Economic activity per person in New Zealand has now been in decline for over a year and headline growth has been well below trend, despite the booming population.
Late last year, we attempted to come up with a better definition of recession as an alternative to the politics-fueled bickering about two quarters of negative growth.
The data looks much more clear cut now. Gross domestic product growth over the past year has been just 0.6%, fathoms below the historical average of 2.5%.
If you then strip out the boost from strong population growth, you find each person’s slice of the economy has contracted by 3.1% and purchasing power has fallen 4.8%.
The unemployment rate has lifted 0.6% in the past year, which might not meet NZ’s version of the Sahm Rule but is clearly pointing in that direction.
Retail trade and manufacturing output both looked bad in the GDP data with 3.5% and 5.2% falls in the past year.
The only recession metric which may not have been met is a decline in real wages. Most wage measures showed an increase in 2023 that was greater than the 4.7% inflation rate.
However, BNZ economist Doug Steel said it was clear from the GDP data that there was a serious squeeze on real incomes.
“In fact, broader measures of income look even worse than GDP itself,” he said.
Real Gross National Disposable Income (RGNDI) is a measure of total purchasing power and it fell 2% in the last three months of 2023 alone.
“The peak-to-trough now decline in RGNDI has accumulated to 6.1%, which is now more than the peak to trough on this measure during the GFC,” Steel said.
It is very clear now that the economy has fallen deep into some sort of recession.
What’s hurting?
Statistics NZ data showed the biggest weakness in the December quarter was a sharp decrease in inventory levels.
Infometrics chief forecaster Gareth Kiernan said this was due to the distribution sector selling down the high levels of stock they were holding during the pandemic.
This also resulted in import volumes falling by similar amounts as distributors chose not to restock the sold inventory and households demanded less goods.
Spending on things such as alcohol, clothing, communications, and restaurants has some of the biggest falls since 1992, excluding the lockdown periods.
Consumption spending per person has dropped 2.5% over the past year. Again, that is the largest year-end decline in the past three decades.
Where to from here?
Finance Minister Nicola Willis was colloquially in charge of the economy for one of the three months covered by this data release.
She said in a statement it showed the importance of cutting government spending and finding ways to drive more economic growth.
“It is concerning that we are in recession even despite our rapidly growing population. This simply reinforces that our approach to strengthening and growing the economy is the right one”.
Craig Renney, chief economist at the Council of Trade Unions, reached almost the opposite conclusion from the same data: the Government should be making more investments.
Growth in New Zealand and the United Kingdom was falling behind countries like Australia and the United States, which had stronger economic plans.
“Those countries with an active economic plan based on investment—like the US—are seeing strong economic growth and employment growth. This government is heading in the opposite economic direction,” he said.
International Monetary Fund staff recently visited New Zealand for an annual check up on the economy and to provide some high level advice to policymakers.
Mission chief Evan Papageorgiou said the Coalition Government’s plan to pull back on spending was the right move, despite the lack of economic growth.
Addressing the structural fiscal issues would not necessarily worsen the downturn as it could “create its own momentum” by contributing to an earlier easing of interest rates.
In that sense, the economy is only running slowly because of restrictive monetary policy and it should return to its historical growth rate once interest rates normalise.
Stimulating the economy at this stage may just delay or draw out the recovery. It could be better to keep some fiscal powder dry for when the Reserve Bank gives growth the green light, through interest rate cuts.
210 Comments
Unfortunately, prospects for another increase in the OCR are likely weakening.......
Personally, I think there's a good case for at least one more 0.25% increase - in order to drive home the message that excessive borrowing is short-sighted / fraught. Notably, keeping the lid on house prices for a prolonged period has considerable merit - especially now that housing market sentiment is beginning to strengthen again.
TTP
The traditional sign of hard times is lipstick sales up & hemlines down. We're not there yet.
Edit: but perhaps we're heading in that direction...Newsable: What lipstick sales tell us about NZ’s economy | Stuff
Hi Poppy,
Hillman Hunters are good reliable transport if garaged and properly maintained. (They're the Honda Civic of the later-1960's and earlier-1970's.) Some people think they're boring - but those people are wrong. The 1725cc motor makes them quite zippy.
But they're hardly collectors' items. Occasionally, people give me a friendly honk as I drive mine around East Coast Bays on a lazy Sunday afternoon - but that's about it.
When you see a Hillman Hunter coming, Poppy, I expect you to curtsey - as it might be me.
TTP
Traditionally in the downturn people sacrifice quality and buy cheaper booze. Sadly there isn't much you can call cheap that is palatable these days and with the increase in core expenditures such as rent, mortgage, food, people won't have the spare cash so much as the last economic downturn to afford alcohol.
You are probably correct but this time there is a previously non existent factor - Political Fear - Farmers across Europe protesting in significant numbers - Poland just started with 70,000, Truckers in USAand Canada, the rise of Centre rise parties in Holland (Farmers Party) AFD (Germany) Portugal in riots Reform party (UK) Marine Le Penn (FRance) Melloni (Italy) and the potential of Mortgagee sales as high interest rates and recession with job losses as a real possibility. Politicians and Elites already know they are targets - UK MPs now with extra special security following increasing threats so to stall a protest a repeat of Marie Antoinette they may cut interest rates and possibly other fiscal measures.
Gecko, The HPI nationally has been showing a modest rise for the last 3-6 months nationally. Based on the sentiment in your reply, can I as if you view the REINZ/Corelogic HPI's to be a) inaccurate by statistical or human error or b) purposefully corrupted to push an agenda?
HPI is working as expected, REINZ the best bet.
But let me ask a question. If you were a merchant selling apples, and you had 100 apples for $1 each, and you were only able to sell ~30 of them, what would you need to do in order to sell the other 70 before they were rotten? Meanwhile conditions in the economy were deteriorating, and the likelyhood of another ~$50 to cover your costs were disappearing with it.
What happens then?
