This could go 2 ways

Bernard Hickey looks at why Auckland's property market is getting its second wind just as the high NZ dollar kicks dairy farmers and fishermen in the guts

7th Dec 14, 7:30am by Bernard Hickey

By Bernard Hickey

The contrast in fortunes this week between two parts of New Zealand could not have been more stark.

The productive sector, dairy farming and fishing in particular, had a shocker, while real estate agents and property owners in Auckland celebrated yet another record month of booming sales and prices.

Dairy farmers awoke early on Wednesday morning to hear of forecasts of a payout as low as NZ$3.65/kg this season after another 7.1% fall in whole milk powder prices on the Globaldairytrade auction platform. A slump in buying from China, which they hope is temporary, combined with surging production in Europe, America and Australia and New Zealand have driven commodity prices down 50.1% in US dollar terms since February.

Russia's ban on European cheese imports has also worsened the situation as European milk was instead dried into powder and dumped into markets New Zealand usually dominates.

However, over the same period that dairy prices crashed in US dollar terms, the New Zealand dollar fell only 3.8% against the US dollar and actually rose 2.1% on a Trade Weighted Index basis.

This has been extremely painful for exporters because usually when commodity prices fall, the currency falls to act as a type of automatic stabiliser or cushion that bolsters New Zealand dollar returns.

That hasn't happened this time.

That's because the Reserve Bank put up the Official Cash Rate by 1% between March and July, while the world's biggest central banks were holding their rates near 0% and printing hundreds of billions of dollars.

Some of those US dollars and yen rushed into New Zealand in search of our high yields from shares and bonds in our banks, power companies and investment funds.

Nikko Asset Management New Zealand, for example, targeted five such New Zealand dollar denominated bond funds worth NZ$337 million at Japanese investors this year. Genesis Energy borrowed US$150 million at less than 3.7% from the US private placement debt market last week to replace more expensive local debt. Both flows pumped up the NZ dollar.

Reserve Bank Governor made a point this week of how other central banks have printed US$7 trillion of new money since 2008 and that the printing presses would run faster in 2015 than at any time since 2011.

Wheeler said all this cheap money was driving down longer term interest rates, which was making it increasingly difficult for the central bank to have a truly independent monetary policy in the long run.

Much of this cheap freshly-minted money from America and Japan is helping banks offer increasingly sharp fixed mortgage rates here.

Two year fixed mortgage rates have dropped from 6.3% to 5.7% since August, meaning many borrowers who switched from floating to fixed have actually seen their borrowing costs flat or lower this year, despite the Reserve Bank's tightening of policy.

That's where the celebrations in Auckland come in and illustrate just how distorted our economy has become.

This week Barfoot and Thompson reported that volumes of house sales rose 17.7% in November from October and the median house price rose 5.6% in a month to a fresh record high of NZ$691,500. Barfoot and Thompson Managing Director Peter Thompson reported buyers had returned in their droves to open homes and auctions in November as confidence returned after the election.

Buyers freed from the risk of a capital gains tax or any limits on foreign buyers jumped back in.

Pumped up with cheaper debt and lots of fresh equity from the 35% rise in prices over the last two years, they have leapt back into the market boots and all.

Fresh Council ratings valuations confirming the windfall gains have encouraged many to leverage up their new equity and buy more properties.

The banks are happy to help those with plenty of equity and are competing harder than ever, offering 'cash-backs' aplenty, free televisions and gaming consoles to get deals across the line.

"The current record sales prices are not proving a deterrent to buyers, with demand at the top end of the market being extremely strong," Thompson said.

The contrast between Auckland's real estate market popping champagne corks and the kick in the guts for the export sector was toughest in Nelson this week.

Sealord confirmed on Tuesday it was cutting 111 jobs at its wet fish factory and moving some of the work to Sealord's Russian flagged factory ships with Ukrainian staff, in part because of the high currency.

So how might all this end?

Some say the surge in Auckland is just temporary until the economy slows down in line with the dairy prices and eventually the currency falls.

But there are no guarantees these two parts of the economy will converge again any time soon.

There are two scenarios worth considering.

Firstly, there is the prospect of continued global deflationary forces pressing even further down on inflation and interest rates globally. The Reserve Bank can't put up interest rates to slow Auckland's housing market at the moment, even if it wanted to, because inflation is right at the bottom of its 1 to 3% target band.

