The Reserve Bank’s next move is highly likely to be heavily influenced by its assumptions around the relative supply and demand impacts of a net migration inflow that is much stronger than anyone believed, BNZ economists say.
In a preview of next week's Reserve Bank (RBNZ) review of the Official Cash Rate (OCR), BNZ's head of research Stephen Toplis said with migration comes extra demand for housing and goods and services.
"Higher demand, all other things being equal, means higher inflation. Exactly the opposite of what the RBNZ needs."
The OCR is currently at 5.25%, having been raised some 500 points by the RBNZ since October 2021 as our central bank tries to rein in inflation, which at an annual rate of 6.7% as of the March quarter was still well outside the targeted 1% to 3% range.
Toplis is picking another 25 point hike by the RBNZ at the review on Wednesday, May 24.
And most commentators have been expecting the RBNZ to raise the OCR by a further 25 points to 5.5% - with this then being the peak of this hiking cycle. However, Westpac economists broke out from the consensus this week, picking that the OCR will need to be raised to 6% and citing the demand impacts of the sudden surge of inbound migration in NZ.
Toplis saw "some irony" in the current migration situation.
"The theme of the day for some time now has been how do we increase the supply of people to contain the inflation that is being driven by an excessively tight labour market? We appear to be achieving this in spades. Anecdotally, the ease of finding labour is improving rapidly. The pressure is starting to come off. Sure, employment growth in the March quarter, of 0.8%, was well above expectations but this demand for labour was clearly offset by the increased supply."
Toplis said some commentators seem to have focused more on the demand side of the balance sheet from migration rather than the supply side and now see the OCR headed significantly higher in a bid to offset the extra inflationary pressure generated.
"Such an outcome should not be ruled out but we are not convinced that we know enough yet to see that as a central scenario."
He said a big question was how permanent is the current surge in net migration?
"How much is simply catch up from the period of effective border closure? If it’s pent-up migration then the flows could quickly return to manageable levels. If not, then we are highly likely to have an inflationary problem."
But Toplis questioned whether the government would allow migration to remain so high if it did become clearly inflationary, or would the government simply tighten its migration settings.
"Surely tightening settings would be a better way to handle the situation than forcing monetary policy to handle any excesses that develop."
Where all this ends up is a moot point, Toplis said, "but it does seem to us that the surge in migration is already having an impact on demand".
"House prices appear to be stabilising and, anecdotally, there is a tangible migrant presence in the market. The impact of migrants on the market should, in the first instance, be lower than in the period immediately pre-Covid as the supply of housing is now strong, interest rates are much higher, and investor demand is weak. So, for now at least, migrants appear to be helping prevent a further fall in house prices rather than generating excess demand.
"The other area where migrant demand appears to be showing up is via the ongoing strength in consumer spending which has, so far, defied what one might expect to see under such tight monetary conditions. The sheer extent of the current population increase means that per capita spending would have to fall significantly to generate a decline in spending at the aggregate level."
Toplis said the decision-making process for the RBNZ "is not getting any easier".
"Since the surprise 50 basis point hike at its April 5 meeting there has been a swathe of data suggesting such a hike was unnecessary. But, on the flip side, there have also been developments indicating inflationary pressures might be even higher than the Reserve Bank had anticipated when it made that aggressive decision."
Toplis said there is "enough dispersion" in recent economic data that the Reserve Bank could make any number of decisions based on the weightings that it chooses to ascribe to the various available indicators.
He said if you were to look at the varying list of economic factors in isolation "then there would be no need for any further rate increases".
"Our expectation, subject to any shock from the Budget (which is entirely possible), is that the Reserve Bank will hike a further 25 basis points and leave a modicum of upside in its future track to provide the clear message that it could go again if necessary. At the same time, we expect the Bank to water down any thought that rates could fall anytime soon by printing a [forecast] rate track with no decline in rates until well into 2024. For all intents and purposes this would be very similar to the profile the Bank produced back in February."
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"House prices appear to be stabilising". The HPI for Auckland over April showed a 1.3% drop. 5% for Lower Hutt. 2.3% for Auckland City. I welcome this correction but these "senior economists" don't inspire confidence with declarations that are contradicted by best data. Clowns.
The wind is from the west....
We're going into frenzy buying mode.
FFS🙄🤔 ...
I didn't want to share this but WTF
I am monitoring 57 properties in one area and 336 across 7 other north island coastal areas.
Facts .
1. Of these 390ish properties 8 have sold at below initial asking and 13 have been delisted.
2. 48 have been reduced this month
3. I am getting daily notifications of price drops to " meet the market"🙄
4. 0 have had price increases
5. 1 sold at Auction to a muppet
6. 72% have been listed longer than 50 days.