From the Ruthless Spruikers Bible; "You can NEVER lose on houses!" ALL recent home buyers are winners and "apparently" none are complaining!
https://www.stuff.co.nz/business/property/301009099/new-zealands-unluck…
Is it really a thrilling experience to lose ones hard saved deposit? Regrets anyone?
FHB's, time your entry into this market - there is NO hurry!
"Investors never lose in the housing market"
That is a commonly held belief that is repeated often by property promoters and led many non owner occupiers to buy.
There is always a new wave of investors entering the housing market. Some of that wave were purchasing in the 2020 - 2022 period. They had originally planned to hold for the long term. Market conditions changed and they were under pressure to sell.
People don't know what they don't know. Some lessons from history.
1) https://www.stuff.co.nz/business/money/6051241/Property-Guru-declares-h…
2) https://www.stuff.co.nz/business/8972263/Bankrupt-called-before-Assignee
3) https://www.rnz.co.nz/news/national/32769/apology-too-little,-too-late-…
This government is heading in the opposite economic direction
Yep
Addressing the structural fiscal issues would not necessarily worsen the downturn as it could “create its own momentum” by contributing to an earlier easing of interest rates.
This is the rock solid plan. Trash the economy to arm wrestle the OCR down so we can get back to house prices. There is no change to incentives for productivity, not tax changes, no relief for businesses or people losing their jobs, the government is forcing people out of work. Forcing people off benefits while decreasing the amount of work available.
This year will be gnarly.
Glad it’s all Labours fault though, I’m sure that settles the nerves of those out there losing their incomes for no necessary reason
Yes. ACT/National also want us to close the wage gap with Australia, while their own party and groups like Business NZ were vehemently oppose fair pay agreements as completely unworkable and too expensive. When it is a similar system of national awards and sector wide agreements that have worked to give workers a bigger share of the economic pie than NZ. Any attempt to introduce policies that even have a whiff of a fairer distribution of wealth are torpedoed. I did my Masters in Sydney, and it was so apparent that life was much better for students in Australia - 14k tax free threshold, and time and a half if you work weekends (students more likely to do these hours), mean they aren't just barely surviving like in NZ.
Not necessarily. There are parts of NZ (outside of Auckland, Queenstown-lakes,etc) where house prices are still affordable. Believe it or not, but Australia is also experiencing a housing crisis.
If one is prepared to make a move then it's probably easier/better to move within NZ rather than change countries.
The problem is labour burnt through cash like there was no tomorrow for no improved outcomes, fuelling inflation when they should have been shoring up our economic position. Now national will stop spending when the economy tanks which is the time to be spending the economic reserves. This is what happens when you have incompetence in leadership roles like a finance minister with an arts degree and an rbnz governor not much better
I have no idea how people are managing to hang in there. Even high income earners are struggling. Friends of ours are selling their house and moving back in with their parents - they bought in 2021 for an eye watering amount (1.2 mil which is considered 'cheap' in Auckland). Both are in the health sector in highly specialised roles making upwards of 300k a year.
bs... if they are on 300k each (or even combined) then unless they have some serious gambling or drug habits they are fine. They paid 4-5x household income for their house, way less than most people buying in the last 10 years.
Half the country needs a reality check - yes we are poorer than Australia and the US, but the majority of us are living lives of luxury and excess compared to the global population.
Does seem odd. 2 x $150k salaries are just shy of $9k per month each.
If they owe $1m at 7.5% their repayments are around $7k per month. Rates $500 per month. Insurance $800 per month. Let's just call it $9k per month housing costs. What do they spend the other $2,250 per week on?
I have no idea, I'm sure they're living extravagantly though. It's amazing how quickly you adjust. We certainly 'waste' our money on overseas trips. We do at least one a year. We purposely bought a more affordable house so we could travel, and live our lives. I know we are hugely privileged, but we also pay our way (shit tons of tax), and want to actually make the most of it. We are both first in our family to gain a high school qualification, let alone university. Salary earners are really carrying this country. But, anyone I know who is actually well-off got that way through property. You can't blame them really, they're just responding to incentives, as are banks. The real failure lays at the feet of the RBNZ and government, who fail to do anything about the tax-favourable status of some investments.
I agree Legrandsoir, that sounds like bs. Mortgage repayments on 1 mil are about 33k per year. That's, what - only 11%? of that couple's 300k p/a income.
Something is seriously wrong with that couple's finances if they can't afford that mortgage on such a high h/h income.
I think they have other debts like student loans which in their field can be very expensive. 300k is not as much as people think. My husband earn around that number, and while we're not poor, we certainly don't live extravagantly. It allowed us to buy our own home, as our parents weren't in a position to help us. The median income of a first home buyer is 189k now...
But no one gets rich earning a salary. The top 1% of income, is a whole universe away from the top 1% of wealth in this country.
idk why you would even still have a student loan if you are on 300k. Even maxing out repayments, a 300k salary is about $3300 net per week. Given how many people manage to get by on the minimum wage, these people are fine.
I've supported a partner and child on a single salary for the last couple of years. Rent, food, power etc eats up 90% of what I earn, and it's made me realise how many pleasures we take for granted and can honestly live without.
They're in the health sector - anesthesiologist and the other is completing their training to be an obstetrician. We are on a similar salary as data scientists working in the private sector. We took pay some hefty pay cuts to move back to NZ so we could be close to family when we had a child. Many of our friends are delaying starting a family until they are financially secure, and own a house. We only have a few friends our age (31) who are homeowners, and they fall into one of two camps: 1) parents paid for a deposit or substantially gifted them some amount, or in one instance the parent pays for the whole house or 2) skilled professionals on much higher than average salaries (me and my husband in that camp).
Advanced training in the medical professions can take 6+ years. But once done - bingo! $150k can be the salary after only 2-3 years. Good people in ICT likewise. Lawyers likewise. Spending 4+ years in advanced training pays off. ... Or you can get on the tools at 16.
