'We're not in bubble territory at all'

Property

BNZ boss Anthony Healy says he can't see any short to medium-term shocks that are likely to correct Auckland house prices

9th May 15, 6:04am by Gareth Vaughan

BNZ CEO Anthony Healy says although he's "very concerned" about housing affordability in Auckland, "we're not in bubble territory at all."

Healy told interest.co.nz Auckland's housing affordability woes are driven by fundamental supply and demand issues.

"Supply being a historical one where we just weren't building enough houses so we've got a shortfall in the stock, plus we should be building about 15,000 houses a year in Auckland and I think we're building 7,000 or 8,000. So we're still not at the level we need to be," Healy said.

"So you've got your supply constrains, and obviously the Government is working with Auckland Council to try and address some of those, the RMA reforms, the consenting processes etc."

Then there's net migration at historical highs, adding tens of thousands of people to Auckland's population, driving the demand side.

"I don't see a lot of factors that are going to change those dynamics in the short to medium term. I don't think we're in bubble territory at all, but I do think we've got housing affordability challenges," said Healy.

The data flow continues to show the Auckland housing market running red hot and net migration, of which Auckland takes the lion's share, running at record highs. The Auckland median house sale price hit $720,000 in March, according to the Real Estate Institute of New Zealand, a new record high.

Prime Minister John Key also maintains there's no bubble in the Auckland housing market. But for a different viewpoint, see David Hargreaves' column here.

Debt servicing capability, LVRs, key risk measures for BNZ

BNZ announced in April it's resuming offering home loans through mortgage brokers for the first time in 12 years. And in BNZ's interim results press release Healy was quoted saying re-entering the mortgage broker market should boost BNZ's home loan performance, and position it strongly in the high-growth Auckland market.

According to figures in parent National Australia Bank's interim results material, 40% of BNZ's $31.4 billion home loan portfolio is sourced from Auckland, and 23.2% of the bank's total home loan book is paying interest only.

In terms of risk stemming from its Auckland housing exposure, Healy said BNZ looks at the debt servicing capability of its customers.

"The one area that you always worry about is high LVR (loan-to-value) lending, and of course the RBNZ (in 2013) put their macro-prudential tool on which limited the flow to 10% (of new residential mortgage lending). We were always the lowest in that category anyway, in terms of lending above 80%, but all of the banks have come down because of that flow restriction," said Healy.

"We focus on serviceability as well as LVR, and I can't see in the short to medium-term any shocks that are going to hit Auckland housing that are suddenly going to correct housing prices. Because you've still got a significant shortfall of supply, and you've still got strong migration," Healy added.

At 10.5%, BNZ has a lower percentage of its home loan book at LVRs above 80% than ANZ, ASB, Kiwibank and Westpac. In September 2013, on the eve of the introduction of the LVR restrictions, BNZ was at 15.2%.

We welcome your comments below. If you are not already registered, please register to comment

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

70 Comments

by Malarkey | 9th May 15, 8:03am 1431115383

Nah, he's absolutely right!

Houses are selling for up to ten times or even more what they were only a few years ago, but incomes have barely moved in the same period, so how can anybody say there is a residential property bubble?

That's just plain ridiculous, no?

by don'tgetmegoing | 9th May 15, 8:19am 1431116393

Of course its not ridiculous and you have to agree that the boss of one of the biggest banks in the country would know what he was talking about.
Well, either that or he's sh.......ing his pants that it is a bubble

by Henry_Tull | 9th May 15, 8:29am 1431116961

BNZ boss Anthony Healy says he can't see any short to medium-term shocks that are likely to correct Auckland house prices

http://www.specsavers.co.nz/

by Malarkey | 9th May 15, 8:33am 1431117220

Brilliant!

:-D

by Malarkey | 9th May 15, 8:31am 1431117080

Only an appalling cynic could suspect these guys at the top are desperately riding it out, and praying it won't all fall apart before they've retired to their islands to count the money they've siphoned from the NZ economy.