7. Sales under 800k are the big movers in a dreadful market
8. My neighbor just emailed me.. Building activities have stopped in OTP with many sections sales being paused by the developers until the market pick ups. ( He is a road contractor to the developer)
Yip . But buy buy ... If you want to lose kose lose or have 10-25 years to wait!
The biggest
I wonder that as well. According to realestate.co.nz data, the total housing stock for Auckland was 9,950 in January 2023, 10,541 in March 2023, and over the last couple of months (April and May), I've noticed the stock number in Auckland hovering around 11,400-11,600. We have also been told for a while now that new listing numbers have been very subdued. So how does one deduce that price falls have stabilised if the majority of the properties being listed aren't selling?
This misses the point. But I'll humour you and pretend this has a bearing on the observation of growing housing stock - the stock average of 9,950 in January 2023, despite the "little-known phenomenon" of Christmas holiday effects, still registered a 17% increase on the stock number of January 2022.
There isn't any evidence, else he would have quoted it or at least mentioned what he based it upon to back up his point. It was a throwaway opinion based on zero analysis - with the background intent that all spruikers have - to stoke the fires of FOMO and get people back into the market.
This guy is literally paid by an organization that makes it's money from this same market - his 'views' and 'opinions' are literally bought and paid for - same for every bank 'economist'.
As far as the RBNZ is concerned - it of course has to factor in the higher than expected migration figures - you can't just throw another 100k people into the mix and have them make no difference.
Further, whilst there will be a mix of demographics in there, along with socio-economic groupings - they all need somewhere to live and will impact various markets - whether that be demand for rentals or property purchases. At the very least, simply by walking the streets they increase the demand for further infrastructure investment (that we're behind on).
Add in that they'll walk into a job, spend up on things they need to establish themselves like furniture, vehicles, clothes etc. and the additional demand on supermarkets etc.
There's absolutely no doubt that such a wave of immigration, even if short lived, will have quite an impact on the demand side, therefore stoking inflation.
The Govt is literally playing against the RBNZ re: inflation - the coming budget is going to be quite the chuckle-fest - listening to Roberson try to tone down the spending of his '4bn savings...'
Talking of housing the expected migration, and the lack of infrastructure investment, I'm reminded of that story about the apartment complex in Auckland being built using pre-fab units. 79 in total.
All well and good getting more housing stock, but I seriously doubt the infrastructure around that complex has been upgraded to handle 79 new individuals, couples or families.
It has underground parking, I think, but I doubt it has 79 spots, especially since it's a Kāinga Ora property, and most of those on the benefit don't have cars.
Still. 79 apartments all using their showers at the same time or all flushing their toilets at the same time? Yikes.
The Government needs to put some serious money into the infrastructure to support more housing, and force local councils to use it properly and not spend it on non-priority projects.
I recall seeing a project in Tokyo where they dug up the road for a new 35 story apartment complex, installed a large 5m diameter concrete-like tunnel, and put their water mains, gas, electric, communication and sewerage pipes inside the tunnel, while the tunnel itself just handled stormwater. When they built a new similar apartment complex across the road, they just added new piping within the tunnel and didn't need to dig up the road again. After the Tohoku earthquake happened, they walked through the tunnel to inspect it and made repairs from inside.
They planned ahead for future use, unlike New Zealand where it seems councils don't even plan for current use.
Personal attack aside, you're telling me that more than a few of Kāinga Ora residents on an accommodation supplement that pays their rental are paying $100 a week to buy a car on hire purchase from a South Auckland car financier?
Perhaps I am out of touch then, as I was under the assumption that state/public housing was there for those that cannot afford to pay retail rental rates, so should not be able to afford to buy a car or pay for its upkeep.
I seems our public transport is so bad that you really do need a car to get to work, do the shopping, drop off and pick up the kids from school/day care, and to generally get about.
Anyway. Whether they have a car or not doesn't take away from the lack of infrastructure development needed to support medium and high density housing.
" your out of touch" is not a personal attack. Ya big softy!
It's a statement of fact to many here and / or a very god opinion.
Harden up, take the punches, give some back ( but dont go lame and woke) and maybe read a few more of the guys opinions with both eyes open!
KO is a rort. Inside info (wink, wink). A family pleads hardship and is unable to afford market rent. Typically 3 or 4 bedroom is supplied. Then another family eg Grandparents or sibling move in. Next thing you have 3 working adults and 2 pensioners paying $400 for an upmarket house that would easily rent for 2x that.
My wink-wink is a KO employee in middle management. The place is infested with staff who appear to do very little.
We have more than enough state housing. Just need to throw out the abusers and vermin.
Yes but they won't. My pick is 25bps or that they will even put things on ice with no change and tell us there are lagging indictors and its already high enough. That's probably all it needs to kick housing back into gear as well, everyone is just waiting to hear that the rises have stopped.