Could be a financial decision. Sell up, pay the loss down and then savings would go up much faster and compound vs paying interest on a mortgage which is dead money. in 1 years time they could be back to financial square 1 and go upwards form there vs losing _____ amount in interest in that year.
The government takes 39% tax on incomes above $180k + 15% GST + Fuel taxes + ACC levies + ++ so NZD$300k ain't that much and the couple can double the amount by moving to the home of mining and minerals Australia. Houses and groceries cheaper there too. There's our solution, mining.
So do what California's middle class are doing shift to Texas or Florida as the taxes and cost of living and house prices are too high in California. House prices in the Sth Island way more affordable and wages are pretty much the same. And most other things are cheaper look outside the box. By the way Texas is excruciating hot to live in and Florida has hurricanes which California dosnt so if you say the weather in the south is worst than Auckland think rain and who has the most sunshine hours
Bleak. This is the first time I've ever felt like New Zealand was absolutely on the wrong track. Unless you're the top 10% you are probably going to be worse of.
The hundreds of job cuts already announced, have gone much further than National campaigned on. All because they have zero financial acumen, and have no idea how to do accurate costings (yet for some reason National rarely get raked over the coals for this). Meanwhile, reinstating the ability of landlords to claim interest is prioritised ahead of bracket adjustments which benefit everyone. Most investors with a mortgage who bought in the last few years will have interest costs exceeding the value of their rent, and now will probably pay no tax. The taxpayer is here to foot the bill, with the average landlord financially benefiting so much more than everyone else. Meanwhile, Luxon completely tone deaf feels entitled to an accommodation supplement. After his u turn, nobody seems to care that the rules are unfair, and should be changed.
Labour were so far from perfect, but the best of a bad bunch. Their biggest failing is their inability to lead, and their cowardice pandering to vested interests. I also think there is merit in looking at how to more efficiently run our government agencies, but the current cuts just seems like a reckless, irresponsible slash and burn approach. They have no real idea about what the impact will be.
The oversimplification of roles into frontline (good) and back office (bad) - Police came out saying back office are absolutely essential to support frontline. You don't want police wasting their time on administrative tasks, they add the most value when they're actually able to do police work.
My sister works for customs at the border in a team responsible for stopping drugs getting into the country, and has been classified as "back office" despite her team being responsible for discovering massive amounts of meth at the border over the past three years. My cousin works as a court registry officer, in a system that already has a huge back log of cases. These 'back office' roles have real world consequences. Not adequately resourcing INZ to properly check applications has led to rampant migrant exploitation (ironically, these roles have been deemed back office and are probably facing cuts. A friend works as a secondary school teacher in South Auckland. He has almost 40 students in his class now. He said they've never seen so many new students, enrolling throughout the year. He had 15 new students, all but one have English as a second language, and 4 of those students speak no English at all and while they qualify for ESOL funding, they haven't been able to find an ESOL teacher. He spends a lot of time trying to explain the curriculum to them in simple English, and the whole class is impacted. Against this backdrop, they've been told that they have to deliver more for less. Against this back drop, David Seymour responds to news of job losses just like the ones I'v pointed out with "Good". What a complete lack of empathy, the selfish me me me attitude that is turning New Zealand into feudal Europe, with the landed gentry extracting rent from a permanent tenant underclass (for those who don't have parents to help them).
Think you will find it's the paper pushers in Wellington, not the front line staff they are trying to target. I was at wedding two weeks ago, one of people there was a policy adviser in Wellington, one of many he said, he lived in Hawkes Bay, they fly him there and back each week, pay for apartment in Wellington. I asked why does he not move to Wellington he said he wanted to live in Hawkes Bay and as they pay for it why not, this is just one example I suspect of the wasteful spending they trying to get out of the public sector. Private business right size, up size constantly due to evolving markets, the Public sector has too as well if debt costs are high and productivity (tax take) goes down.
Nah. It will be paper pushers, cultural advisors, diversity wonks and other pointless middle management. All just a waste of space and need to go. That’s what was promised. Glad it’s happening. Sad for the people obviously but the reality is these are made up jobs to make Labour look good. This was always on the cards. Once they get into it they will probably find the rot is much worse than expected and the cuts can go further.
Agree. Although as much as we all like to hate on these "paper pushers" and "diversity wonks", It's not like they hoodwinked the taxpayer/Government into creating a job for them, unless they're Mahuta's mates of course.
These are real people who likely have families to take care of and bills to pay, so hopefully they find honest productive work elsewhere.
Yes, I agree. In fact I think it is quite cruel to create a place for someone that is not needed, pretend that they are valued even though they produce nothing of value, only for them to be dismissed as soon as someone with a clue comes around and realizes what is going on. This is exactly the same with everything like this, i.e. if you start handing out money to get votes, people get used to the money (that they never had before), then you take it away again when it is clear it was never needed or affordable and then there is carnage. Same will happen here unfortunately.
They aren’t targeting anything. Melissa Lee doesn’t even know what’s happening. Instead of finding the waste they told people to find 6.5%/7.5% regardless of value. The CEs are making the cuts and you’ll find out in a few years how important the roles are. If I was a farmer I’d be worried about the cuts in bio security. Remember it was labour who saw through the eradication of micro plasma bovis when everyone said it couldn’t be done.
They have no idea what they're doing. They're just going to keep cutting until they hit their arbitrary savings target and can deliver their tax cuts. I am certain there has been no attempt to even quantify the impact of these cuts on the ability of the public service to do its basic core functions, let alone deliver anything new this coalition might want. It's going to be a repeat of last time national were in power, gut the core public service, and then hire people back as contractors. All of these useless back office policy analysts and lawyers are needed to progress even the most basic of bills,
This is a really good post.
As an english teacher I'm finding myself in a similar situation. Lots of students are arriving with massive ESL needs but being put into mainstream classes. There's also an increase in new migrant students from India, Philippines, and other places with reasonable levels of English. The fact that many of them are often better (or differently) educated than my NZ students, and come from vastly different cultural backgrounds, is another challenge that isn't really acknowledged by MoE.