Decent people know our leaders only want what's best for us.

by steven | 9th May 15, 9:01am 1431118904

o^0

by cowboy | 9th May 15, 3:16pm 1431141378

lol

by steven | 9th May 15, 8:53am 1431118393

More likely he's looking at the fat bonuses he's earned driving it up.

by cowboy | 10th May 15, 6:46pm 1431240415

median incomes have shot up... the majority has not

by muntijaqi | 9th May 15, 9:01am 1431118887

Better not to jump onto a boat where the captain can't see the iceberg in front of the boat. BNZ will not have my money.

by Stephen Hulme | 9th May 15, 9:15am 1431119736

Don't fret - someone from foreign shores in receipt of cheap QE largesse will fund your withdrawal. The BNZ guy is just cheer leading his asset ledger, just as US corporate bosses engage with their share stakes - with other people's money.

Stock buybacks are notching new records on several fronts.
U.S. companies announced $141 billion of new stock buyback programs last month, the highest level ever for new buyback programs during a single month and an increase of 121% from April 2014, according to a count by Birinyi Associates Inc. Read more

by redcows1 | 9th May 15, 9:41am 1431121318

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=114…
No no bubble here.

by Andrewj | 9th May 15, 10:01am 1431122508

that's not a bubble, it's a tragedy.

by steven | 9th May 15, 10:21am 1431123671

That is insane.

by amalgam | 9th May 15, 10:36am 1431124588

It's astonishing that people can kid themselves this is somehow normal and acceptable. Property prices have been talked-up; there is no genuine reason for the increases. The houses aren't better than they were when they cost much less. There is no real shortage, despite the bullshit claims. Armies of foreigners aren't pouring into the country and snapping up every house on the market, even though property spruikers want to believe it. It's a mania driven by greed and wishful-thinking.

The good news is I'm leaving the country in five weeks. Good news for me because I won't be around to suffer once people finally wake up and realise the emperor is naked. The fallout from the end of this bubble is going to be utterly horrendous and I want no part of it.

by cowboy | 9th May 15, 12:17pm 1431130636

The Mona Lisa is a painting.
It's problem less cool and less useful that a 20MP cell phone picture of your family.

Which retails for more?

The price of the property in that market is not from the service or the construction, it's the demand (and how it exceeds the price and availability of cheap supply)
- -
I wish they'd teach this principle in NZ primary schools.

I learnt it when I was about 6yrs old.

"Dad can I have an ice cream please?" ..." Sure but it'll be 20 cents".
"But I don't have 20cents and I'd really like an ice cream" ... "Then it will be 25cents, how do you want to earn it?"

by amalgam | 10th May 15, 7:13am 1431198823

The demand, like the prices, is artificial, in that it's the result of hysteria rather than a lack of supply. Look at the very large percentage of passed in properties at auctions. This erroneous belief being encouraged by spruikers that every house on the market is instantly snapped up by desperate buyers is a major driver of the NZ property obsession. Asking prices for rotten little boxes in demilitarized zone suburbs have already become absurdly excessive and only the most idiotic of wannabe slumlords are willing or able to pay them. Forget about buying the more desirable places.

Average Kiwi incomes are still as low now as they've always been, yet all house prices have been talked up to an insanely high level as if everyone in NZ is a successful Hollywood producer looking for another Malibu mansion. The number of people able to meet current mortgage obligations is low and diminishing even as prices are talked up even higher by frenzied ignoramouses convinced houses are magical.

by cowboy | 10th May 15, 7:31am 1431199899

demand for iPads, music concerts, and Windows 10 are all also artifical, doesn't make it less real.

