Further improvements to NZ's balance sheet needed before there's a sustained pick-up in national property market, ANZ says

Further improvements to NZ's balance sheet needed before there's a sustained pick-up in national property market, ANZ says
The property market faces challenges ahead as New Zealanders go through a period of "sustained penance" for past excesses, ANZ's economists believe.

By Gareth Vaughan

A sustainable upturn in New Zealand's property market won't happen until the country's balance sheet is significantly improved, say ANZ economists.

In their monthly Property Focus report ANZ's Cameron Bagrie, David Croy, Steve Edwards and Sharon Zollner say although a lot of improvement has been made to New Zealand's balance sheet over the past few years, the journey is only about 60% complete with structural economic indicators so far merely shifting from awful to poor.

"Until this process is finished cyclical drivers, including supply-demand balance and interest rates, will remain second tier in terms of dictating (property market) direction," the ANZ economists, who recently said house prices are 10% overvalued, argue.

A "multi-year leveraging super cycle" where an economic model that at its core involved credit growth of two to three times the rate of nominal Gross Domestic Product, which was always going to be on borrowed time, came to an end in 2008. The economists say house prices are now about 3% below their mid-2007 peak in nominal terms, and about 15% down in real terms.

However, since 2007 the household savings rate has improved from -6% of disposable income to -1.5% as of last year, and with a time lag on figures for the March 2011 year, may have even turned positive. In other improving economic news the current account deficit has fallen from a 2008 peak of 8.9% of GDP to 3.7% as of June this year, and New Zealand's net external debt position has fallen from 85% of GDP in March 2009 to 70% in June 2011.

At the same time, households have deleveraged a bit, with household debt as a share of income down from 154% to 147%, largely because the slower growth of debt is being offset by rising incomes.

House sales down 37% on market peak

Meanwhile, house sales volumes in the last six months are about 37% below levels seen in 2005-2007. The latest figures from the Real Estate Institute of New Zealand show house sales volumes rose just 43 in September from August to 5,235, weak for spring. REINZ said when adjusted for the seasonal pattern expected in spring, sales were about 2.3% weaker. The national median house price fell by NZ$5,000, or 1.4%, to NZ$350,000 in September compared with August and was flat compared with September last year.

Broadly speaking the ANZ economists say structural economic indicators have merely improved from being awful to poor, and New Zealand as a nation still carries too much debt and is too reliant on a narrow range of sectors, led by dairy and tourism, for income. The recent downgrading of the country's sovereign credit rating to AA from AA+ by both Standard & Poor's and Fitch is a reminder of challenges still ahead during a period of "sustained penance" for past excesses.

"This will inevitably impact on the housing market," Bagrie, Croy, Edwards and Zollner say.

"The housing boom encouraged a borrowing binge that inflated house prices beyond what is sustainable in terms of affordability. There are two possible fixes; house prices fall, or they grow by less than incomes," the ANZ economists say.

"The latter is a much more desirable adjustment path, and so far that is the path we're on."

For the "good times to roll" again, including in the housing market, the ANZ economists argue the global scene, currently dominated by the European sovereign debt crisis, needs to stabilise and it's hard to see this happening soon. New Zealand's net external debt needs to be below 60% of GDP, which is a "tough ask" with post-earthquake Christchurch rebuilding ahead, the household savings rate needs to rise above 5% of income, - tough when the cost of living for key necessities outpaces the rate of general inflation.

Improvement needed in housing affordability

Furthermore, fiscal deficits need to be turned into surpluses, the economists say, and housing affordability needs to continue improving. ANZ puts the house price-to-income ratio at 6.7, down from 7.7 in 2007, but still "stretched" and well above the post-1992 average of 5.6. And finally, they say, net migration - a net 32,700 migrants moved to Australia in the August 2011 year - needs to turn around.

On top of all these issues, the economists maintain there are structural issues looming that mean some "sacred cows need to be sized up for steaks." These include "politically unpalatable" options like raising the pension age from 65 as baby boomers retire, and having higher quality debate about "pulling income levers" such as water and mining.