Great post. National's property policies are why I voted against them.
I keep thinking back to the knowledge wave conference in 2001 which had the absolute right idea and was forward thinking at the time, but we instead we've kept making it easy to keep pumping money into the property market instead of innovation.
And this is where we've ended up with young people constantly leaving (as they should), low and falling birth rate, poor infrastructure, a higher proportion of renters, and a bunch of people with their property "portfolios".
Money is good in Oz but they have their own challenges of course. High rents currently, more commute time, bigger gang presence, and they have a huge immigration influx like ourselves and an impending housing crisis like ourselves. If I were younger right now I'd be off to Oz for a stint to stockpile cash, do some travel and then invest the remainder.
Frank knows 3 professional class families that moved back to NZ in 2021/22 and have since returned offshore. High cost of living, terrible standard of extremely expensive houses, low wages, poor education (one a teacher at private school in Dubai) and general lazy attitudes of the population cited (not how we do it here).
"we've kept making it easy to keep pumping money into the property market"
Building new residential dwellings is constructive for society as a whole.
Trading houses in the existing house market like baseball cards (with no improvements to the property) for short term profits isn't the best for society as a whole.
https://www.nzherald.co.nz/business/aucklands-nine-most-flipped-houses/…
"Labours cowardice over vested interests" That's the thing about democracy. The vested interests you talk of managed to sway public opinion post COVID with increasingly shrill whining. Media, especially private, were instrumental in generating the sense that Labour were akin to the Antichrist. Labour was out no matter any pandering. They should have stuck to their guns and at least exhibited some principles. They may have retained some respect from me personally. We were always going to get the 1950s party back because while COVID may have held the rust at bay, rust never sleeps.
As for who the government is there to advocate for, look no further as the property sector by far and away is the main source of political donations for our coalition government. https://www.rnz.co.nz/news/national/499176/property-industry-tops-polit…. National recieve 1.349 million, Act 832k, NZ first $300k...... labour trailing behind at $50,000. It's no wonder landlords were prioritised. National try to justify it by saying it will bring down rents, despite there being no evidence that costs to landlords impact rents, rather the tenants ability to pay dictates. But it sounds 'right' and seems 'common sense'. It does make me wonder how Labour receiving so much less impacts their ability to campaign.
When National was last in power they spent $36M a year on emergency housing and had 5000 people on the public waiting list. Under Labour emergency housing spending blew out to $365M a year (a tenfold increase) and 32,000 on the public housing waitlist - and yet you obstinately believe that Labour's housing policies were somehow "helping" those who need housing? Labour was then forced to spend billions a year on building new houses and upgrading old ones for all these people. Keeping the tax "subsidy" to encourage investors rather than taxpayers to provide rental housing would have been far, far cheaper.
That is not the problem. Bond data shows there has been no loss of rental homes - the problem is that there has been insufficient growth in the number of rental homes required to accommodate the population explosion that occurred under the Labour Govt (most notably in 2019 and 2022). New immigrants have absorbed the existing supply of rental homes while New Zealanders are forced out of them and in to emergency housing and on to the public housing waitlist. While investors are sitting on their hands and are no longer willing or able or sufficiently incentivised to provide housing for New Zealand's poorest, so the taxpayer has to pick up the shortfall and 100% of the funding for it.
Conducting a record level of immigration whilst simultaneously curtailing the supply of rental housing, was absolutely criminal. It harmed NZ's most vulnerable - 4,500 children now live in emergency housing. Labour's housing policies are indefensible when you look at outcomes - and outcomes not ideology is what matters.
"When National was last in power they spent $36M a year on emergency housing and had 5000 people on the public waiting list. Under Labour emergency housing spending blew out to $365M a year (a tenfold increase) and 32,000 on the public housing waitlist "
Isn't this a result of a shortage of AFFORDABLE housing?
As a result of a shortage of AFFORDABLE housing in the house ownership market, fewer households are able to buy.
As higher income households are unable to buy, they rent and increase market rents.
As rents rise in the rental market, there is an increase in the number of lower income households that find housing unaffordable and more households require:
1) social housing
2) due to the insufficient availability of social housing, those on waiting lists require temporary housing
3) other lower income households have difficulty meeting rents in the private market and require housing accommodation supplements
Note that during the period, 1 year mortgage interest rates declined from Nov 2017 from 4.49% and bottomed in July 2021 at 2.162%.
This drove the nationwide house price to income ratios from 6.2x in Nov 2017 to peak at 9.3x at its peak.
The house price to income ratio that is considered affordable in the house ownership market for owner occupiers is below these levels.
Auckland has been an unaffordable housing ownership market for many years. Those who had access to the bank of mum and dad may have been able to buy. Households that did not have access to the bank of mum and dad either chose to rent or to move out of further and further out of Auckland (fringes). Many chose to move to other areas of the country and buy (if they were able to find suitable employment).
Remember, as a result of a shortage of AFFORDABLE housing, home ownership rates have been falling
https://tradingeconomics.com/new-zealand/home-ownership-rate
There needs to be an increase in new residential dwellings built. Increasing supply of rental housing at the expense of owner occupier buyers in the existing house market is merely decreasing home ownership rates and increases wealth inequality as the rich get richer and the middle income households are unable to afford to buy.
Non owner occupier property investors are reducing supply in the long term rental market due to cashflow stress. Cashflow stress has resulted in
1) selling their property
2) by choosing to rent out their property in the short term rental market
Other property investors in the long term rental market are not buying as current rental yields are inadequate. The reduced supply in the long term rental market will likely result in an increase in market price in the long term rental market.
So in the existing house market, we have
1) in the house ownership market - falling market prices
2) in the long term rental market - rising market prices
Thereby resulting in rising gross rental yields.
The current issue with building new housing, is that current construction costs in many places are above current market prices in the house ownership market, so there is no financial incentive to build new builds by the for profit sector.
