As we prepare to drop the curtain on another 'interesting' Covid year, thoughts inevitably move to what the next year will bring.
So, here's where I highlight some of the things/issues I'm watching out for over the next 12 months and hopefully give some sense of why I think they are important.
I would dearly love to NOT be talking about Covid, but as it is now very much with us in New Zealand, I will tackle it first and get it over and done with.
I had hoped, and still hope that 2022 can be the year in which we see the pandemic start to recede in terms of direct impact.
The emergence of the new Omicron variant demonstrates painfully that until the world's wealthier nations (and that does include us) get serious collectively about vaccinating ALL nations and not just the privileged ones then we will continue to keep getting frights and setbacks as the unvaccinated provide breeding conditions for super mutant strains.
We are all in this together. We've all got to get out of this together.
I don't know about you, but I'm not planning any overseas holidays this year. And I'm not expecting an influx of tourists coming here. The Government's super cautious border opening plans would suggest that, realistically, travel (in the sense of it being anything like what we had 'before') is not likely to be a 'thing' till 2023. This could change. If the whispered dream scenario of Omicron becoming the dominant - but much milder - variant transpires then it might happen earlier. But I'm not holding my breath.
So, that's Covid itself. What will it leave us with?
That's going to be the fascinating thing. From a global economic perspective it looks increasingly like the Covid sting is in the tail. And that's quite different to what we saw with the Global Financial Crisis.
The GFC was a demand shock. So, recovery from it was, in basic terms about building demand back globally.
Covid, as we are now realising, has not been about demand. The massive stimulus packages around the world have ensured demand as economies 're-opened'.
What we've seen instead then is this 're-opening' demand come smack, bang up against massive supply problems. Supply chains are something we are blissfully unaware of - till they break.
This has opened the door for the spectacular re-emergence of inflation. From an economic perspective, global inflation is likely to be the legacy of Covid. And I for one am not convinced that either the supply chain problems, or the resulting inflation, are going to be tamed as easily as central banks and the like are still trying (increasingly unconvincingly) to convince themselves will be the case.
The current talk is for New Zealand to see a peak annual inflation rate of around 6% as of the end of this year and then declining through next year. But everybody has been getting this wrong in the past 12 months. And they might get it wrong in the next 12 as well.
I think the prospect of Stagflation - rising prices, stagnating economy - is very real and obviously something to be feared. I'm really not sure what would happen and how long it would take us to climb out of it. It would, simply be something out of the real-world experience of any of the people charged with managing the economy here and globally.
Even if the global supply chain issues that we've seen this year do resolve over 2022 - and I'm not convinced they will - we've still got the legacy of cost increases that have occurred this year. And that is feeding into wage expectations. As one example close to my heart because my local supermarket is empty, Countdown distribution centre workers from the company’s two sites in Auckland got (after strike action) a 5% wage rise for the next year.
The potential for the old wage-price spiral is there. It's happening.
How our economy kicks on over summer will be important. There's no international tourists again. There wasn't last year of course and we rode through that impact with some style. But this year we have Covid in the community. And that promises to be a severe dampener.
If, particularly service businesses, don't have a good summer, then things could slow up considerably. The labour market is tighter than a tight thing at the moment - but that could start to change quickly. Just imagine. Businesses with much lower revenues - but much higher costs. Not good. At all.
This could all be significant for interest rates. I don't see interest rates as being necessarily one-way traffic (IE up) over 2022 as is currently predicted by economists and the RBNZ. Not if we start to see heat rapidly coming out of the economy. I think a significant pause in interest rate hikes and maybe even some pullback is more than possible.
On a very much related issue, I'm going to be also looking closely at availability of credit. We know that banks have been hit with everything in relation to home lending from LVRs to the prospect of debt-to-income controls. All these things will have made banks wary of lending. Then on top of that has come something that arguably has not been widely discussed enough - the new Credit Contracts and Consumer Finance Act (CCCF Act) rules that came into effect on December 1, 2021.
In essence these rules put much greater emphasis on banks and other lenders getting more detail from would be borrowers about why they need the loan, their income and their expenses. And the lender is required to make sure the would be borrower can afford what they are borrowing. And the lender has to keep detailed records of the inquiries they made - IE to be able to demonstrate they did make inquiries.
