By David Hargreaves
The Reserve Bank people were doing their best impressions of swans today; all serene up top but paddling away furiously underneath.
They are paddling with grave urgency toward the sign in the boating pond that says: "Macro-prudential tools". And reading between the lines and deciphering the raised eyebrows, further tightening of lending controls as a means of pouring cold water on the housing market cannot come fast enough for a central bank that has been badly caught out by the ineffectiveness of the Auckland investor lending controls it put in place in November.
Let's not be coy. The reason the RBNZ did not cut interest rates today was because of the housing market. Plain and simple. The RBNZ has been so far away from meeting its inflation targets for so long now that a few months of being off the track won't make much difference.
There were two choices: Continue to be miles away from your inflation target, or pour petrol on the house market. The RBNZ took the 'safer' path. But our central bank will nevertheless now be hoping like hell that between now and when it makes its next interest rate call on August 11 that the US Federal Reserve has raised interest rates in America and knocked some of the stuffing out of the New Zealand dollar. Without a lower dollar the RBNZ's not going to see much inflation materialise.
The RBNZ is though in the curiously luxurious (perhaps seductively and dangerously so) position of having TWO US Fed reviews of interest rates before it next has to make its own call. And because it is changing timetables, as a one-off the next interest rate review here will also (as today's was) be accompanied by the full production number Monetary Policy Statement, enabling full explanation of the decision and what led to it. Given such a scenario the option to play wait and see was too good to resist.
The surprisingly awful jobs figures in the US over the weekend very probably stopped the Fed in its tracks from raising rates next week. But when next month's US job figures come out and, I imagine, reveal the last ones to have been a rogue, then a July Fed hike I think becomes a near certainty. Of course, and we have to consider the possibility - if the jobs figures prove NOT to have been a rogue then all bets are off. In such a situation the Fed would not be able to hike and our RBNZ would undoubtedly be forced kicking and screaming into another rate cut here (with possibly more to follow) in an attempt to bring the Kiwi dollar down from orbit (which is where it would no doubt be by then if such a scenario played out).
Sitting on hands time
I don't think that will happen though. I still think the US Fed will be able to raise rates in July, which may mean that the RBNZ will be able to sit on its hands again in August, should it feel it needs to.
It could be, however, that by then the RBNZ has at least signalled the next round in lending restrictions. As I say, I think the RBNZ's swans are paddling away rather more frenetically than they are trying to let on.
It may or may not have meant anything at all but I thought it interesting that in the press conference today Governor Graeme Wheeler, when asked about frequency of of public speeches by RBNZ top brass mentioned that Deputy Governor Grant Spencer had one coming up soon and that he (Wheeler) was giving one some time after that. It may just be coincidence, but in 2013 there was a bit of a one-two approach from the RBNZ with Spencer (who is the bank's Mr Financial Stability) giving a broad-brush indication of likely introduction of the use of controls on high loan to value lending in a speech in late June, while Wheeler in late August then announced the official launch of an LVR 'speed limit'.
As I say, may be coincidence, but it might not as well.
Fairly swift
Any changes to the LVR rules can in theory be done fairly swiftly because the LVR measures are already included in the macro-prudential toolkit that the RBNZ Governor and Finance Minister Bill English agreed to. There is a requirement that the RBNZ 'consult' with English and the Treasury if it is looking to make tweaks to the rules - but this would appear a formality. Much more is going to be involved in the proposal to introduce debt-to-income ratios, because they are not at this stage included in the range of macro-prudential weapons. Reading between the lines in what was said at today's RBNZ press conference gave the clear impression that debt-to-income rules will not be a starter till next year. But have not doubt - we are going to get them and they will likely end up being permanent in the way the the 'temporary' (yes, that's really what they said!) LVR rules are.
Which brings us back then to planned tweaks to those LVR rules. Again reading heavily between the lines, don't be surprised to see something announced or at least clearly signalled within say four weeks. What will it be?
At the moment Auckland investors have to raise deposits of a minimum of 30%. I think we can confidently expect that figure will be raised to at least 40%. Would they even try 50%?
But what about the rest of the country? The RBNZ's at pains to point out that while yes, the investors are on the rampage in Auckland, currently accounting for about 46% of house buying, they are pretty active - at about the 40% level - in the rest of the country too. Therefore its probably reasonable to expect that investors elsewhere will also be hit with minimum deposit requirements. But maybe they'll just cop for the 30% currently seen in Auckland just to keep some difference.
If I'm right about timing then there is no reason why these new limits might not be put in place by the start of October or November at the latest.
Was there something else?