Most investors with a mortgage who bought in the last few years will have interest costs exceeding the value of their rent, and now will probably pay no tax.
that's because the 'rent' they get has gone to the bank. and no tax is only when interest deductibility removed. in previous settings, the landlord is running at huge loss, many cannot sustain the loss for too long, and will end up selling. a massive selloff of rentals will have two consequences, A, rental shortage (rent hikes, as rental supply drying up), B, house price drops (don't call it a good thing, this is a very bad scenario since most kiwis store their wealth in houses).
for this reason, I found that Labour MP keep asking stupid questions like "when will the interest savings from landlord flow to the lower rent" quite rediculous, I'd ask what planet is she on? it was never about lower rent. Rents gone through the roof when Labour was in Charge.
The public service ran just fine in 2017 with 70,000 less "back office" staff. If you think that borrowing billions of dollars to frivolously spend on absolutely nothing is how this country should be run, then you need a reality check.
New Zealanders are fleeing to Australia at a rate that has never been seen before. These are the people voting with their feet. If Labour had another 3 years then all that would have been left in NZ would be the beneficiaries, the gang members, and the idiots who think that high taxes and going even more socialist will somehow fix everything.
The one thing about National PR team which impressed me the most is their ability sell a lie.
inflation debunked, it was supply driven.
Downturn now due to RBNZ and Nationals austerity plan.
People will be praying for the govt to spend. Hitting earlier than I’d thought, we haven’t even had a honeymoon period.
You'd have to have cognitive deficiencies to think anything the national government has done in the first 5 months of government has led to the downturn. Labours policies of spending like there was no tomorrow, causing a housing bubble, inflating the cost of everything, allowing the public sector to balloon uncontrollably, taxing everyone to oblivion along with the actions of the rbnz is what has ultimately led to the country becoming bankrupt and the inevitable come down from the sugar rush. Did you study the arts with Grant Robertson?
I've been tracking sales in Wellington and Auckland on homes.co.nz, and I'm starting to see a lot of distressed buyers. People who bought in 2021, and have asking prices far below what they paid for their property. I imagine people want to cut and run early while they still can.
Here's one of many examples.
https://homes.co.nz/address/lower-hutt/eastbourne/23-marine-parade/0kYw…
Sold for 1.76 million in October 2021 in Eastbourne, and they are now asking 1.28 million. I've seen that price drift lower and lower. People who bought in 2021 are making some serious losses.
You are forgetting a whole lot of stuff.
this house was never worth 1.76 mil, so they paid way more than it was worth, it probably isn't worth 1.28m now, its cold and old, and probably damp, not an easy commute, doesn't have a view, why did they pay so much , because they were so overpaid for their work in wellington , that they could afford it, and some other similar overpaid locals were competing for it.
You are also forgetting there are a lot of paper pushers in wellington , who would not have a job if they didnt live in wellington, they have lived in the same bubble their whole working lives, and got paid more and more for doing less and less, anyone from outside wellington can see that, but they cant, thats the problem. They often have a second home rental property in wellington, or a bach at Mapua, and they will be alright when their job evaporates, one house is enough.
It's not just Wellington. I'm seeing similar patterns playing out where I live in Auckland. The rental next door to us just sold for $250k less than what the landlord paid for it a couple of years ago. He had taken advantage of the LVR relaxation during COVID and over leveraged himself. Poor guy is incredibly stressed.
Wow. I looked at the photos, you are right. Small section, small house, surrounded by two story houses that look straight into your backyard. It's horrible, and you are also right there are probably no end of problems lurking around inside the structure of that place.
"I've been tracking sales in Wellington and Auckland on homes.co.nz, and I'm starting to see a lot of distressed buyers. People who bought in 2021, and have asking prices far below what they paid for their property. I imagine people want to cut and run early while they still can."
Buyers in the period 2020 - 2022 who used high levels of debt to finance their purchase in Auckland and Wellington are likely to be in cashflow stress.
These can be owner occupier buyers or non owner occupier buyers (developers, property traders, property investors, etc).
Many are hoping for lower interest rates.
How many will be unable to hold on?
Banks will be putting a lot of pressure on for an OCR cut or three before Jan 25. (Too great a fall on the housing market threatens financial stability ... apparently.) Whether prices fall, flatline, or we get a 3-4% rise will depend on unemployment. And that's a huge unknown. It'll get worse, certainly. But how much worse? Who knows - but the contractionary policies of both the RBNZ and government, at the same time and in significant amounts, do not bode well. (Vehemently disagree with the IMF's read as their timing is way, way off for OCR cuts to balance government's 'austerity'.)
I think a 3-4% rise is possible. But equally so - is a flatline.
And further falls? About a 20% chance depending on how lenient the RBNZ feels about the retail bank's capital ratios and how the banks themselves treat delinquencies. But if prices resume their downwards trajectory, buyers will stand back to let prices continue their fall. FOOP will rule.
As recent buyers are selling and having their original deposits destroyed, they'll take many years before they have saved enough of a deposit to try again. (i.e. a further - and long lived - reduction in demand to buy while increasing the demand for rentals.) Meanwhile, the the rentier class (as we are seeing in the comments) are rubbing their hands in glee as they'll use existing equity to pick up even more rentals. It's a shit world we live in. The RBNZ should have cut in November, 2023.
With all the job cuts looming in Wellington, together with their local infrastructure and fiscal shambles - higher rates - I think house prices will be very weak there for years
Things won’t be flash in Auckland either, given the importance of vulnerable sectors such as development and construction, property, finance, hospo and retail
I'm amazed they are still this high. It's quite remarkable. The last time interest rates were this high was November 2008... this is reflected in the national median house price at that time which was $450,000... far cry from current prices People are digging in and holding for as long as they can - but in the end, something's got to give.
I agree with you grattaway but for one metric you may be over looking. Prices of existing houses are deflated when compared with the cost of a new house and land package. With strong positive immigration and a considerably higher replacement cost, that will keep existing house prices from falling much further in my opinion.
