Shanghai not to the farm gate. So the jobs are in Auckland not Te Kuiti.
 
There is also a clustering effect that accelerates the consolidation. The well-paid jobs are no longer ones of routine they are the creative, the non-routine, the ones that rely on relationships. If you want a career-type job  you have to go where everyone else is. Employers and employees benefit from having choices about who works where and there is a dynamic turnover of staff. Being close to everyone else means being effective. In New Zealand, because of our tiny size, this means that we need one big city where all the good jobs are and the rest of the country has a relatively low-paid production role.
 

only part of the problem. Its really a case of costs getting out of wack with earnings. The big cities suck in tax dollars and we in the provences don't get them back. 
Rates are very low in AKL compared to many provincial towns. Many farmers around me pay over 20k a year for average farms.
Taxes on diesel and road user charges, ACC and many more are killing the provences. Wait till people have had enough then the cities will get it, as we are forced to cut production to cut costs. Its right around the corner.
  Where is the production that is backing the loans on all those houses in the big cities?
I can assure you that debt on housing is not increasing our wealth, when it blows up, lets see how the cities fare, after a housing crash on a scale not seen since the 30's.
 

Not quite true. Take a look at CHBDC's accounts and check out how much tax subsidy you get for roading. Rural NZ is subsided for roading, broadband, river control and pest control amongst other things. When it comes to ACC your argument only makes sense if forestry is less dangerous in the Kaiangaroa forest than on One Tree Hill; rural activities are more dangerous than office-based ones so insurance premia are higher end of story.
 
If rates are lower in cities it's because they get benefits of scale. The higher the density of building the lower the unit cost of infrastructure.

What does the government take off us in road user taxes?  They just give us a small portion back and even then we get to beg for it.

Exactly AJ and a large number of farmers don't apply to get the road user taxes back for the on farm portion that is used.
 
 
 
 

If we are talking Road User Charges applied to diesel-powered vehicles you (andrewj) get:
 

  • State Highway 2 to the fleshpots of Hastings
  • State Highway 50
  • A 51% taxpayer subsidy to the Roading budget of Central Hawkes Bay District Council
  • An implicit subsidy for your on-farm roading because you don't pay RUC's while you are driving on your own network

Highway 2 and 50 are arterial roads and used by a lot of traffic passing through. There has been a very low level of spending on these two roads for many years.   
  Its going to take a lot to convince me, that we are not getting the short end of the stick.

I find it hard to believe that you never use SH2 or benefit from someone else having used it. I find it hard to believe you never use the local roads in your district. 
 
But you asked and that is the basic answer.

No I don't, at the moment Im living in the States but still paying taxes in NZ. Most of the damage I do to the roads is heavy transport, sheep cattle and grapes.  I just don't know how to work out how much of the tax we pay comes back to us?
  Off course my taxes benefit people in towns as well as in the country and some of it is just a plain waste.

As far as I know all RUCs and petrol excise tax go straight to NZTA who use it to maintain the state highway networks and about half a billion goes to rural councils to subsidise local roading. I'm pretty sure the days of these taxes getting lost in the consolidated account are long gone.
 
As most taxpayers live in cities I am confident the nett flow of funds is out of the cities into the countryside.

P { margin-bottom: 0.21cm; }
My very simple way of looking at it is the provinces compete with Auckland. If company XYZ can set up in the provinces and pay lower wages due to lower cost of living (cheaper housing), then as long as the infrastructure deficit can be overcome they will set up there.
 
So in the provinces, either house and land prices are too expensive or there is a lack of infrastructure or both.

Um no...the provinces can now only get routine-type jobs so they are competing with Guangzhou, Jakarta and Bangalore. The good news is there is no compeition on infrastructure there :-)

Living in the woops, I'm struggling to follow some of this debate. We just sold our lifestyleblock for about 20% less than what we may/may not have got 5 years ago, but we now have no debt, no rates burden or earthquake insurance, so plan on having about $30,000 more in net income, couple that with a massive increase in Fonterra payout ( and no drought) and life's a peach. There is no way I could come close to a decent living in Auckland and in fact none of my five tertiary educated kids will go near the place, except to fly out of.
As far as I can see, my income is based on production of a real saleable product, as is most of the provinces. Aucklanders is based on imported money and bugger all else. Too simplified I guess.