by amalgam | 10th May 15, 8:23am 1431202995

Go list your old iPad 2 on Trademe. Think you'll sell it for more than the then-new retail price you originally paid? Yet people selling a crappy old Kiwi house believe it's worth many times more than they paid for it, and spruikers such as yourself agree with them. Is there a shortage of houses out there? Obviously not, as the list of passed in properties will attest. The majority of buyers want the "nice" houses in the "nice" areas but most would-be buyers are unwilling or unable to meet the ludicrous asking prices for those and often not even the rotten slum in Mangere. The sellers refuse to budge from their magical houses fantasy and lower the price to meet the market, preferring instead to wait until the Rich Chinese Investor turns up on their doorstep with suitcases filled with money... Thus most properties at auction being passed in, unsold.

by cowboy | 10th May 15, 4:37pm 1431232652

Hmmm I paid more than the previous owner, and they paid more than the previous owner. And the value will hold while inflation drives everything else (including the iPad down). The price is low for my iPad now, so I will hold rather than sell. If it's still going and has apps in 50years, you'd be surprised at the collector value.
But that "crappy" kiwi house is still priced well under a "new" crappy kwi house - just like the iPad2 is less than a new one.

And the old "crappy" Kiwi house still provides fully functional services (accommodation, storage, location) unlike the iPad2 which has compatiability and low quality component (built in obsolescence) issues and is deliberately made slower by features on newer models (such as the bigger memory and processor required to just run the OS). If we made it so Kiwi houses had to be built purely with materials under 5yrs old or be compatible with recent models, then they too would be very low price (which is something I mentioned earlier: If you want low price house sales, insisted that the seller brings *everything* up to modern code (or gets an undertaking from the purchaser that the work be _completed_ within 9 months of sale). then it would be like the iPad2, suddenly there is no serviceable value in the old model, and it _must_ be maintained. this puts pressure to sell, as ownership costs too much.
Just like the iPad2.

However that's why "normal" people need to think whether or not they can actually afford such as house market. Do you really want to have to pay "Apple iHouse" prices for your current season house?

Without it, as long as it's serviceable, and the costs are low/recoverable, then the property is a long term investment; and long term investments are valuable. (whereas working for farmers supplying fonterra, is *not*)

by sharetrader | 9th May 15, 10:06am 1431122784

he will be holding his breath on the 12th the date the greeks have to make a 750 mil payment. all hell will break loose if they default.

by OnwardsUpwards | 9th May 15, 10:47am 1431125226

If Greece defaults (they won't) nothing of significance will happen. Only few clown retail traders will lose money.

by sharetrader | 9th May 15, 11:40am 1431128427

its not retail or banks that hold the debt. the fall out will effect spain and Italy as well, credit will squeeze worldwide same as before and our banks will not be able to source money same as before, so then some risky loans will not be renewed same as before. you don't have to go back far or have a long memory to remember what happened in 2008

by steven | 9th May 15, 12:36pm 1431131791

Really, the Greek banks are looking at runs that will empty them. Then we see how much is owed to EU banks in turn and their state. Then we see the entire financial system lock up as banks are afraid to lend to each other. So somewhere between these 2 will be reality when Greece defaults, ive not sen anyone with a convincing line on where that will be yet.

by sharetrader | 9th May 15, 2:06pm 1431137206

the greek banks are already, empty the well to do have moved their money to other countries
http://www.theguardian.com/business/2015/apr/24/greek-debts-what-does-i…

by steven | 10th May 15, 9:42am 1431207769

Well to do exited, sure. Not so much the Greek ppl themselves, though with those large outflows there must be a lot under beds. The thing is what about all the money owed to EU banks by the Greek banks? I think of it as the domino effect, as long a the first one never falls the rest stay up. Once one falls Im not sure that they will be quick enough to catch it especially if hamstrung by pollies.

by cowboy | 10th May 15, 6:42pm 1431240123

if the population run on the banks, they'll just declare it a financial national emergency, lock down the financial system (freeing the banks from any responsibility) and start issue scrip and rations to the population until people calm down. "too big to fail".