I agree with you grattaway but for one metric you may be over looking. Prices of existing houses are deflated when compared with the cost of a new house and land package. With strong positive immigration and a considerably higher replacement cost, that will keep existing house prices from falling much further in my opinion.
big difference between wellington and Auckland,
Wellington is full of paper pushers, who wouldn't have a job if they didnt live in wellington, Auckland is where the county's bread is made , and a whole lot more stuff, and the economies of scale are understood. Auckland will rebound before wellington hits the bottom, remember wellington has the highest average wage s in NZ, and also some of the best superannuation to keep them going as the price corrections flow through.
all my super goes to pay the city council rates, but do you hear me moaning, no because I still have a full time job.
Good comment. In my darker moments, I think this is our 'F'd around got Found out' moment. Our economy post-GFC has relied on private sector debt increasing by just over 5% of GDP per year. This inflow of bank-created cash has fueled our economic growth of around 3% per annum - with Govt deficit spending topping things up in 2010 - 2012 (Chch EQ) and 2020 / 2022 (Covid).
The vast majority of the increase in private sector debt has been driven by our ponzi-scheme housing market. So, what happens if the housing market stutters or crashes? If people don't have to borrow as much to buy houses, then private sector debt will inch up more slowly (or even go into reverse). Without that 5% of GDP inflow of bank created credit, the economy will tank. Especially if Govt refuses to turn on the deficit spending.
We face a critical choice here at the macro level. Do we try and revive the housing market and continue to pretend that we have a functional enterprise-powered economy? Or, do we set out a strategy for the next 10 - 20 years that directs credit and Govt spending towards initiatives that actually increase our productivity? Do we continue to think we can swap ecocidal milk powder and meat, crap timber, second-class university degrees and increasingly expensive holidays for oil and technology? Or, do we restructure our economy so that it is fit for the latter half of the 21st century?
Well we kind of deserve it Jfoe. Our prosperity is based on primary production and generally being a nice place to live and visit. The dairy gold rush days are long behind us and we are determined to hobble our primary exports with emissions taxes. We inflated our property to absurd levels and must maintain high rates for a while yet to take our medicine. We desperately need some form of residential investment property tax to force funds into more productive area's. Our welfare spend is too high and infrastructure too low. We have leveraged personal balance sheets that will take a while yet to adjust.
It also sounds like our education system is tanking as well.
I think the increase in our prosperity over the last 20 years has been primarily based on the increase in the value of our housing and land, which has enabled us to maintain a flow of credit money into our economy. I would also add the importance of the strength of our institutions and governance, which support the value and tradability of Govt bonds and NZ shares / equity etc.
If we crash the value of land (and we absolutely should) then we need to find around $20bn per year of inward investment into the economy (to replace flow of new private debt that the housing ponzi gives us). We could do this by doubling our dairy exports (true) or we could increase govt deficit spending for a few years and invest in initiatives that dramatically reduce our oil and plastic import. We could also nationalise rental properties (while values are falling) and bring rents right down to reduce house prices and ensure that we can be better off without higher wages.
I guess whatever way you cut it we'll be taking a step backwards and everyone will just have to come to terms with the fact that we can't actually afford the lifestyles we thought we could when bingeing on debt.
The question is, once we've faced up to reality, what is the plan? We do actually have a lot of resources that can be put to good use. This includes - despite the common refrain - a relatively engaged and well educated population (especially if you consider the kiwi diaspora - the majority of which have not simply given up on NZ). There is an incredible amount of potential here. Perhaps the unfolding lesson in getting back to basics will make us more aware of that potential if the quick buck/rentier/exploititive side of our character is brought back down to size?
I think your suggestions are reasonable, but not at all in line with today's political climate. Thankfully that can change without putting at risk a set of institutions and system of government that is the envy of much of the world.
What will it take to for a cross party paradigm shift in political thinking to emerge?
I have a strong sense that we are maturing beyond the neoliberal era ushered in by Thatcher and Reagan. I don't think we'll be going 'back to normal' any time soon. There are too many powerful economic and geopolitical changes underway. It might seem melodramatic, but looking back on these times in two or three decades we'll realise that we have been living through the end of an era.
The secret to recovery is going to be going back to what we are good at and using what we have available:
In needs to be:
i) Farming (with emphasis on value add - lots of jobs here, but you have to execute in overseas markets)
ii) Tourism
iii) IT and related services
iv) Mining (Gold, Coal etc)
v) Oil and energy exploration
vi) Other more minor export industries such as seafood, and wine making.
NB: I am sure there are more relevant industries, but the above are the main ones.
The greens will squeal, but I am sure even Labour knows that this is what needs to be done. The whole borrow and hope, and banning industry has been a complete failure. :Labour need to distance themselves from the Greens and TPM smartly and get with the program. We are never going to recover if we go on banning the things that we are good at. The government has to come to the party as well. and provide targeted research grants. and tax breaks for people setting up here. Overseas governments do it and it works. We can't just sit here in an environment which is difficult for business and hope for a miracle. That is what Labour does and it does not work that well (in fact not at all).
A tough one to revive, but I'd argue that manufacturing is most important. From memory, I recall a study done around 2010 which pointed out that around 10 Fisher and Paykels would be the equivalent of the dairy industry at the time. Advantage being that those sorts of businesses can scale much more easily than dairy and tourism (which are arguably beyond capacity in some senses).
Good talk on that here. From 12 years ago but the broad strokes still ring true.
Could be, but that sector was mostly hollowed out, before the actual banning of things started. We now mostly import components from China and put some of them back together here. So, we have lost the skill base there. Forestry would be a good one as well, but the export of logs to China so they can make it into Paper and Timber so we can buy it back was a terrible idea, so that industry could be brought back here as well.
Keep it up Belle - you are helping keep the city folk alive and balance the countries books
What we need is more of other things as well - and less bashing of the primary producers who I think are the only sector that has posted year on year productivity improvements for at least the last 20 years
I don't think Jfoe is insulting farmers or what they do, more that the economy needs more than just primary industries to thrive. Most of the critique in Jfoe's above comment is against the overinvestment into residential real estate, not farming or farmers themselves.