The cheap money is continuing to flood into New Zealand in general and Auckland in particular, as are the migrants wanting somewhere to live. New housing consent issuance in Auckland has flattened in recent months so a supply surge is also some way off releasing the pressure on prices.

Money is continuing to flood out of China, the Middle and East and Russia in search of politically and legally safe places for storage, and a small fraction of that big number is ending up here.

In this scenario, there is nothing stopping Auckland's house prices from gathering their second wind after the slowdown induced by the high LVR speed limit last year and blasting on through into 2015.

Only another Reserve Bank intervention, possibly to increase borrowing costs for owners of multiple rental properties, could slow the market in this scenario.

Another scenario suggests a dramatic slowdown in China further drags on our commodity prices and eventually overwhelms the interest rate differentials to drive the currency lower.

Slowing economic and employment growth would then sap demand for housing and naturally cool the market.

For now, the tailwinds are behind Auckland's property market and into the face of exporters.

And no one seems remotely interested in trying to change the weather.

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A version of this article first appeared in the Herald on Sunday. It is here with permission.

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58 Comments

by KH | 7th Dec 14, 8:05am 1417892717

Excellent summary Bernard.

It's because the politcians forgot to run the place in the interests of citizens. What the point of say a big GDP if the locals don't own anything. Jobs are done by others. And productive business is destroyed by big non resident corporations.

by Roger Witherspoon | 7th Dec 14, 8:44am 1417895056

Bernard, there is an answer but it doesn't look like one at first sight.

What would happen to inflation and the exchange rate if Bill English ran a nice 3% budget deficit instead of trying to balance the books? He could do this by spending more and taxing less. Presumably inflation and employment would go up and the exchange rate would go down.

My current theory is that we have the cart before the horse with all this stuff. There are three levers the government has on the economy. The first is the quality of government spending and regulations, this is the hardest to improve as it involves discussion, taking unpleasant decisions and generally facing reality. National are doing their best here but it is uphill work and they could very easily be making a right mess and we wouldn't know for years.

The second lever is monetary policy, basically the setting of interest rates. I think this is working really well.

The third bit is the bit that doesn't really work. This is the balance between spending and taxing, ie the budget deficit. We are under the illusion that a balanced budget is a good thing, and from time to time it may well be. There are times when an inflationary budget balance is better (ie a budget deficit) and times when a deflationary one is better (ie a budget surplus). We don't have any easily adjustable tax rates so we cannot change this factor to suit conditions. This is a pity since it is the most useful lever to adjust inflation with (and hence the exhange rate). Exchange rate too high for the long term industrial structure of the country? Run a deficit.

Not running a deficit at the current time means we are a bunch of losers in the international race to debase. Other countries are simply running rings around us as they adopt policies that debase their currencies faster than ours. It is a competitive professional sport and we are being amateurs.

My advice to Labour would be - run a deficit, build a bunch of houses and ditch the politics of envy and blame.

by steven | 7th Dec 14, 9:49am 1417898956

Taxing less is actually a poor way to boost economies in the right place at the right time. Especially cutting taxes in the top income stream.

Spending on say public infrastructure (such as housing and schools and hospitals) tends to be cheaper when in a recession plus it employees the poorer income streams which means a) They dont claim WINZ and b) can still spend $s into the economy, ergo its a marginal cost thing for the Government. c) Govn bonds for say 10~20 years are very low interest rates.

"envy and blame." uh no....not envy, we have aprogressive tax system and a level of inequality taht is too high, ergo tax at a higher rate for the top incomes. In fact there is no evidence that for the top income streams a high rate of up to 70% is even negative and the opposite may be true.

PS running a small deficit is actually very Keynesian outlook of you.

"We don't have any easily adjustable tax rates so we cannot change this factor to suit conditions."

Yes we do, very easily, flick of a pen stuff. The Govnt simply hands over the tax rate bands to the RB with a brief to alter the tax/PAYE rates as needed.

by Roger Witherspoon | 8th Dec 14, 9:35am 1417984528

Thanks Steven,

PS running a small deficit is actually very Keynesian outlook of you.