"The realities are simple: generate more income or face a longer period of austerity and spending restraint," ANZ's economists say.

Against this backdrop, housing's attractiveness as a long-term investment is heavily dependent upon the economy having "greater spine and backbone" through balanced growth and solid income generation.

"Without the spine, housing's long-term attractiveness will be seriously questionable. Getting our house tidied is one thing, but it's not much use if the piles are rotting."

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"... net outflow of 700 New Zealanders who left the country long term in September, as more kiwis jumped across the Tasman, and fewer people entered the country on student and work visas. That’s the sixth net outflow in the past seven months, and takes the annual net migration inflow to 773. "

Is this the immigration surge that's supposed to boost house prices! 773 people on an annual basis is not many houses needed, is it!

NA  - your comments will fall on "deaf ears" as all the property spruikers believe out there, that if we just open up the immigration tap,  we will be back to 2005 .... wallah !!

But what they fail to realise is a prospective "wealthy" immigrant is not going to have NZ on the top of their list, when other countries offer so much more in value and business opportunities.

Sounds like a lot of good sense from the ANZ economists, well done. I liked this bit of reality.

A "multi-year [multi-decade] leveraging super cycle" where an economic model that at its core involved credit growth of two to three times the rate of nominal Gross Domestic Product, which was always going to be on borrowed time, came to an end in 2008.

The ANZ sales outfit obviously didn't get the memo. That smug little prick flogging more borrowing really grates me.

I probably have a different understanding of what constitutes "the good times" from that of ANZ economists.

I rather suspect their view is to write vast quantities of mortgages regardless of the consequences.

Good sound analysis

They are right, the country needs more structural reform.  Part of that should be reforming the taxation system so that housing, particularly rental housing, isn't such an attractive option, tax-wise. 

I have been talking to several people recently who bought up rentals in the boom, negatively geared as the model promotes, & are now underwater overall.  I have no sympathy for them, but it would be nice if the system didn't reward this behaviour.

Cheers to all

I'd take issue with that assumption. You'd have to have rocks in your head to invest in rental housing.

It generally isnt attractive from what I can see.....housing is simply too expensive IMHO and there is risk of severe losses. The thing that has asisted this bubble is no CGT, ppl gear it such that they reduce their taxes elsewhere and cash out at the end tax free....so really a CGT would shut that door. Ditto the buying and selling shares.....profit should always be taxed......need a level palying field.

I would just love to see housing never to be a means of making money ever again, other than what work is put in building, maintaining etc, and it'd be nice to think that making money out of money would eventually go the same way and a new order would prevail, then we might have a shot at a decent society again. Hauling in masses of migrants to prop up the housing market, no, no, no, no, no. Bring the work back, foster a healthy internal economy. Speculators, financiers and all the other rort artists, on yer bloody bikes, you are being given the bum's rush all round the world now for reaming out the average Joe

The problem is, raegun, that an implementable  “new order” or an implementable economic framework for a “decent society”, where capital is not used to bring profit, have not been invented. Such alternative systems do exist as ideas, they have even been tried, but they do not work in a human society, at least at this stage of the human evolution (if ever). This leaves you, me and all of us having to be part of the capitalist economic system and as such having to survive (or even succeed) within the system. Part of this surviving (or succeeding) is making money by investing money!

Alex13 - totally agree. Let's not throw the baby out with the bathwater. If you ever get to go to Cuba then people would see what a society becomes like with no property entrepreneurs. All the houses are crumbling and decaying - why? Because there is no money to be made from property (as you can only swap a house you can't own more than one, there is no renting I believe). So nobody bothers to maintain their houses as there is no incentive to do so - they just live in them until they die and then it gets passed onto someone else.