I do wonder if something else is planned here though as well.
It's been reasonably clear for a couple of months now that the Auckland-specific rules introduced last November haven't worked. So, why no action thus far, given the clear urgency the RBNZ sees to tackle the rising house market?
Are there in fact indications behind the scenes that our ever-reluctant Government is close to being dragged to the party? The Government did show last year when it hastily brought some new tax rules in that it can after all be embarrassed into action on this issue. That's what a constant barrage of news stories about housing affordability will do.
Is the RBNZ's delay on this matter in part because it thinks or knows that the Government can be forced into some action again? And if so, what?
If we are talking about investors as flavour of the month for attention, would the Government finally be considering doing something about the tax deductibility rules that make investing in houses such a no-brainer in this country? Don't know. It is speculation on my part. But such a change would certainly have an impact - and it would have an influence on how far the RBNZ has to go.
Anyway, I suspect we won't have long to wait.
43 Comments
Everyone is shouting at top of the voice but the Government STILL is no mood take any action and ignore. It seems that they have taken upon them self to see that Auckland Median price to be 1.5 Million before the time that they are booted out next year. Which is definite.
HOW ELSE CAN ANYONE IN THE WORLD EXPLAIN GOVERNMENTS INACTION.
Media, Opposition and all learned experts should get together and do something as the arrogant thick skin politician have for forget that THEY HAVE BEEN CHOOSE TO SERVE THE COUNTRY AND NOT TO RULE.
You clearly don't look at the polls, basically half the country likes the current National government, probably because over half the country owns a house maybe ? I can tell you right now that baring some huge financial meltdown that they are going to get in for another term, in fact they are going to continue to get in for as long as John Key wants to be the PM and the opposition is a complete JOKE. Winnie will side with the winners IF he gets the option because no one wants to be on the back benches when they can be in power and National will romp home.
Quite right Carlos, everbody feels good when their house is "worth" a lot, nobody wants the price to go down as then they'll feel worthless.(or they won't get the votes, or both)
Trouble is "everbody" also felt great in 1987 just before the crash ( and had the fear of missing out, just like today)
Carlos. The reason the Nats do so well in the polls is they have good political management and stick to their message. New Zealanders like that clearly, as do I.
Trouble is the message ain't good any more, but the Nats stick to it. So the question is just how long will it continue to work ? Possibly quite a while yet.
The only problem is that most of the message wasn't of their doing - good fortune has played a great deal - booming dairy prices, the Christchurch rebuild - both of which are coming to an end. Both of these have had a positive effect on the economy. I don't include the rising house prices because that is not spread across the majority of the economy and is largely non productive. No one complained when the NZD was at 0.85 against the USD but now that dairy is in the doldrums everyone is stomping round demanding that the NZRB drop interest rates in the blind belief that the NZD will drop. I don't believe that will happen. There is a book on management called "Hard Facts Dangerous Half-Truths & Total Nonsense" by Jeffrey Pfeffer and Robert Sutton and one of the comments by the authors is that it does matter what type / style of management a company has - the performance of a company is affected more by factors that are outside their control (but don't try and tell management - they don't understand and it's not what they want to hear). The same observation could be made of politicians.
Stop saying 'investors' when you mean speculators. Because of pathetic net yields there are no longer legitimate investors in Auckland property and haven't been for some time.
You're a financial website not the mortgage dept of a bank, you need to lead by example.
I think the "foreign" property buyers are just a convenient distraction to the real villains - Auckland property speculators Once these tools are introduced I suspect the property speculators will start exiting the market as it becomes increasing difficult to finance the next house. Once they leave demand will decrease and I suspect so will prices.
Local investor will not pay million for 800000 unit but overseas buyer to convert their unofficial money do not mind paying any anount of premium as long as the money becomes official. One deal at a premium will hike the prise of the entire area. Labour is right in one thing that most buyers are of chinese origin as the only choice they have is to move their money outside china or will be arrested.
Local investors are not damaging as much as overseas speculautor.
Govt if does proper data, truth will be out not that we need as we all know but keep big government mouth shut. Even now thet are shamelesly coming on tv with irrevrlent n insesnsitive comment.
Problem is I don't think any one knows what the truth is.I'm still not convinced that foreign buyers are the bogeyman they are made out to be. People keep saying it is the Chinese , then people start talking about the Indonesian millionaires - but is there any real proof that they are the villains. What appears to have been established is that investors are buying 46% of property in Auckland and the banks are now looking at the risk profile that is being generated and they don't like what they see. Ban foreign sourced income and now interest only loans appear to be in jeopardy. Your scenario above do you have any proof that this is happening.