Yes, my thinking has changed over the years as I've explored some of the different ideas out there. It is interesting how the discussion changes over time as people keep fossicking around for useful stuff. The main argument for not running a deficit is if it allows the politicians to stop working on the really hard stuff of reform.

by steven | 8th Dec 14, 10:55am 1417989346

You assume reform is needed, I dont agree here (at least in how I suspect you mean it), at least in terms of substantial reforms. For instance the Rogernomics produced little if any gains for NZ and inequality is now worse since that time. So when I real life experiment fails then I have to ask, why are we repeating it.

The Steve Keen lecture is fasinating on this -1% v +1% btw. So Australia is hell bent on being "fiscally prudent" could be messy for them, but that effect is 10 years away.

I agree on Pollies though, my worry on running a permanent deficiit is pollies will then say "1% was so good lets make it 1.5%" and 2% and 3% etc etc and hence screw it up, you just know they will.

regards

by Roger Witherspoon | 8th Dec 14, 1:28pm 1417998517

I guess I subscribe to the idea that reform is always needed, otherwise you get stagnation followed by chaos. Change is easier if it is gradual.

by steven | 8th Dec 14, 1:41pm 1417999267

So if you get a perfect system, then you reform it anyway?

Personally I think (all else being equal) that stagnation ie no reform means known and stable, businesses seem to like that when it ocmes to investing.

Of course Im sure your idea of reform is diametrically opposed to my idea. So the "wrong" reform can arguably worse than none some of the time.

regards

by KH | 7th Dec 14, 10:54am 1417902866

Roger. This borrowing thing is just pointless.

Step one. Borrow

Step two. Find oneselff knee deep in doo doo.

Step three. Keep up the borrowing.

Isn't that a definition of something. When it doesn't work. Keep doing it.

by Roger Witherspoon | 7th Dec 14, 11:26am 1417904799

You are quite right... if you are not the currency issuer. The NZ government can spend as much NZD as it likes - the consequence of spending too quickly is inflation - not foreign debt. The quantity of NZD debt is an operational lever that we haven't yet figured out how to use. Think of it as float, the amount of NZD in circulation. It is not the same as debt to a third party. Running a deficit is equivalent to putting more NZD into circulation.

This stuff is scary as it is easily to abuse. Telling politicians they can spend as much as they like as long as it is NZD is dangerous, but the danger is inflation and we do now have effective checks and balances via the RBNZ. Our fears of inflation date back to before the RBNZ had the relative independence it now has. Also, a deficit can be run either by way of spending more or by way of taxing less. The one you favour will reflect your left/right political leaning.

by KH | 7th Dec 14, 11:36am 1417905384

Greece and Germany Roger. Behaved quite differently from each other. Who's shoes would you want to be in right now.

by Roger Witherspoon | 7th Dec 14, 12:06pm 1417907219

Exactly - the currency issuer, in this case Germany. Germany controls the Euro, it is the D-mark under a new name. The French intentionally adopted the D-mark and changed it's name as a safeguard when Germany re-united. The problems of Ireland, Portugal, Italy and Greece were caused by low interest rates when Germany needed them; this resulted in a borrowing binge to buy housing - but effectively in a foreign currency. I am emphatically not suggesting the NZ government borrow in AUD, USD, EUR, CNY, JPY or anything but NZD.

by PeterPen | 8th Dec 14, 7:41am 1417977677

You have obviously no idea what you are writing about. Interest rates in the Euro zone were high compared to now when Germany was called "the sick man of Europe" (and could have done with lower rates) and e.g. Spain was celebrated as the Iberian tiger in the mid 2000s. Conversely when Germany is in some sort of economic boom now, the interest rates are way too low for it. But they remain low, because the loser nations around the Mediterranean need it that way.

In short: the opposite of what you are saying is the truth. The Euro is effectively run by France and Italy. ECB presidents (Trichet, Draghi) from those two countries have constantly managed to gather the numbers to outvote Bundesbank representatives in the ECB Board leading to the ongoing lira-fication of the Euro. The Euro is close to historical lows even against a marginal currency like the NZD.

I am not sure, do you and John Key read the same fairy tales? He was drooling all over Merkel when she came for a short holiday to Kiwi island with "boo-hoo, most powerful leader ever" etc. when she is in reality the most pathetic walkover Germany has produced for the past 70 years.

by Roger Witherspoon | 8th Dec 14, 9:37am 1417984635

Thanks, Peter. My main point was that the currency the debt is denominated in really, really matters. Domestic debt is a different animal to foreign debt. Domestic debt is more pussy cat than tiger. The EU is a bit of a distraction but as you point out they are fighting over who controls the Euro and therefore who gets eaten by the tiger they thoughtlessly created. Thankfully we are not in that particular mess.