by fat pat | 10th May 15, 9:19am 1431206393

Three words from Draghi "Whatever it takes". Add that to China's impending QE programme, and the likely resumption of QE in the USA next Feb. Forget about rate hikes its all downhill from here.

by steven | 10th May 15, 9:36am 1431207391

Indeed, he sees the danger, however when it comes down to it the Q is will be be able to do enough and will he be allowed to do it. Consider that the USA basically bailed out only 1 or 2 banks and had just Congress to deal with, the EU looks like quite a few more banks are involved to their eye balls and countries like Germany will probably fight it tooth and nail. Its certainly interesting watching this unfold.

by sharetrader | 10th May 15, 11:24am 1431213853

465 banks failed in the USA after 2008, the fed only save the ones deemed to big to fail.
http://en.wikipedia.org/wiki/List_of_bank_failures_in_the_United_States…
the british had to step and save theres
Not sure the EU can save many, the germans and French will step in to save there big ones
which brings us to NZ will our govt step in to save the aussie big 4 or just kiwibank?
not saving it will happen but one school of thought is QE has not saved the world from depression but delayed it to happen again somewhere else, due to the fact it allowed to many weak companies economies to survive and not fall by the wayside so new and stronger ones can come through.

by scarfie | 10th May 15, 7:52pm 1431244362

I agree, Greece won't default....this time. But they have to eventually, only a clown would believe otherwise.

by redcows1 | 9th May 15, 10:29am 1431124177

Maybe everyone is looking in the wrong place for a prick to burst the bubble.
Maybe a 10% rate rise will do it.
http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11445568

by Andrewj | 9th May 15, 10:32am 1431124355

That's just to pay the interest on all the new debt.

by skudiv | 9th May 15, 10:47am 1431125224

That's 'Rich Prick'
Thanks

by steven | 9th May 15, 12:38pm 1431131897

ouch

by fat pat | 10th May 15, 9:06am 1431205588

Yep, everyone's queueing up to pay huge sums for the unfunded liabilities of the Auckland city council. I guess it's tax deductible.

by steven | 10th May 15, 9:49am 1431208191

its funded by the ratepayers....ie they are liable for council debt are they not?

by fat pat | 10th May 15, 2:46pm 1431225995

yeah that's what I meant. When you buy an Auckland house you're forfeiting about 10% of the house's gross rental income to the city council. That percentage appears to be increasing as asset prices rise much faster than incomes or rents.

by sharetrader | 11th May 15, 12:34am 1431261288

most young buyers are not aware of this, i chuckle when they tell me how much there house has gone up in a year, and i ask how much costs (rates, insurance) have gone up and how much their pay has.
the smile then disappears and they always come back with the same answer, but im richer,
and my answer
not much good if cant afford food cant eat a house

by BigDaddy | 9th May 15, 10:46am 1431125204

"Would-be purchasers sleep in cars so they get first dibs on 12 sections up for sale in Beachlands this morning."

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=1144...

Typical piece of Left Wing rubbish from Granny Herald. If you read the article you only needed a 5% deposit to secure the section. These "purchasers" are all speculators intent on securing land with a peanut deposit and then flogging off for a profit closer to the time when the titles come through.

by skudiv | 9th May 15, 10:52am 1431125557

That would have made a good article as well. Either way sheds some light on the mania engulfing Auckland.

by cowboy | 9th May 15, 3:00pm 1431140407

stagging

by sharetrader | 9th May 15, 7:33pm 1431156794

after watching it on the news agree, not sure how many brought to build there house to live in and how many to sell later for the profit.

by OnwardsUpwards | 9th May 15, 10:52am 1431125540

Let me guess. The property crash is just around the corner...just 6 more years...almost there...pfffft

by sharetrader | 9th May 15, 11:04am 1431126263

it wont be property crash as such but a worldwide correction of asset prices when the extra credit stops getting pumped into economies. in short you cant print money for ever as in the end it leads to hyper inflation

by OnwardsUpwards | 9th May 15, 12:09pm 1431130173

Think about what you just said. Did the world have QE in the 70s,80s or 90s? Nope but inflation was high. Now the world has QE and what happened to inflation? It's gone, nowhere to be seen. So the exact opposite of what you said is true.