I think what is wrong is the assumption that population growth at all costs is 'good'. The only thing we have really gained from that is more expensive housing, more crowded schools, communities that don't integrate (as their numbers are too large so no incentive to do so) and more conjested roads. We don't need to increase Auckland's population by 700,000 to 1 million or whatever the ARC is talking about in the next 30 years, it's crowded enough already. People came to NZ to get away from overcrowded, polluted, crime-ridden cities with terraced housing where the poor had no chance of ownership. Here we are 250 years later just repeating the same mistakes that the UK made. Let's keep NZ's population small, and we can all have a lifestype that the rest of the world envies. It's quality, not quantity after all. Who cares what size your GDP is if you live better than a millionaire in another country?

And what solutions would you advocate ?

One reason why NZ needs to carefully consider closing its doors to immigration. Over the past 10 days 2 comments have been posted (by some-one else) drawing to your attention that NZ consumes 160000 barrels of oil per day. That's 13 barrels of oil per person per year for every one of 4.4 million ppl. Man, woman, and child. A cost of USD $800 per year per person. (NZD $1000). However that is (currently) offset by NZ production of 90000 barrels per day which is exported, leaving a net cost per person of USD $500 pa. The problem is those fields producing the local 90000 bpd will be exhausted within the next 10 years. Which means in 10 years time the cost to the existing population will increase from USD $500 pp to USD $800 pp in constant $ terms. However, for every new migrant arriving in NZ, the incremental cost is an immediate additional cost to the economy of USD $800 pa per person. 


Soon it will dawn on them that this is about the only option left.....however I think we should also consider that as peak oil hits so will the WINZ burden baloon across the glode and other Nations will start to kick ppl out......this means NZers will return to get their WINZ handouts when they dry in say the EU.

NB I think NZ is in decline already so its not even when its "exhausted" that will impact....now if we had Pollies that had any brights they'd buy out those fields at todays market prices and shut the valves.



"All the houses are crumbling and decaying - why?"

Because they had their peak oil when the CCCP collapsed, thats our future you are laughing at.



There will always be bubbles, whether they are housing, stocks, tulips, websites. Its identifying them, riding them out and selling a while before the peak that "creates wealth". FYI that is my favourite expression in the property circles and I find it most hilarious. Wealth isnt created, its made with hard work, you can't just create it out of thin air.

um, yes you can! You buy a house in 2001 for 250k. Then you flick it in 2011 for 800k. Then you tell everyone how bloody hard you had to work for your money and tut tut anyone who is struggling and give wonderful sage advice about the merits of said hard work and how anyone can do well if they just apply themself...

Sermonizing can be hard work some times. It's really difficult to rationalise to everybody that all their problems are really their own fault and they should just shut up, go away and give up on their expectations of ever changing anything about anything.

yip just like that.. by "sermomizing"  ...

The BBs made their money their money this way why not the next generation?

For the obvious practical reason that most people can't afford to own their own property. A lot of baby boomers brought in with a loan around 2.5x their salary. Now its 5x salary for an average home or higher.

I think it would be fastastic if people could afford to own their own home, but the NZ monetary system makes this impossible.


Why shouldnt landlords make a living and a profit?
Speculators and financiers, now I start to agree with you....I think the share market etc is a joke.....
"bums rush" sadly as yet I odnt agree with you, they are getting away with it.....ie still reaming us.

For the furture of NZ rental demand check out the Statistics NZ latest figures. Net migration to NZ now at 10 year low. Only a decade ago NZ had an annual gain of 10,500 more arrivals than departures, today it's 800. Bottom line, NZ will soon have a negative migration balance which will destroy rental investment. Smart young kiwis are all heading to Oz for $$$, as NZ no longer offers skilled migrants enough to move (low wages, limited prospects etc).

ANZ make some good points, but the fundamentals are shifting for NZ and I can't see JK and his mob doing a thing to change the tide.

BTW. For any young kiwis looking for a better life, Queensland mine companies are advertising in local press here for PVC pipe joiners (semi-skilled). Salary is AUD$160-180k plus 9% super.

Who cares if young people leave for Australia. That means less traffic, less competition for the good jobs, and cheaper house prices for the rest of us. Migrating overseas to chase the dollar is like chasing a pot of gold at the end of the rainbow. You might earn more cash working in some host dust ridden mining town in Aussie, but that's just the point, where's the lifestyle? People soon learn and then they come back to enjoy NZ with a more positive outlook and appreciation for the good things it has to offer.