My main thrust was that we are perhaps over cautious with NZ debt and that a bit more NZD government debt may be preferable to our current course which seems to me to lead to a house price and debt bubble, higher interest rates, and subsequent recessionary collapse. Better to stop the bubble now. Strangely, the best way to do that may be for the government to borrow more by taxing less and thus putting up real wages. This would allow the RBNZ to put interest rates up without crashing the economy. The argument still seems plausible to me.

by PeterPen | 8th Dec 14, 11:01am 1417989704

Roger, yes of course and my apologies for my previously overly enthusiastic tone. It just gets me a bit off when I hear the old saga about Germany, almighty Merkel running the show in the EU, when they are clearly not. France and Italy, the worst economic mismanagers in the developed world are, and you take a wild guess where this will end up.

Anyways, yes, ask Austrians and Hungarians about Swiss Franc denominated home loans. They are unpredictable, high risk. I thought Kiwibank might go bust over their exposure to foreign lenders. But I was wrong. It seems that interest rates will remain very low pretty much everywhere for a "considerable period" as the central bankster always put it.

We all know that the NZ government is wasting a lot of money in the wrong places - W&I wise. They should clean this up, urgently. It is a robbery on society that generations are made welfare dependent. Secondly there are too many public servants on local level who cost us too much. AFTER this is done, ok, consider domestic credit for infrastructure. A proper freeway AKL to WLG would be great. Or my favorite, a govt inspired IT start-up initiative. NZ needs serious industries, or it will lose its prosperity in a generation or less.

At the same time, the RBNZ already does impose a domestic quota on bank loan activities. RBNZ is actually a pretty good central bank, compared to the lunatics in the US, UK, EU etc.

by Roger Witherspoon | 8th Dec 14, 1:11pm 1417997478

RBNZ is actually a pretty good central bank, compared to the lunatics in the US, UK, EU etc.

Yes, that's what I think, actually I think NZ runs pretty well compared to most places. I do think people don't earn enough though. To me the single most useful thing we could do to solve that is so simple that everyone gets hot under the collar when I mention it: treat businesses as customers and incentive them to move here by having a 12% company tax rate. Compete with Ireland for Google business. Stop messing about and get serious.

by steven | 8th Dec 14, 1:23pm 1417998231

"we all know" is simply not true, its like "common sense" it frequently isnt, usually spouted by people who cannot justify or defend their opinions.

France and Italy, well they seem to be doing reasonably OK actually considering how many worse there are say Japan...

and then we go onto rants about local public servants etc, rinse and repeat it seems from another generation of right wing, libertarian type posters.

regards

by Stephen Hulme | 8th Dec 14, 1:24pm 1417998279

I thought Kiwibank might go bust over their exposure to foreign lenders. But I was wrong

What made you draw this conclusion in the first place, when it is inherently clear that all NZ bank foreign wholesale borrowing is undertaken on a hedged basis?

A good example of a much higher risk borrower was posted by the site owner not so long ago. The RBNZ expends a little effort on the topic here - page 20 out of 60

by steven | 8th Dec 14, 1:36pm 1417999006

So much commercial property's profits hinge on being able to extract ever more rent off the retail sector (in particular) for ever. I wonder with shops shuuting just how stressed they will become with what looks like another 5 years of us staggering along like zombies at best.

"Earnings guidance for the 2015 financial year remains unchanged at 6.2 cents per share (before performance fees)."

before fees? <6.2% doesnt strike me as a great return for substantial risk.

4.13%~4.23% seems rather low to me also. yet people are snapping it up, I wonder who's money.

regards

by steven | 8th Dec 14, 1:24pm 1417998299

"RBNZ is actually a pretty good central bank, compared to the lunatics in the US, UK, EU etc."

and on your opinion, why is this the case?

by steven | 8th Dec 14, 11:02am 1417989761

Only if you dont understand economics as National economies and Govn spending is different to hosueholds/personal.

try watching this,

http://www.debtdeflation.com/blogs/2014/05/03/should-governments-run-deficits-a-minsky-model/

by fat pat | 7th Dec 14, 8:38pm 1417937899

Hi Roger. You know Steve Keen has analysed government deficit spending, and thinks it to be beneficial in certain circumstances. see here.

by steven | 8th Dec 14, 7:17am 1417976222

As has Paul Krugman and shock horror Keynes, plus Minsky, LOL.