No, I think you are right.....
regards

Dead right Redcows.  Although I do not think that everything is rosy in the provinces, there are tiers there too.  There is economic pain for some. But it's not worse than Auckland.
But it's pretty good as well.  I had a wonderful day in the paddock sorting the irrigation.  And early on in the village for my coffee i was surrounded by well dressed very happy people.   Then there was a flurry of passing helicopters in the late morning, which I would attribute to people heading about to the fathers day family lunches.  Yes, seriously - even if somewhat ridiculous.
I like Auckland and go there often.  So this is not the usual provincal slinging off about the place.
But the place seems poor. Repeat Poor.  Bernard needs to talk about the three tiers there.  People doing well.  LImited number.  People in the middle.  Really stuck.  Often in houses they got into years ago, and never ever could be able to do that again.   The treadmill is turning faster each year and fewer are able to keep up.   People at the bottom.  Tragically poor.  And the bottom tier.  It's most of Auckland, including for many employed people.
Prospects.  It's a ticket clipping town.  Nothing wrong with that.  But ticket clipping was what Dunedin and Napier and others did years ago.  And then found they were bypassed.  The adjustment was brutal.  The end of the ticker clipping is coming to an end for Auckland too.  Example.  Publisher friend in Auckland used to see the purchasers of Advertising in Auckland.  Then all in one year they found they needed to go to Sydney.  Auckland is in the process of being bypassed.
I look about Auckland and it seems poor.  It has the population, but not the economy in my view.  House prices as an indicator of demand.  Not really.  What does the static rental prices indicate about demand.
Bernard:  Give us some stories about Aucklands three tier economy.  Keeping in mind the description of the average Aucklander.  Some years ago Metro magazine identified such as likely female, polynesian, and near Otahuhu.  Was a factory worker I believe.  More likey to be now under employed. 

Am sure you are pretty close to the mark, in terms of tiers here, KH.
While I don't really think Hugh P's Houston solution would solve the problem even if it could be applied here; he is no doubt correct in pointing out that a housing median price being 3 times the average income is closer to a state of happiness, than a seven times multiple. Bernard's article makes it pretty clear which one Auckland is, and which multiple everyone else is closer to. We maybe should be looking at the provinces jealously. 

I bet if Hugh was to look closely at his numbers he would see that interest bearing credit based lending will always result in an increasing median multiple over time. Sure there will be differences in the rate it happens between areas but ultimately the only difference is that time frame in reaching unaffordability.
 
What I am seeing in this discussion is that rural NZ isn't more affordable despite being cheaper.

There are two NZ's: the one described by NZIER, BERL and Treasury and the one we live in individually. I am completely with you Andrewj, red cows and KH. I have a happy, low-income life on a small-holding nowhere near Auckland. Nothing wrong with that and I have a sneaky hope that PDK is the new normal. But if you talk business as normal/conventional then I stand by my comments about the economic shift to large centers. And if you think of NZ as a region of Asia/Pacific then even Auckland is also being marginalized as you say KH.

If anyone still doubts that Auckland is in the grip of the mother of all housing bubbles , check out the NZ Herald article , " $ 1 million plus , but world's apart " ( Morgan Tait ).....
 
.... and cop a gawk at the tired old Grey Lynn house which sold for $ 1.2 million ...
 
The loo is legendary , more appropriately to be found in a Dunedin student flat , not a $ 1.2 million " mansion " in the Queen city ....

Good article Bernard.  Fortunately for the provinces it will sort itself out but it will take time.  As Auckland gets more and more expensive, to live and do business, people will be forced back out into the provinces.  You'll also get retiring baby boomers selling up their million dollar homes in Auckland and moving somewhere cheaper to free up some cash.  Your already seeing the later in Tauranga, Whangarei and Coromandel just not yet in large numbers. 

There is an assumption that industries shift to Auckland because it is more economic to do so.  Is that so.  What is the evidence.
Many of the shifts I see are because the owner wants them near.  Government is the same.
And many of the provincial business success stories are because that is where the original entrepenurial family lived.  Same in Auckland.   Lots of stuff like film and specialised engineering is where it is because it is.   And even in New Zealand because of the same random factors.  eg Peter Jackson.
Seems the thing to do to keep some enterprise in your town  (or your nation).  Is to keep the ownership there.