Economist inflation, OCR hike expectations not dented by Brownlee comment that no rebuilding will happen in Chch for 12 months

Economist inflation, OCR hike expectations not dented by Brownlee comment that no rebuilding will happen in Chch for 12 months

Earthquake Minister Gerry Brownlee's comment that he did not expect any rebuilding in Christchurch to happen for 12 months has done little to dent economists' expectations for the Reserve Bank of New Zealand to raise the Official Cash Rate either in December or the first quarter or 2012.

Meanwhile details of the government's plan for about 5,000 of the worst affected home-owners in Christchurch were leaked last night, with the government today going to offer to buy those homes for their 2007 valuations if the homeowner has insurance.

Brownlee made the rebuilding comment to Parliament's Finance and Expenditure Committee yesterday, ahead of today's announcement where the government will offer to buy about 5,000 homes from the worst-hit Christchurch residents.

"No one is going to be building anything in the city, in my opinion, in the next 12 months," Brownlee said yesterday.

Economists are picking the RBNZ will hike the OCR either late this year or early next year in efforts to stem inflation pressures.

The Reserve Bank's own 90-day bill track suggests a hike in December. Governor Alan Bollard has said the central bank will be closely watching for any inflation pressures flowing through from rebuilding in Christchurch which would affect the timing of rate hikes.

December hike

BNZ economist Doug Steel said the 12 month figure for rebuilding was broadly in line with BNZ's forecasts, and that the rebuild was not the only pressure on inflation at the moment. BNZ is picking the RBNZ to raise the OCR before the end of 2011.

"I think from a Reserve Bank and inflationary pressure point of view, while the rebuild of Canterbury is part of it, it’s certainly not all off the story," Steel said.

"I think the labour market is probably tightening – it’s not particularly loose already – and probably tightening as we speak," he said.

"Without the rebuild there’s certainly plenty of other things going on – the commodity boom one of them, obviously the Rugby World Cup another big one on the horizon.”

Twelve months wasn’t some new surprising time frame.

“That’s not too far away from where we’ve got it,” Steel said.

“Our view, at least in terms of our forecasts, doesn’t have any rebuilding kicking in until next year. So it’s certainly still a long way away - certainly any pick-up in earnest is still a long way away in our view," he said.

January hike

ASB chief economist Nick Tuffley said it had taken a view that rebuilding in Christchurch would be more gradual and be a bit later than the Reserve Bank and Treasury were expecting. ASB is expecting the first OCR hike in January 2012.

“We have a less rapid pick-up in the economy over next year anyway, and it’s one reason why we think interest rates are more likely to go up early next year rather than late this year, which is what the Reserve Bank seems to be signalling,” Tuffley said.

“But we do think though that there is a risk that once the reconstruction does start that the inflation pressures it generates will be a little bit stronger than what the Reserve Bank is assuming," he said.

The Reserve Bank’s forecasts, particularly for residential building had things starting to pick up before the end of this year, and noticeably more in the second half of next year, Tuffley said.

“But anybody at the moment is just really making basically assumptions about when it will restart, because it is just so hard to know right now when it will occur,” he said.

ASB was expecting the main lift in residential rebuilding to start to come through in the first half of next year.

Plans leaked

The government will offer about 5,000 Christchurch households the chance to sell their home to the state at 2007 government valuations when it announces an aid package at 1:30 today.

Leaked details last night on the plan say acceptance of the package would be voluntary for those households with insurance. Those without insurance will miss out.

Christchurch areas of Bexley, Avonside, Avondale, Dallington and Horseshoe Lake are expected to be eligible for the initial package, with those in Port Hills and Lyttelton having to wait for homes to be assesed for damage from the June 13 aftershocks.

After paying out the affected households at 2007 values, the government would work to receive pending insurance payouts in order to try and recoup some costs, the NZ Herald reports.

The Dominion Post estimates the initial package for 5,000 homes may cost about NZ$1.5 billion.