If you look at the succes rate for the last 80 years ie in predicting the response to recessions it really has been a Keysian era, seems Minsky cements it.

Roger, Phil best and many are Austrians at heart I would suggest and the Austrian school doesnt recognise such things as um, well actual economics. Inflation any day now, gold to $3000, high inflation!!! its coming!!!! like a stuck clock eventually it will tell the right time I suppose. Oh and austerity is Ok (ie not deficit spending) as long as its someone else whos suffering.

"let them eat cake" didnt work out too well.

regards

by PeterPen | 8th Dec 14, 7:46am 1417977969

What "austerity" btw? Which OECD country has lowered its debt to BIP ratio since the great financial crisis caught up with us in 2007? None. There is more and more and more debt and an ever more sinister complicity of banks, central banks and governments.

And, incidentally, the more or less permanent crisis the world economy is in has a lot more to do with overborrowing than with "austerity".

by steven | 8th Dec 14, 11:05am 1417989953

The UK tried, stopped doing it.

"over-borrowing" agree, though peak oil and the resulting expensive has the most impact with out "permanent crisis" "over-borrowing" is a symptom of can kicking to get passed the expensive oil...which wont solve a thing.

regards

by steven | 8th Dec 14, 12:39pm 1417995550

It looks like the UK is up for round 2 btw,

http://krugman.blogs.nytimes.com/2014/12/06/flimflam-does-london/?modul…

So hopefully we are far enough away not to be impacted as it seems the UK is determined to bugger itself all in the name of Ayn Rand, or some other similar mystic.

regards

by fat pat | 8th Dec 14, 2:02pm 1418000559

I think the point is that Krugman uses the wrong models to occasionally arrive at the correct solution. Keynesian Ideas around the defunct "loanable funds model" (which ignores the role of banks, debt, and money) were devised in the 1930’s when people were still using slide rules. It seems to me that when Steve Keen comes up with an idea, it’s backed up by double entry book keeping, and time dependent modelling with real life assumptions around the creation of money. the only thing that could be lacking is the sophistication of Keen's models.

In that context, I sure hope the National government knows what its doing by attempting to run a surplus, and flooding the country with foreign money. I know Auckland house owners are popping Champaign corks, but I don’t know about the rest of NZ. Re inflation? what about Ebola, oil at 66 dollars per barrel, collapsing manufacturing in China, and the potential for OBR type bail ins. There seems to be some deflationary clouds on the horizon.

by steven | 8th Dec 14, 2:51pm 1418003498

Actually looking at some comments on Keynes "devised in the 1930’s" was that no he was looking at such things, certianly better modeling than previously done would be my impression. I'll go and try and find that piece and post it.

Steven Keen's idea is actually mostly Minsky, its frighteningly realistic in its projections.

A Government long term running a surplus seems to be not wise, however paying down debt from where it is to a minimal value would seem prudent if recovery slowing. The trouble is while the minsky model might be spot on those who lend to us dont lend (or at least set the interest rate) on those terms. On top of that when faced with such huge deflationary forces as you mention and then when GDP is shrinking due to a mega recession caused by the above (plus oil shortage) what then of the model? Debt them becomes more onerious and not neutral.

by MortgageBelt | 7th Dec 14, 9:00am 1417896010

NZ is still pretending that the GFC never happened, and ignoring the QE and ZIRP in most Western countries. NZ is ignoring global deflation and commodity price cuts trending.

Meanwhile we run tight monetary policy, high interest rates, and aiming for a govt surplus at a time when the govt should be spending up on large valuable infrastructure projects that can benefit NZ long term and take advantage of a low interest rate period.

Cities are the centre piece of the Global Economy, and so Auckland = NZ in the eyes of the world, immigrants, foreign investors, international students, and corporate deal makers. auckland is as far as they need to go. So property prices in Auckland will continue to be on a par roughly with Sydney, London, Singapore, Shanghai, LA etc etc ...

The NZD will keep climbing despite real economy fundamentals - They are only a minor consideration in the movements of international investment, wealthy exit strategies etc. what people buy in Auckland is the environmental value of stable govt, historic values and relative freedom - Hey, you can even run Google and facebook in Auckland!

by Brendon | 7th Dec 14, 9:36am 1417898211

With my one-eyed vision protector on I can see that Canterbury could save NZs productive economy if given a chance.