@ BadRobot: Ok you want evidence, ok here you go:-
1) The Auckland property market ground to a halt and started to decline by -10% from October 2015 to the early part of this year - why did this happen? The IRD requirements for Non-Resident Investors kicked in and slowed them down whilst they sorted out the paper work.
2) The LINZ data also revealed that 35% of the buyers who said they were New Zealand tax payers were foreign students or in New Zealand on temporary work visas.
Ok how many Students do you know that can afford their own home?
CJ099 you're so right. The Auckland market was in free fall for a few months last year! People on this website must have short memories. Barfoot stopped sending me the Eastern bays weekly snapshot because almost every auction back then was "passed in" . I recall people here on interest warning about catching falling knives and making cheeky offers 20% below CV. The north shore had apparently lost 20%, but as people here pointed out the REINZ data is a lagging indicator so it could have been much worse. Someone practically gave away this unit on Paritai drive for 900K . All because the price setters (the Chinese) had left the market.
What kiwis can afford is so vastly below what the Chinese are paying. If they ever leave the marked because of a "hard landing" or currency devaluation or whatever then its going to be Armageddon here in the Auckland housing market. Mind you if that ever happens then I suppose the NZD will tank alongside the yuan.
DH, from the pure employment trends ('Employed persons by class of worker and part-time status') in the BLS survey http://www.bls.gov/news.release/empsit.t08.htm , I wouldn't rule out the recent job-creation bust as not an outlier but a harbinger. Which rotates your 'all bets are off' scenario into centre stage.....
Your quote:
Of course, and we have to consider the possibility - if the jobs figures prove NOT to have been a rogue then all bets are off. In such a situation the Fed would not be able to hike and our RBNZ would undoubtedly be forced kicking and screaming into another rate cut here (with possibly more to follow) in an attempt to bring the Kiwi dollar down from orbit (which is where it would no doubt be by then if such a scenario played out).
Interesting times.
While there is a link between affordable housing and financial stability, it is a little circuitous. The main problem in my view is affordable housing and that problem should be addressed. Similarly while very low inflation is a symptom of a lack of demand relative to supply, in reality in a global market we are price takers. The bigger problems are a lack of competitiveness due to the exchange rate and a distorted property led economy with under investment in infrastructure. Between the government and the RBNZ they should agree the actual problems, communicate that to the rest of us, and then take steps to directly address them. The current dance process is useless.
In which world do our member of parliment live for they are not able see what everyone is able to. No newzealander is immune from housing bubble and knows what is hapening and why except the government.
HOUSING CRISIS is shouting on top of the voice, still govrrnment is not able to hear for they know that no one can do anything till next year which is good enough time for them to help speculators and in turn protect their futurewhen they are booted out next year as you scratch my back and I scratch your. This should be the only understanding between the goverment and speculators. If not, I fail to understand HOW CAN THE GOVT BE SO IMMUNE TO HOUSING PRICES THAT IS RISING BY $11000 A WEEK. WHAT MORE DATA AND ANALYSIS DOES THEY WANT.
Mr PM when will you act (please we know supply is important but NEED OF THE HOUR IS TO CONTROL DEMAND
While writing this just saw housing minister in news with the same attitute n statement as before that their is No housing crisis n no overseas buyerin NZ. SHAME
Request everyone to write their comment and if you agree with me to add Shame at end to get the message across to our thick skin government.
You would be surprised just how powerful a tool shame is! I think we need one of these websites for NZ:-
https://you.38degrees.org.uk/petitions/end-corrupt-money-in-uk-property
https://you.38degrees.org.uk/petition/new?source=38homepage
They may actually allow us to use their site for a campaign?
check the register of NZ MP's and you will see why so many from all sides have no real interest in seeing house prices fall
http://www.parliament.nz/en-nz/mpp/mps/fin-interests
Evita they know its a problem - they are trying not to show fear as this may cause widespread panic, and collapse. Believe you me if they could sort in one foul swoop they would - the rbnz governor, JK and the like are i suspect scared s&^&less. My personal view is that the problem is now so massive it is virtually beyond control.
No mention by the RBNZ in relation to data collected re interest only loans, which are taking an ever higher proportion of mortgage lending and are obviously enabling higher mortgage loans . In regards to debt to income data the IMF has masses of material collated from 2008. Ireland , put out a consultation paper in October 2014 , reviewed it in December and commenced debt/income measures at 3.5 in February 2015 .25 percent price increases in Dublin at start of new measures now nada . The RBNZ talk as if the LVR limits have worked, what is annualised house price currently, the RBNZ simply have let a situation develop too far to bring about a controlled landing , if debt to income ratios work else w here they simply should not be deferring and denying as they are. Given their inability to forecast almost any other economic outcome why should this group be given any weight when they decide upon its next round of macroprudential tools. One thing for certain they no longer appear so cocky. Central bankers of the year indeed.