No insult intended. It is possible to recognise and respect the hard work that farmers do while at the same time recognising that our heavy reliance on primary goods production is a poor fit with where we need to get to in the future. I spent my early career designing and building natural water purification systems (e.g. reed beds at water treatment plants) so I am pretty well qualified to comment on the damage we are doing to our ecosystems with some of our agricultural practices. And, for what? So, that rich folk can drive the latest model Tesla and the country can afford to import oil to burn in our crappy old cars?
Our problems run much deeper than just a ponzi housing scheme.... post GFC .. ( Id go looking back to the 80s' , the Rogernomics era, )
As a small trading Nation , with open Capital Account flows , and part of the , so-called , Global Free Trade system, NZ is vulnerable to being "played"....as are other Countries ie. what we think is Global free trade.....really isnt.
here is a link to a very interesting article. https://carnegieendowment.org/chinafinancialmarkets/91738
For me , based on my understanding, it pretty much describes the nature of the Global trade system.
Chronic current acct deficits has long term consequences..... Its a slow bleed of real wealth,,, Akin to swapping beads, trinkets, blankets for land...
We face a critical choice here at the macro level. Do we try and revive the housing market and continue to pretend that we have a functional enterprise-powered economy? Or, do we set out a strategy for the next 10 - 20 years that directs credit and Govt spending towards initiatives that actually increase our productivity?
It's got to start with a significant overhaul of our seriously outdated tax system.
I am hopeful that the left block will go away into their caves for the next 18 months and come up with something that will correct the massive misallocation of capital in NZ.
They'll then need to find some excellent educators to explain why NZ Inc needs an overhaul and why their overhaul. (They'll struggle here as the conservative lobby and their 'paid for' lobbyists and media have become extremely loud and will shout down any modern economic changes for the benefit of the rich and those who either think they're rich or are wanna-be rich.)
Overall - it is very sad that the vast majority of our politicians - especially of the purple variety - simple can't do anything for NZ. We've become back-looking people and fearful of any change. Sad, huh?
The left, "excellent educators, overhaul, modern economics", surely you jest. They can do or understand exactly none of these things. That they should be living in caves....that the only item that is believable. At least if they are living in caves they don't have to understand them or maintain them.
I find it hard to see much upside for house prices for the next year or two, even with OCR cuts (unless they go stupidly low again). Most likely flat or very small rises (<3%). Decent chance that they will keep dropping as current prices are still very unaffordable at >6% interest rates.
5-10% down if interest rates hold steady or even increase slightly.
3-5% down if rates are cut less than 100bp.
Possibly flat if more substantial interest rate cuts.
If interest rates drop over 200bp then possibility of growth, but anemic.
All in real terms of course.
'There are always people that think there’s a money tree at the back of the garden', Finance Minister Nicola Willis says.
A snippet from Willis' morning stand up. If anyone is treating the country like an ATM it is landlords who are the big winners. I don't know how she can get up there, and say that while knowing landlords are greedily guzzling on the public teat.
the economy is only running slowly because of restrictive monetary policy and it should return to its historical growth rate once interest rates normalise... Stimulating the economy at this stage may just delay or draw out the recovery. It could be better to keep some fiscal powder dry for when the Reserve Bank gives growth the green light, through interest rate cuts.
The patient is nearly dead Doctor, he needs oxygen urgently and then we need to get his fluids up. Well hold off on the oxygen nurse, let's wait until his heart stops beating and then we can give him oxygen and fluids at the same time and shock him back to life.
The recession was ultimately caused by the labour government (and other incompetent leadership around the world) spending like there was no tomorrow (a lot of them probably believed COVID was the end of the world). RBNZ had no option but to kill the economy. Albeit after they were implicit in fuelling inflation and acting too slowly to quell it. Now we sit back and watch while the rbnz and national watch the economy burn before eventually jumping in to save the day after it's too late then the cycle starts all over again
Dan said the core thing for me.
"........you find each person’s slice of the economy has contracted by 3.1% and purchasing power has fallen 4.8%. ....."
That's serious loss of spending and should be of concern to those who long for stimulus.
One way is to reduce costs to households, which have simply exploded. We have multiple untouchable monopolies, including, in part only, local and central government.
They make money because they have market dominance, not because they are efficient.
Even the Labour government was not interested to help individuals by combating the private monopolies
Perhaps we will reach another breaking point and people will demand better and demand change of their government. Many were motivated enough to organise, participate in, and fund a mass protest at parliament not too long ago. How long until the average punter wakes up and realises that fiat currency is flawed and the govt, instead of robing Peter to pay Paul, are robbing all to pay Peter (landlords). Perhaps then, and only then, we will see the same motivation for change from the public again.
The system has been able to perpetuate itself because enough people still think it's fair. I know a lot of people that are disillusioned, and think what's the point in voting nothing changes, which then becomes a self-fulfilling prophecy. There should be outrage about interest deductions being the priority, but it has been relatively quiet. Some groups (like property investor associations) have very effectively argued for policies that benefit landlords, by framing the renter or fhb as the victims of the policy (because they only have their best interests at heart). Yes, some people choose to rent - but there area an even larger number out there who are simply locked out of home ownership. The government should be thinking about how they can get people into their own homes, and that means a reduction in housing owned by landlords.