Kev last months numbers where the worst in 20-30 years.... so no evidence there.
I guess you could have inside info being in the industry, The numbers will be black and white in another 2 weeks, the May sales data.
I suspect falling stock is due to lack of any offers and deciding to take it off the market, clearly not due to houses moving like hot cakes is it.
In summary...
A+ B - C ×D% ÷ E = X ...
X being the OCR number for this quarter
or in English.
If inflation analysis is up in conjunction with NZD, unemployment, robbos deficit, banks interest rates, immigration, export trade deficit, blah blah.... and then .25%OCR is not enough.
Or in kiwi slang
F*ck knows what they're talking about. Let's through a dice.
But logic says
the net result comes from to many conflicting data points to ever ever result in a constant result.
Wages are up 20%, that's why there is no pain. Debt is being inflated away yet there is no genuinely serious economic hardship other than standard of living is falling. How many repossessions and mortgagee sales are there? Immigration is going to let developers off the hook.
Does anyone really think Orr and the RBNZ ever had any idea what they were doing? The economists are trying to make predictions that are based on logical decision making. Orr has none of that he is an overpaid clown that seems hell bent on making any situation worse - just like he did on the way up...
March and April saw a net outflow of people from NZ, to the tune of 24k and 34k respectively. Another negative month in May (highly likely as all the RSE workers that arrived in Feb go home) will possibly see negative growth for all of 2023. The big question is how long the huge demand bump from the 100k arrivals in Sept-Dec last year, will continue for?
Some stay for pruning but its a much smaller contingent. At least in the grape industry. Pruning can be conducted over time and is usually 2-3 guys per block, Harvest is very time sensitive and its all hands on deck to get it done.
"The winter months (June–September) are the low season for the RSE scheme, with demand for around 6,000–7,000 workers for winter pruning work. Usually, sizeable numbers of RSE workers who are employed for the peak summer harvest period return home to their families in late May and early June, taking up to a five-month break, before potentially returning to New Zealand for another seven-month stint of seasonal work."
https://devpolicy.org/winter-measures-supporting-rse-employers-and-work…
Some stay for pruning but its a much smaller contingent. At least in the grape industry. Pruning can be conducted over time and is usually 2-3 guys per block, Harvest is very time sensitive and its all hands on deck to get it done.
Grape harvest is mostly mechanised and is using mostly expat vintage staff from the likes of South America and Europe, and harvester drivers which are only in one place for 6-8 weeks at a time. Very little grape harvesting is done by hand now Most pruning is done with much larger gangs of 1-2 dozen (sometimes up to 50-60 on larger blocks). There's been so much planted in the last 5 years there is barely enough time and labour to get it all done before buds break.
It's only smaller holdings often worked on by the land owner that has a couple of people chip away for months. Somewhere like Waiheke or Kumeu or something.
Here's a headache inducing situation
Half acre property in a residential neighbourhood has finally been rezoned from rural to resi early last year after 3 or 4 year district plan review. Now proposed vs operative, so council still won't allow any subdivision. Need a res consent for subdivision and they will assess as if rural even requiring tests whether the land is high quality soil. They are basically stymying any progress and it could be years yet before any change.
Nz is the slowest snail of all slow snails.
https://www.stats.govt.nz/experimental/covid-19-data-portal
Download data button
Then selected arrivals and departures
I noticed the customs website stopped daily updates
But statsnz must have a portal
With regard to the OCR, we could easily replace the decision by an automated process.
Just measure inflation correctly, and apply a control process such as PID.
Set the target to 0%, and a minimum OCR that respects the future (I would suggest 6% as that keeps DTIs in mortgages reasonable).
Even just following the Taylor rule with a fixed minimum of 2% would have largely prevented the madness of the last few years. And measuring the inflation properly (not excluding capital gains in property AND companies) would've been even better.
BNZ's head of research Stephen Toplis said with migration comes extra demand for housing and goods and services.
let me get this right, when labor market is too tight, you consider it inflationary, when more migrants come and more labor supply, you consider it inflationary. so more labor supply is inflationary????
actually this is not the case.
if the labor forces produces more than what they consume, it's not inflationary. if they produce more efficiently than our current labor force, then we will be richer.
the simple interpretation of 'migration is inflationary' is lazy, dangerous and logically flawed.
To summarize this thread.
OCR up by .25 to .75
Immigration loss 14k +/- 100k🙄
House prices are crashing and rising 🙄
Buy sell buy
Increasing number of sold signs (where) in a decreasing market 🙄
Bob's house in lower Hutt has HPI -1.5%. Hèeeellllppp were all stuffed!🙄
Wages up 20% (TK 🙄🤣)
Inflation is under control 🤣🤣🤣🤣
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