by steven | 9th May 15, 12:31pm 1431131469

Actually you (both) should. In the 70s and some other periods we had inflation due to wage increases, ie pull inflation, quasi-keynesian economics. You dont get inflation while in the zero bound trap, plus we have expensive energy. QE certianly has caused inflation in many assets s8uch as housing and some countries like say India and Russia I think have quite high inflation rates.

by Stephen Hulme | 9th May 15, 1:34pm 1431135266

There are records of US Federal Reserve annual accounts detailing Permanent Open Market Operations (POMOs) in the nineties. The SOMA account reflected this predecessor of QE. Another monetary expansion tool at the time was non-reservable sweep account growth. Read more and more

by scarfie | 10th May 15, 8:07pm 1431245237

Don't waste your time, he is a troll and this stuff is way over his head.

by steven | 9th May 15, 12:27pm 1431131238

a) Only if you are an Austrian.

b) It isnt printing but QEing. When you print the money is in ppls pockets effectively for ever and that excess money causes prices to rise. With QE you have to borrow and hence pay it back and that is only really to buy assets.

c) We past peak oil so we have 30~50 years of NET deflation ahead of us. Now sure we might have the odd spike of inflation but the trend will be down as less and less fossil energy is available.

by steven | 9th May 15, 12:49pm 1431132552

You have 2 contradicting statements here; when the money stops being pumped in that will cause a recession and deflation, ergo "in short" what you say makes no sense.

by skudiv | 9th May 15, 10:57am 1431125875

INTERVIEWER: Tell me, what is the worst-case scenario? We have so many economists coming on our air saying ‘Oh, this is a bubble, and it’s going to burst, and this is going to be a real issue for the economy.’ Some say it could even cause a recession at some point. What is the worst-case scenario if in fact we were to see prices come down substantially across the country?

BERNANKE: Well, I guess I don’t buy your premise. It’s a pretty unlikely possibility. We’ve never had a decline in house prices on a nationwide basis. So, what I think what is more likely is that house prices will slow, maybe stabilize, might slow consumption spending a bit. I don’t think it’s gonna drive the economy too far from its full employment path, though.

by Alter Ego | 9th May 15, 11:17am 1431127067

Theory on making money, is full of wholes Mr non-work Bernanke.

Why bother working, when inflation will take care of everything?. Cannot have one without the other. Producing rabbits out of a hat, is magic. Money..just an illusion.

Last time they even attempted a minute interest rate increase, America tanked...Bernanke was not thanked...Short memories, short on theory. Plenty of debt.

by steven | 9th May 15, 1:02pm 1431133352

and Sweden....despite the warnings.

by Stephen Hulme | 9th May 15, 11:17am 1431127069

LOL

Real estate buyers seeking money to renovate and flip U.S. houses are getting help from some of the world’s biggest investment firms.
Colony Capital Inc., Blackstone Group LP and Cerberus Capital Management are among the companies that have started making bridge loans to investors who buy homes to sell them quickly for a profit. Borrowing costs -- traditionally the highest in residential lending -- are tumbling as the firms compete for customers. Read more

In what was an "unambiguously" unpleasant April jobs payrolls report, with a March revision dragging that month's job gain to the lowest level since June of 2012, the fact that the number of Americans not in the labor force rose once again, this time to 93,194K from 93,175K, with the result being a participation rate of 69.45 (sic, 62.45?) or just above the lowest percentage since 1977, will merely catalyze even more upside to the so called "market" which continues to reflect nothing but central bank liquidity, and thus - the accelerating deterioration of the broader economy. Read more

by sharetrader | 9th May 15, 11:32am 1431127944

this was before the prime housing loans crash. as they say history repeats if we don't learn from our mistakes. They have become very watchful of the banks in the USA as they now realise greed corrupts common sense.

by steven | 9th May 15, 12:50pm 1431132610

he ignores energy...IMHO.

by Alter Ego | 9th May 15, 11:22am 1431127332

Maybe the prick would not possible, if it were not for compulsory expansion of his domain, at the expense of the over extended and overseas interests.