What I find somewhat curious about Kiwis is their ability to not be able to see what has, and is being stolen from them right in front of their eyes....

Don't worry though Pete when it happens to OZ as it surely will to NZ all those kiwis you don't care about will be returning home, just like those from the UK who have been recently.

Sadly when that happens the job situation will likely be , lets say a little tight!


agreed.....right now we are losing some ppl, Ok, not that big a deal, however the problem is when they start to come back after they lose their jobs.  Yet have only paid tax overseas, yet expect WINZ handouts and accomodation when they arrive.....tight, yes indeed....

so 4  NZers leave for OZ every hour 24/7 and I dont mean 24 July either.

thats shockin' but who can blame 'em . Houses might be cheap there soon...

Here in Brisbane, it is quite nice being able to put in an offer with thousands below the asking price and knowing the agent will call you back in later (they aren't cocky as they used to be)

The smart investors sold up last year and long gone into mining towns. This year vendors will take what they can get and even being more polite!

They're past the 'insulted' stage in QLD that vendors are still at here, Chairman Moa. "But I paid $X for it in 2005!"( -so you should obviously have to pay more for it, than I did.... ) is still a common response here, I'm told.

With a bit of luck there will be no more Afrikaners migrating to NZ because they are too pissed about NZ's top ref, Bryce Lawrence's handling of the SA -Aus game and the All Blacks(in all likelihood) taking out the RWC. May be they'll pack up and go back to SA as listening to them you'd think it was much better there anyway

I work with a number of South Africans, and they hold their own for capability....and in fact whine less than the NZers I work with.



A bit of trivia. A friend of mine has worked for the BNZ for 30 years in West Auckland. Over the last 5 years, South Africans have infiltrated and taken over the management team altogether. Friend is not a happy person. They're not pleasant to work for. Then yesterday a colleague went to his local CBA bank branch in Upper Plenty in the Dandenongs, only to find the entire bank staff were kiwis. He laughed.

Yes agreed Steven but i have argued on a number of occasions we NZers are 'cruizers' for a very good reason, it's so the bottom in our egalitarian society don't get left behind, we wait for them to 'catchup', this prevents the social inequality where crime is so bad we need bars on our doors and windows and are effectively prisoners in our own homes ( unless of course you are a finance company director )...

looking at salary levels they can't actually get ahead

Muzza, what I find most intersting about your comment is that most of the SAfers I know in NZ support the All Blacks and wouldn't dream about going back...

I also seem to remember a bunch of Kiwi hatred being sent to one English ref in 2007 who officiated a French (and what was the other team?) in that quarter final game... Wonder how that Jaapie ref will do on Sunday? France 2011 RWC champs? It could happen...

Oh yeah and even as a Kiwi I'd say Bryce sucked as a ref... George Gregan (you know that Aussie half-back), who I had a chat with last Friday was still shaking his head at Bryce's decision making process... he was appalled at what Pocock was able to get away with in the loose... "prison rules!" is how he explained your cobber ref 's ability to control of the game...


ps who cares.. they lost and the ABs in the finals... if they can just hold their nerve...

On a diffrent note: would anyone know if I sell our family home in Auckland (currently rented), am I liable to CGT here in Australia??- I know CGT is exempted family home but didn't say anything about the family home outside Australia.?  though I ask anyway. 

  If I am liable then so be it..  therefore no abusive reponses please (no need for that on the verge of WRC celebration)

Potentially, yes;


A few years back Australia repealed its foriegn loss quarantining rules which now allows you to claim losses on NZ properties against income earned in Australia. The NZ property can also be caught for Australian capital gains tax if sold at a profit. When the rental guarantee ends the costs remain deductible provided the property is available for rent. You only ever account for the actual rent you receive though.  

potentailly no if you structure it right (dependent on your situation) think trust with NZ company as trustee...talk to a good NZ tax accountant :-)

Generally speaking I wouldn't even worry about it. But if you wanted to be totally honest and declare it you would only be liable, for CGT purposes, on any capital increase accrued from the commencement of the tennancy. It would be pro-rated.