The official announcement will be made in Christchurch at 1:30pm today.

(Updated with govt plans for those 5,000 worst-affected homes.)

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"... the Rugby World Cup another big one on the horizon.." The horizon looks a bit hazy, with volcanic ash to me...

Well hugh with no rebuilding for 12 months, and the government has had to payout these amounts, as the banks would of lent on these valuations( so if they paid out lower , the house owner is basically bankrupt- if they held a mortgage on a $300k property that you are saying the government should only recognise the value as $150k).

So with no rebuilding and they do get paid out, and IF they stay in CHC, I presume it will be a huge demand on those areas in CHC that are relatively light on damage, so a supply- demand situation and those prices  will get pushed up.

You also have to remember after Mondays events it now looks like a nice we Fault line in Halswell,Lincoln,Prebbleton has raised it's head so would'nt it be unwise to build and open up areas out there.(insurance companies wont touch you if you build on a fault line that has been active within the last 2 years)

Yeah but I just dont see a developer selling sections for $50k, Wigram has starting sections for $175k, Lincoln has them @ $180k and they are selling for this. Who is building these sections, The government as well. So they  are buying houses, and then putting in sub divisions as well too relocate these people.

As for outwards migration, remember other areas in CHC are damaged as well, they are all waiting (if they can depending on employment) for their houses  to be fixed/assesment done as well, and probably wont leave/sell until that is done, estimates are take 5 to 10 years.

So I suppose a real balancing act as you get one side of the equation out of balance it MAY create a suuply /demand situation that will push prices up?




I read that the fault lines don't necessarily run to the surface?

So how valid do those assumption for the GDP forecast look now and just think of the Macroeconomic consequencies of the tax take being lower...

They were pushed into this, just another liability to add in the 30 June Crown accounts. Sure they wanted to release this in the next financial year.

Note Gerrys comments about working within the current ten year plan for new housing, not music to some peoples ears I suspect :-)


the forecasts (from Govt and bank economists) were always in la la land in my view - I would go further and say they were down right corrupt forecasts  - either that or very poor ones

not at all surprising to me that there will be little rebuild in the next 12 months -

predictions of 3% GDP growth 2011/2012 are now firmly busted myths - so much for the "rip snorter" of a year predicted by Westpac

you are right that this will have some nasty macroeconomic consequences....

My understanding is insurance companies won't write new house policies in Christchurch, anywhere in Christchurch, east, west, up down, front or back. Try calling an insurance company, say you want to insure a properrty in CHCH, be prepared to hear a firm "clunk" on the line. Just another spanner for the rebuild machine.

Indeed Hugh, was rasiing the same point yesterday with Alex T. Say, one side of street abandoned, the other not, what of insurance on that side? Or, maybe this has been addressed by govt. as they have put the package together? 

( Might be my mince pies but I think that tower is leaning over more this morning.)

You'd think they could have policies excluding (say) rockfall or liquifaction?

So if Brownlee's comments are correct and no building will done in the next 12 months, where do the 5000 households go if they all decide to take the government's buyout offer? Surely they won't remain in their existing damaged properties until reconstruction begins. Plus there isn't the inventory available for everyone to buy existing homes.  

MikeM, actually that is not the case, limited options however possible.

I happend to be listening to this yesterday:

Newly-knighted founder and chair of meat company Anzco Foods, which has annual sales of more than $1.2 billion, making it one of New Zealand's largest exporters. He is also a director of dairy co-operative Westland Milk Products and fishing firm Sealord.

"We'll there's a disconect between the rural secter and the urban secter. A lot of people don't realise that NZ is one of the most urbaniesed countries in the world. We're nearly 87% urbanised. I think we rate as 6# or #7

We are 31st equal - lets not get too excited!!

No building for 12 months - quickly people, call the broker, its going to be long time before Fletcher's is truely pumping out the cash, sell sell sell

According to that we are more urbanised than Japan.

Phill Best, Owen McShane (etc) tell us we are only 1% (or something) urbanised.

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