The problem is too much attention is given to Auckland and Wellington's urban development. But they will not develope. Auckland is a narrow isthmus full of Nimbys and Wellington has long since filled up its narrow valleys. The tens of thousands of returning kiwis and new immigrants will not find a prosperous welcome in these regions. All they will find is a ponzi real estate game.

Yet as a country we continue to spend billions on electrification and double tracking of rail, new motorways, flyovers, tunnels, bridges and so on for these regions.

The wider Wellington region is about the same size as Greater Christchurch yet it has 150km of passenger rail and is developing 100 km's plus of motorway connecting Wellington airport with Levin. While all Christchurch has is 20 odd km's of motorway. No plans for electrification and double tracking of rail, minimal new motorways and no new bridges or tunnels to open up new areas.

If New Zealand planned to match Wellington's transport infrastructure in Canterbury as a country we would have no housing supply problem. Following the earthquakes, ten of thousands of homes needed to be rebuilt and many rehoused in new areas when entire suburbs had to be abandoned due irrepairable land damage. Despite the most difficult of circumstances that nature could throw at it, an uncooperative city council and dictator Brownlee ordinary Cantabrian's have rebuilt the province.

Greater Christchurch remains the cheapest city (medium to large city) to build a house in. As Roger discusses there is no fundament reason NZ runs a government surplus in the current economic climate. As a country we could borrow at record low interest rates. Use that borrowing to cater for a proper housing supply response which will allow a lower Reserve Bank OCR projections, this should translate to a lower exchange rate profile. This combined with lower wage pressure from lower living costs and greater disposable income will greatly encourage the productive economy.

If I took my eyepatch off I might say that other provinces could get on this act too. If more attention was given to places like Coastal Bay of Plenty, Waikato towns, the South Island lake district and so on then this problem would well and truly be cracked.

by steven | 7th Dec 14, 10:06am 1417899972

Houses dont matter, businesses do, ergo build [international] businesses, housing will follow.

regards

by DFTBA | 8th Dec 14, 10:57am 1417989442

Hey, you never know, Hamilton might truly become the City of the Future

by cowboy | 7th Dec 14, 10:18am 1417900709

Well if that Auckland property market isn't working out for you, you could always try this http://www.quora.com/Begging/Should-you-or-should-you-not-give-alms-to-…

a good read for those of a charity or naive background...

(sorry for the tangent but I thought this site might have some interest in travel, and in entrepreneurism)

by JB | 7th Dec 14, 11:26am 1417904760

There's a real danger we end up in the not so distant future with a current account blow out and a sharp fall in the exchange rate.

We can't flog assets and borrow to pay the interest on our foreign debt as we are doing without consequences.

Right now we need to print baby print without telling anyone and let them wake up to the new reality where we join the race to the bottom. Yes we can be pure - but we can also go bust in the process.

We - with a GDP less than Melbourne City - can do whatever we like with no effect whatsoever on anyone and when the rest of the world is playing dirty pool - we don't have an option but to join in.

We as a nation need to focus equally on our external accounts with our internal accounts.

Selling houses at every increasing prices is a lot of fun - BUT it's not going to pay for the new Dreamliners, Toyota's, iPads, pharamaceuticals we all need.

by KH | 7th Dec 14, 12:26pm 1417908365

Roger. No the problem was Greece and Ireland etc etc spent and consumed resources beyond their productivity. Germany did not.

Did it for too long and it was for consumption rather than increased value. No amount of paper shuffle lets you get out of that trap. You can wriggle and be sophisticated as you like. Only puts off the problem, and indeed makes it worse.

by raegun | 7th Dec 14, 12:58pm 1417910280

Globalization is a compete crock of excrement. As long as you have countries whose money is of different values it is in fact, utterly illusory and totally counter productive.

The only way globalization could even begin to call itself that is if there is a one world currency so one country cannot undercut another for jobs and livelihoods, this is a never ending downward spiral. To allow our precious resources to be outsourced to another nation is b.s. and you can shine it all you like it is still what it is.