I agree, and make a point of educating others around me at the water cooler on these subjects. Not trying to convince them, but planting the seeds to get them thinking more critically about the systems we have on a broader scale, as we all know nobody can be convinced unless they make the decision themselves to be open to do so. Constantly yarning with my old lady around these topics who is a rentier boomer who'll never understand.
multiple untouched monopolies - very true and a very serious problem in NZ
The govt is trying to deal with some - starting with Govt depts and we are already getting a lot of bleating especially here
For example - MPI - circa 2500 staff in 2017 now 3800 - and planning to reduce by 380 (but actually only 250 as the others are just vacancies that they wont fill - sneaky news huh). They come to my business often and its clear that the service worked fine with the 2500 staff - maybe a few short but certainly not 1000 short
A number of govt organisations need to disappear completely -and if you run an organistion you will know that unproductive people have very negative costs above the payroll and also actually reduce performance
Banks and supermarkets also need to be in the firing line - and are. Just hope that the backbone is there to make changes
Councils should be next - way to many gravy trains - often loaded with cultural advisors or paying non performers especially in Wellington - I mean how many councils and quango's and water committees do they need to not deliver water
Personal impact is tough - been there myself in 1987 but not changing will be way worse
Spot on.
The piper had to be paid at some stage. And the best time to do it is at the bottom or as close to the bottom of any bust.
As bad as it is and could still get, there will be no better time to make the inevitable changes than now. It's always better to jump than be pushed.
Otherwise, it will only get worse.
The whole cutting headcount/spend at government departments is a tricky thing because there are so many layers/dimensions to it.
I have a family member who is at the very top of the totem pole in a smaller government department (I think he might be 2IC, or thereabouts). It's a smaller department/agency most people wouldn't think of on a daily basis, but they do a very important job in certain circumstances.
Nonetheless they need to make the mandated 7% cuts or whatever it is. He said it's not been too difficult as they never had a lot of superfluous personnel to begin with - the main impacts are that any open position owing to resignation is being held open for 2-3 months longer (basically to save on wages during that time) and all travel for staff has been massively curtailed, and no pay rises in the pipeline. He was flying 2-3x per week, now down to 2-3x per month and junior staff basically can't so much as breathe in the air near an airport without management approval.
However, other organisations that have massively expanded headcount over the past several years are now in this awkward position where realistically redundancies must be made, and there's that whole tricky issue of was it ever ethical to give jobs out in the first place that weren't necessarily needed (and to what extent can you trim non-frontline roles without impacting frontline, if at all). Doesn't make the human element of families losing incomes any easier, of course. There's not necessarily much else substantial to cut. The biggest shame being that the very well-remunerated management always seem to be immune to any impacts.
Over the past few years I had also done some work on a contractor/consultant basis with a government department (well a smaller agency that sits under this department's umbrella). Unequivocally, as I saw it with my own eyes, some of the waste and largesse was appalling. Staff being paid six figure salaries to seemingly do nothing but go to a few coffee meetings and training workshops (and even then when you needed something from them they would take days or weeks to get back to you) Lots of superfluous travel etc. The worst bit though was funding for external/privately provided services being handed out where the only KPI for this org seemed to be how much money could you hand out as quickly as possible. I saw businesses with no real commercial model or chance of success receiving tens, sometimes hundreds of thousands of of dollars of what was ultimately taxpayer money with little oversight - some of them have since gone into liquidation owing big sums back to the IRD and even staff wages, as I've read the creditor reports.
However, now the funding has been massively cut for this govt org, the flow on effect is negatively impacting on businesses who were receiving funding and actually doing something positive with it. I can think of one (with whom I work on a private basis) who perhaps foolishly was depending on further govt support for some expansion plans into Australia, and has since had to put that on ice and cancel hiring several new staff and upscaling activity. A shame as they have a good product and are a profitable business providing well paying jobs to Kiwis.
I see one of the problems to be faux charities. Plenty of them. They dont pay tax ...yet build their businesses larger and larger. Higher and higher salaries. There is a land grab rurally with a large number of charities at the mo. There are paricular religious and ethnic backgrounds involved.
Yes, such a rort. Best Start, our largest ECE provider was restructured from a commercial operator to become a not-for-profit 'charity'.
"A review of annual accounts filed by new charitable holding vehicle the Wright Family Foundation shows this transformation was engineered with a purchase of shares from the private Wright Family Trust for $332m. The price was settled with a no-interest related-party loan repaid at $20m a year, using most of the childcare operation's now-untaxed surplus cashflow.
Accounts for the foundation also show around $2.5m in charitable donations were made annually - dwarfed by the $20m in annual loan repayments. The deal meant most of Kidicorp's real estate assets, mostly childcare centres used by the business, remained in Wright family hands. Accounts show a quarter of all rent payments made by the foundation - $8.6m out of $33.9m - are to family-owned entities.
Yet their charitable donations only amount to $2.5 million a year, while they spend $20 million a year of untaxed income on repaying a loan to themselves, and building their property empire with taxpayer money. What a time to be alive.
https://www.nzherald.co.nz/business/kidicorps-metamorphosis-to-best-sta…
Since all markets other than USA are in recession, why do commentators continue blathering about return to “normal” growth??
Willis is going to cut gov investment and jobs on face of a recession. Welcome back austerity ignoramus economics despite borrowing % at 34% GDP v OECD average of about 90%
Hairshirt ideology
And they are seen by right thinking folks as the Party of pragmatic realistic economics.
“The peak-to-trough now decline in Real Gross National Disposable Income (RGNDI) has accumulated to 6.1%, which is now more than the peak to trough on this measure during the GFC,” Steel said.
This is the real measure, ie what people have left over in their hands once they have paid for the necessities.
And it's going to get worse before it has any hope of getting better, due to the legacy issues in the system from the last couple of decades of various Govt. inaction, but especially the last six years of Labour.
Just looked at trade me over 15000 properties for sale in Auckland not seen this many for a long time if ever. People just trying to sell as for OCR don’t think this will be coming soon as NZD would just crash sending inflation higher very quickly. I read a article today saying vanguard thinks FED won’t cut rates this year they basically have to keep some backbone in the USD.
Damien Grant said of Grant Robertson......"Not since Sir Robert Muldoon have we endured a finance minister whose decisions would leave such a toxic legacy; yet the failings are obscured by his charm and political acumen."
https://www.stuff.co.nz/politics/350222404/how-do-we-judge-6-years-gran…
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