Any fool can spend. Any fool can rip-off the system. Any fool can borrow at decreasing rates for some, but increasing the rates of others, to make some poor, at the wastrels expense.

Skimming off the top is the Councils way ahead. It always has been, it is even accelerating.

But actually making money to keep up with the idiot, is getting harder to do, unless we import it... in deflationary, deflowering and possibly DE-leveraging non-milking times.

Illusions are one thing, reality may sink in one day. If one can add up the true cost of Awklanders expansion zones, which I decline to join in with. Ugly is in the eye of the beholder, someone obviously needs glasses.

Ruining a city is not just monetary, any prick can have that effect. And they do.

Debt expansion is one thing. Paying for it twice is another. Getting screwed into the bargain..Classic Tui.

I salute you Awkland, for taking it lying down.

by Machiavelli | 9th May 15, 1:13pm 1431134005

The bank experts and even the Prime minister agree there is no bubble. Yet most commenters on this site along with Gareth and Sham say there is a bubble. Who out of those two groups has the most at stake? Who to believe? Prices will be 30% lower in a year right lads?

by sharetrader | 9th May 15, 1:54pm 1431136483

no one is saying prices will be lower by that much, people wont sell unless they have too and a lot are quite happy to live in what they brought, what may happen is prices flatten for years until wages etc catch up.
if you go back over the fiqures for many decades you will see these cycles, generally houses over time only increase by a little bit over inflation.

by rjn1 | 9th May 15, 5:24pm 1431149057

People who use supply/demand equilibrium to explain why there is unlikely to be any price correction in the near future miss an important point. One of the key drivers of demand is projected capital gain. Once the market gets a whiff of evidence that the gain train has sailed and mean reversion has reared its head, that's a pretty solid demand factor completely removed and a potential boost for supply as sellers try to pick the top. It's this boot strapping arrangement between price-growth and demand that makes the whole thing so scary in my opinion - it tends to make movements more exponential (in both directions).

by sharetrader | 10th May 15, 11:39am 1431214740

what is scary about that is unlike other investments when a downturn comes you can sell quickly and still realize profit or even a small loss. with housing it will be much harder

by rjn1 | 10th May 15, 4:01pm 1431230486

Absolutely - there are few things worse in the world of finance than illiquidity.

by surfisup | 9th May 15, 7:48pm 1431157739

Bankers didn't foresee the global financial crisis which they themselves caused.

Tony Healey, you know nothing.

by Belle | 9th May 15, 9:33pm 1431164013

And winter is coming

by steven | 10th May 15, 7:54am 1431201258

Actually I'm not so sure he knows nothing. ie I dont understand/accept how someone supposedly at the top of the financial industry/banking in NZ isnt bright enough to read tea leaves well. So he's either so amoral, blinkered, self-centred and partisan that he is prepared to lie on record, or, he really is clueless.

I dont think he's clueless.

by Kakapo | 10th May 15, 8:05am 1431201910

I'd suspect that he's patting himself on the back at getting the average dopey punter to confuse economic commentary with PR spin.

by sharetrader | 10th May 15, 11:41am 1431214909

more likely he is already looking to move up the ladder in Australia before anything happens to tarnish his record here.

by rjn1 | 9th May 15, 8:54pm 1431161669

I just re-read the title of the article - a 'shock', by definition, is not something you can foresee. "Ooh, hold-up folks, there's a shock coming - careful now".

by LOL | 11th May 15, 10:31am 1431297101

Even many diehard spruikers are beginning to concede the end is nigh. Not all of them of course, but it's still telling.