As for housing, the foreign ownership rot is set to go even deeper, so now is as good a time as any to put the mockers on it to preserve even the sightest chance that future kiwis can afford to house themselves.

by Andrewj | 7th Dec 14, 2:28pm 1417915709

You nailed it dude.

by MortgageBelt | 7th Dec 14, 2:47pm 1417916878

It may not bring the promised benefits, especially to middle income wage earners in the developed world, but globalisation is still happening.

And yes, a global currency will be the next step. It will, eventually, be the only solution to the continuing GFC, which is still ongoing really.

by Andrewj | 7th Dec 14, 2:59pm 1417917552

as an example, this from a previous thread, the USA is super competitive if it wants to be. So where next for NZ?

by Andrewj | 06 Dec 14, 9:01pm 1 Vote up!

Randy Greenfield, a dairy specialist for Vita Plus, a Madison-based livestock feed company, has calculated annual profits for the state’s dairy farmers based on their financial records and conversations with agribusiness consultants. Some farms that milk the state average of 117 cows will see profits totaling more than $200,000, Greenfield said. Those that milk 500 cows will make $1 million, while 2,500-cow dairy farms will clear $5 million, he said.

“Financially, for a lot of farmers, this will be the best year they will ever have,” Greenfield said.

http://www.thebullvine.com/news/wisconsin-dairy-farmers-to-rake-in-big-…

by cowboy | 07 Dec 14, 12:31am 0 Vote up!

profit 5 times that of NZ, seems around right numbers.

Lower costs almost across the board, less interest, lower compliance, higher payouts. All adds up.

by iconoclast | 7th Dec 14, 3:23pm 1417919030

AndrewJ ...

As our man on the inside who know these things - how much - comparatively speaking - would or could or should an NZ dairy farm milking 117 cows make in profits

by Andrewj | 7th Dec 14, 4:28pm 1417922888

117 cows 380 kgs per cow in a year. costs $3.50 a kg total production around 47,000 kgs. , so $ 47,000 before wages depreciation debt servicing on a $4.50 payout.

bigger irrigated farms $5.50 costs for best,poorer $6.00, before interest etc. on a $4.50 payout...

by iconoclast | 7th Dec 14, 4:36pm 1417923412

So ... on 117 cows

New Zealand .. = $47,000 NP

Wisconsin USA = $200,000 NP

No contest .. how is New Zealand even in the game?

by Andrewj | 7th Dec 14, 4:45pm 1417923911

its probably not going to be for much longer.

by Andrewj | 7th Dec 14, 5:38pm 1417927080

unrealistic expectations from a ship of fools.

MPI is committed to helping the primary industries to double the value of exports by 2025. This is the Ministry's contribution to the Government's Business Growth Agenda target. Achieving this will require significant changes in the way the primary industries operate – to increase both volume and value of exports.

The PGP is one of the most tangible examples of how MPI is partnering and enabling to help the primary industries reach their maximum potential. The partnership between government and industry ensures that there are commercial drivers for the programmes.

http://www.mpi.govt.nz/agriculture/funding-programmes/primary-growth-pa…

by cowboy | 9th Dec 14, 1:50am 1418043034

MPI are idiots.

According to recent farming newspaper, NZ needs to replace or improve all it's primary cooling systems "to preserve our premium prices" that we receive for our quality product.

But our product is sold at auction, and so price is set by how much the customer can be bothered paying - and unless there's a shortage of supply , that means as little as possible and purely on price.

It goes on to say to keep up our "advantage" that we have to keep up with the Jones. No scientific reason, just someone else is doing lower temperatures so we should do it too - despite proven track record of it being completely unnecessary and not required for NZ style systems.

As for "commercial drivers" there clear isn't farmgate profits, and that's the only commercial reason that justifies that move.

by Henry_Tull | 9th Dec 14, 1:56pm 1418086571

No scientific reason x2 (or page 7)

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11371217

by Casual Observer | 7th Dec 14, 8:55pm 1417938903

iconoclast: The USA also has it's volatile cycles - just like NZ. If we want to add balance to your statement you also need to take on board this from AJ's link:

“Financially, for a lot of farmers, this will be the best year they will ever have,” Greenfield said.

Dairy farmers hope this year will allow them to bounce back from 2009, when milk prices collapsed and they were forced to accumulate debt, and prepare for a potentially similar scenario in 2015, the Wisconsin State Journal reported.

“There’s going to be a big drop, nobody is trying to whitewash that,” said Mark Stephenson, director of dairy policy analysis at University of Wisconsin-Madison.