Shame. No words to describe government inaction and also why is RBNZ, when aware that the housing crisis is in dangerous territory by their own admission NOW, Why not take action NOW instead of saying we will do it future. What are they waiting for, hoping that by miracle the financial problem will go away. ACT NOW IF YOU FEEL THAT THEIR IS A PROBLEM AND IF YOU FEEL NO PROBLEM THAN WHY THE WARNING.
Badrobot spot on. The investors aka speculators are the number 1 cause for this housing crisis.
Canada 10% of properties bought by investors. NZ over 45%. This alone should send alarm bells ringing at the Reserve Bank.
Media have their hands tied by their sponsors/self interest as do the government. So the media report just enough to get people's attention however not to many radical ideas such that the status quo changes.
Good example is Stamp Duty. Herald had a top 10 ways to sort out housing and despite the fact that the UK and Australia both have investor targeted stamp duty now it didn't make their Top 10 list. Seriously lol... Surely the best and brightest in the UK or Australia may have a few things over the clowns running the show in NZ.
35% students and temporary workers are still foreigners buying right. What am i missing ?
So in actual fact 39% of buyers are foreigners.
Again the media focussed on the residency status instead of the citizenship status. It is fairly well known that sending your children overseas is a good way to invest in a foreign country.
Last thing the Media (and their sponsors) want is a message out there that nearly 40% of properties are bought by foreign citizens. What is evident is how much pull the media do have over public perception and how easily it is for them to cloud the facts.
There is a world of difference in reporting 4% overseas based foreign citizens buying versus 39% offshore and local foreign citizens buying.
Since when did Joe Public on the street care about residency status over citizenship status ? This is something the media thrusted on us.
It was always foreign buyers v NZ buyers however they managed to twist it to resident vs non resident and somehow still throw in foreign when discussing.
The Non Resident buyers (4%) sends the message they prefer (which protects the status quo) rather than Foreign buyers (39%).
Every Knows JoePublic and the only reason that the government has managed to pull the bluff is that have ineffective media or may be media with vested interest and unfortunately opposition too is very weak and not able to raise the issue strongly.
For Opposition this was such a good opportunity to raise the issue and question government inside the parliament and also outside on a daily basis by holding road show, media, press conference and so many avenues but fail to exploit. Opposition should understand that Government believes in two policy : 1 Tell Lie 100 Time and will become Truth and 2 Offence is the best form of defense.
What we need is a strong powerful media specially in the absence of strong opposition.
Opposistion always keep on throwing their idea thatwe will do this and that once in powerbut fail to understand that to be in power haveto winelection and to win election have to be the voice of the peopleand be good opposition leader by being a watcdogand highlighting governments failure.
Government is on sleep mode and with no strong oppositio and media., social platform is theo ly course left for people to raise their voice, concern. Act now
Opposistion always keep on throwing their idea thatwe will do this and that once in powerbut fail to understand that to be in power haveto winelection and to win election have to be the voice of the peopleand be good opposition leader by being a watcdogand highlighting governments failure.
Government is on sleep mode and with no strong oppositio and media., social platform is theo ly course left for people to raise their voice, concern. Act now
57% pop in " middle n.z" enough for nat to romp home again, why would national kneecap its core voters?
Unless the left sorts out its flakey perception and goes for the "middle" again ,all bets are off....
The left needs to get out and enroll people up to vote, not just chant we'll get the 850,000 missing....
I dont know if their strategists take into account the fears of the middle who actually can be bothered making it to a poll booth on election day....
If the RBNZ does manage to effect the investment market, through supply and demand, less overall percentage rentals available equals rising rents due to lessened available supply. Essentially the effect of the housing shortage will be pushed to tenants. We might start to see a lot more headlines on the unaffordability of rents in Auckland.
In future Rent in Auckland will be headline for sure.
Thanks to national party policy and inaction. Have been very bad for NZ in creating wide gap between people. Making Rich richer and poor more poor and middle class has been to pushed into poverty. Socially and eceonomicaly finished. Thanks National
RBNZ can also do little if the government does not want to take any action as have vested interest in the housing bubble.
Only if we had sincere govt working in the interest of the country, things would have been different. Still now have time but will is lacking.
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.