According to IRD definition I am still a NZ tax payer.  Might have to consult a tax accountant. 

I just don't want to get into the tax avoidance by Aus Tax office (ATO) that's all.  Although someone told me that if I ever want to apply for PR here, would be best if I get rid off my asset in NZ.

Has this changed ,CM? If not, then using the stand-down poeriod will allow you to have the best of both worlds! "...a permanent resident of Australia may become a dual citizen by becoming an Australian citizen."


Check out that PR stuff CM. Never heard of it. You are a resident if you live here. The only thing you need to "apply for" is "citizenship", and only if you want to. So long as you don't do anything criminal you will be entitled to live here. If you are not a citizen and do something illegal you can get deported and sent back to NZ. My next door neighbour is from Wolly's neck of the woods, owns her house, has been away from NZ, for 30 years, is still an NZ citizen, has not "applied for" PR and doesn't intend to. I guess she would be classed as a permanent resident.

Check. CM. I lived there, as a resident, for 30 years. And come the day to 'go home', having been away for 3 years, I was refused permanent entry ( because I had a UK passport- not Aussie-previously automatic residency, and the rules had changed). Best to see what they are...this year!

Nicholas Arrand: There is the difference. If you had been an NZ citizen on an NZ passport you would not have had that problem.

They changed the laws in 2001 iconoclast.  

Kiwis now have to apply for PR like anyone else.  We are classified as SVC (Special Visa Cat.) and won't qualify for lots of things i.e. special care if something ever happened to you healthwise etc.. 

The fees are about 7K non-refunable.  Something I have to think about soon..

Wow - $7K to become a PR - is that per person in the case of a family?

per family I hope

I think alot of Kiwis are in this position.  

Was speaking to a friend over for the rugby - living in Aus for a bit over 2 years now - still has the family home in Welly (renting it - rent not covering mortgage) and renting in Brisbane.  House needs further renovation to get the best market price in his opinion.  Doesn't think he'd get its current valuation in the present market, so is just sitting on it - as house prices in Aus are so much higher still.

As they see it, if they keep the house here at least they'll have paid off the mortgage in 15 years - whereas in Aus, they'd have to take out a 30 year term to get the house they want in Brisbane.

Suggested it was best to sell now before the big cuts to government really bite in Welly - highly likely should Nats get the second term - and to continue renting in Aus until the prices also drop there.

Even worse, they've just hire purchased a new Aussie car - paying that interest as well and taking a dive on depreciation in its first three years too.

I just don't understand why folks hang onto rentals in NZ making a loss - whilst increasing their debt over the Tasman.

It the psychology of chasing the loss..self awarness is the only thing that turns that around. Concerning cars in Australia if your self employed/contractor the tax rules work nicely that a nice new car can  actually cost you zip after three years. Nice advantage.

The ANZ report is out of date already as has been reported elsewhere on this site.

No wonder the economy is in a mess if this is the best the bankers can come up with.

Home loans at most afforable levels in 8 years
 Lower average house prices and downward pressure on interest rates meant home loans hit their most affordable levels in September that New Zealand had been seen in eight years.
 According to the latest Roost Home Loan Affordability report, last month offered the best levels of loan affordability since 2004 with 20.6 per cent of the average income of a couple on the median wage needed to meet payments on a floating 80 per cent mortgage for a median priced house.

 This was down from 20.7 per cent in August this year. For singles on the median wage, it would take 50.7 per cent of a salary to meet mortgage payments, down from 82.2 per cent in September 2007. 


Housing affordability is going to get MUCH, MUCH better, BigDaddy...because the price of property is going to.... fall...thereby making the equation even better! Don't ya just love maths...