Although many dairy farmers can expect record profits, most are preparing for the worst because of the projections for next year, farmer John Judd said.

“There are no frivolous spenders among dairy farmers anymore because they all lost their farms,” said Judd, who owns a 75-cow dairy farm in Primrose, located in southwest Dane County.” said Mark Stephenson, director of dairy policy analysis at University of Wisconsin-Madison.

by Andrewj | 7th Dec 14, 8:58pm 1417939134

you need to go West to get the low cost farms but even they were in trouble a few years back. The lower feed prices are a big help but China is back buying feed again. The cow kill is going to be huge as they drop production, my bull beef prices will be knocked into last centry.

by Belle | 9th Dec 14, 8:34am 1418067254

I just got over 2k each for 16 month bulls Aj,was looking forward to that being a trend.

by cowboy | 9th Dec 14, 1:59am 1418043567

I doubt you could run a commercial 75cow farm in NZ. There wouldn't be enough productivity-margin to pay the single owner, it would have to be a hobby-type setup

by cowboy | 9th Dec 14, 1:57am 1418043457

Those who have made money in the past or elsewhere have no rental cost, so for 117 cows, thats about 2mil assets = 80k (@ 4% rental). And that's what has been keeping NZ in the game - not Fonterra and MPI buying their own propoganda about "best quality" all the Fonterra screw ups over the last 18 months has completely and repeatedly proven that. Fonterra has been staying in business by only paying farmgate price that make $47k profit

that's why our farmers are under paid and don't pay enough tax, and that's why farm staff are overworked and massively underpaid and many of them will be forced out of their jobs very shortly as the season prices bite.

by iconoclast | 7th Dec 14, 3:27pm 1417919244

Wisconsin

117 cows - annual profits $200,000 at least - or more

500 cows - annual profits $1,000,000

2500 cows - annual profits $5,000,000

by raegun | 7th Dec 14, 7:41pm 1417934491

And guess what will be hot on the heels of a global currency. Hint, it starts with "One" and end with "government"

by ARB | 7th Dec 14, 6:00pm 1417928410

I take it we are only worried by residential property. Why not alter the LVR

House value <$600,000.00 LVR 20% (as is)

House value <$1M LVR 40%

House value >$1.5M 60%

by Spinach | 8th Dec 14, 1:31pm 1417998661

Works well until you don't need to borrow from a NZ based bank, then you can thumb your nose at any control measures...

by dobrydan | 7th Dec 14, 9:32pm 1417941125

Well once the TPPA has been signed by the current government, the dairy industry will simply be left out in the cold. Let's hope the Chinese keep demanding our products as it appears the USA and Japan have already compromised the free-trade deal in terms of dairy products from the largest dairy exporter - NZ.

http://www.itsourfuture.org.nz/tpp-too-important-for-compromised-finish/

I've said it before - you get what you vote for.

by dobrydan | 7th Dec 14, 9:56pm 1417942609

With regards to housing affordability in Auckland - the horse has bolted. 25% in two years makes for interesting reading. See

http://www.hivenews.co.nz/articles/590-auckland-s-rental-property-bubble

"Property investors have successfully bet that politicians will never impose a capital gains tax, that Auckland's NIMBY home owners and their captured councillors will never allow significant new housing supply, that migration will keep surging and that inflation will not rise sharply."

I'm not sure who I feel more sorry for - the first home buyers or the masses paying exorbitant rents for some sh***y shoebox.

by PeterPen | 8th Dec 14, 8:03am 1417978989

Bernard's two scenarios look pretty alike, if you ask me. NZ interest rates have a lot of ground to cover before they hit the US, UK, Jap or Euro ZERO. So carry traders will keep sending us money. The dairy market is a quite secondary aspect. Central banks run the show - for the moment.

Slow-down in China: the Chinese government is so scared of unrest that it will keep doing "whatever it takes" to keep e.g. employment high. The crack-down on corrupt officials anyways sends their loot to NZ, as do the now more restrictive immigration and real estate regimes in Canada and Australia.

My guess would be that for the foreseeable future, speculation in the AKL housing market will continue and that the government will not do much about it. At some stage an equilibrium will of course be reached. 700K median is probably not it. Maybe double that, I dont know. It is unethical to play this game, but quite stupid not to.

by raegun | 8th Dec 14, 1:43pm 1417999394

If it is unethical then it is stupid