' South Africans whine less than Kiwis' says Steven.  Really?  Over 80,000 having a whine on facebook about losing the rugby, blame the ref etc. I've reviewed the game on tape and the ref controlled it exactly like was done for the Super 15 final, can't remember the people from Crusadersland having a big moan when they narrowily lost. We don't need the Afrikaners in NZ, surely if they are loyally devoted to South Africa that's where they should be. 

Oh and every other minority that proudly has a flag on their car?

Loving and being proud your ancestry and ethnic origins is nothing to do with not wanting to be in NZ and be part of its future.

Well the south africans I work with show the NZers how to work and how to do it well.....friad NZers are being shown up....

What a redneck....



muzza I am appalled at your racism... BERNARD please a word with this man...

Manalay and Steven, you're right, one shouldn't tar all Afrikaners with the vile of 80,000. I know Bryce well and you wouldn't get a more sincere,straight up and down guy.  He has shown me some of the texts sent to his cell, and shall we say there is some appalling comments, including a fair dose of racism towards NZ'ers.  We certainly wouldn't want the likes of these people coming to NZ.  But yes I agree there are some decent South Africans.

 Cameron Bagrie, David Croy, Steve Edwards and Sharon Zollner took extra care when scripting their report...they had one eye on the PR and one on the boss of the bank who had both eyes on them.

I suspect their conclusions would not have left out serious criticisim of the banks behaviour and culpability in the bubble of credit madness, had they been unemployed jornos and spinners.

This small country needs fewer banks and those banks need more stringent controls over the credit creation rort. The real problem NZ faces is not the blather above from these four, it is the extent to which the nation is playing host to a bunch of parasites.

"Long" LOL how about 30 odd years.....and the pickup will be from a 50%+ loss and be fractional....

Cant wait to see the bankers being laid off.....oh wait that will be the workers......the fat cats will be the last to leave....as per usual and with a golden parachute as per usual.


There are days where I could see myself in the future in a lynch mob hanging a few Pollies and bankers.....these are not leaders they are parasites.


Maggots feeding!

why do house prices have to rise,after all most of them are second hand and the sellers are moving to better area or into a better house.

Some people are going to tell you that this is because homes are scarce and there is more demand (due to an increase in population). Others are going to tell you it's because of zoning laws (which is also tied to increase in population). It should be obvious it's not this though, because the population has not grown that much and most of the new entrants are not earning enough to be able to afford a home any way (so they don't effect the price).

That leaves one cause, and explains why property bubbles are almost everywhere, the banking system creates money every time a house is purchased with a loan. Since there is more money the pre-existing money loses it's value (becomes less scarce) and so you need more of it to buy the same property. Gradually this increases the price of every house, but reduces the value of everybodies money. Other prices tend to increase over time as well. 

The facts about how the NZ financial system works are explained here (in plain english), http://positivemoney.org.nz/


Hey Nic


Thanks for that.  Great site. 

Please pass this onto as many people as you can. There is too much dis-information about how the monetary system works. Political change can only come when a large number of people know how money actually functions.


Here it is in simple english.  http://www.youtube.com/watch?v=3HdmA3vPbSU   The Goldsmitsh tale.

The worst of all this is still even published on this page.

People who have used dishonest money to feather their own nest are held in high esteem on this website, and even given a title such as "Property Columnist".

Discrimination rampant in NZ...taxpayers who opt to build a new house and indeed did so post 2000, are paying to subsidise those who buy homes built before 2000...the rort involved the insulation subsidy. A good factor to consider when tossing up whether to build or not. Yes it includes relocated older houses!

Add to that the heating subsidy available to the same owners...tenants included....so Mr landlord is being subsidised by plonker Kiwi who bought a post 2000 house or built new post 2000.

The subsidy of course goes to the approved companies...they reap the benefit ....think about that.

"largely because the slower growth of debt is being offset by rising incomes." that note in the article can not be correct. plese be more specific as most I know have not had a raise in years?


There has been signs of revival this year, as the property market looks set to boom again. Interest rates are low, and people have begun to borrow heavily to go into property investment. However, this boom will not be sustainable, and there are signs of impending bubble burst. The government needs to check out their balance sheet to make sure the worst doesn't happen.