This seems to now make banks and other financial providers the babysitters of those seeking loans. The banks effectively have to be able to prove that people will pay them back. That sounds tough.
I really do wonder about the extent to which this is simply going to scare banks off lending. Anecdotally it is already happening. Will it be a short-run reaction to the new rules or more pervasive? Credit crunch, anybody? If people can't borrow then life's going to get pretty interesting. I would definitely say watch this space. And keep watching
And I also wonder if we might not see changes to these rules. From my reading of them they don't look realistic. After all, if I tell a pack of lies to my bank to get a loan and don't repay it, is it fair my bank's effectively held responsible for believing my fibs?
That might all sound like I'm being an apologist for the banks. In truth there's probably fewer bigger non-fans of banks than me. But they are vital in keeping money flowing.
If there's any suggestion that the money is stopping flowing come early next year then this could wildly exacerbate the problems I suspect we are going to have anyway.
All of which leads us into the housing market. What a run it has been on during these Covid times.
If we take February 2020 as the starting point in NZ for Covid (and it's when we reported our first cases), well, since the pandemic began median houses prices had (according to REINZ figures) risen about 40% by October 2021, the latest figures available at time of writing. In good cold, hard, cash, the median in Auckland has increased $362,000 in that time (to $1.25 million), while for NZ, ex Auckland the rise has been $203,000 (to $753,000) and for NZ including Auckland it's $255,000 (to $895,000).
So, Covid has made the average Aucklander with an average Auckland house $362,000 richer. Thank you, Covid!
The question obviously now is what happens to prices and I wouldn't pretend to have a clue. I didn't predict a 40% Covid rise in prices and I suspect, unless you are prone to telling whoppers, you are not going to claim to have predicted that either.
I think which way the housing market goes next year is going to be pivotal. I think housing, both directly and indirectly (bringing in migration to the mix), may well be the election winner in 2023.
In terms of what happens in 2022, all I would say from observing previous periods when the heat is coming out of our housing market, Kiwis stubbornly refuse to accept any such indignity as accepting a LOWER price than what they paid for their house. Doesn't happen. You buy a house, own it for a few years, add on x dollars, wheel the profit off to the bank and start again.
So, faced with the prospect of falling houses most kiwis will sit, holding breath, blue in the face, till the market improves again. Because it always does and nobody loses money on houses. Therefore, I think the barrier to actual price falls is a high one.
But what if we do see ongoing pressure coming on prices?
Well, I think it would all get pretty political, pretty quickly.
Therefore, as I say, the housing market could well determine the winner of the next election. I'm not kidding.
Our prosperity and sense of well being is now more than ever inextricably bound up in the housing market. It always was. It's just more so now. To the point of no return.
There's a readily available 'Get out of Jail Free' card for the housing market - once our borders are open again.
Yep, that's right, bring in the migrants.
It will be easy to suggest as a policy, couched in the terms of helping grow business and the economy - and I reckon it would win an election.
Surely, the National Party won't be able to resist it - it worked for the party during the John Key years. But you can go further than it did then. Target the rich. I mean really target the rich. Let 'em in and get them buying up a storm of some nice expensive houses. Chuck out the Labour Party's foreign buyer ban.
The Labour Party will undoubtedly keep a keen eye and may well take a proactive stance itself to shore up the housing market. I confidently expect it will at some stage backtrack on its intentions to have fewer migrants coming in than before the borders closed.
We are at the crossroads with housing in New Zealand. Do we accept the possibility of some falls in the value of housing? Bearing in mind it doesn't have to be actual falls in terms of dollar prices - some serious inflation would of course reduce the value of a house even if the dollar value stayed the same.
Or do we aim to ensure house values can't fall? As I say, wave the magic migration wand and this can be done. NZ the Monaco of the Pacific? Only live here if you are loaded? I don't rule it out. Some would say we are already there. We are not. We could go much further yet.
Next year will be a defining one in where our housing market actually goes.
All in all a fascinating year is in prospect.
For me, whatever else happens, I really do hope we can start to put Covid behind us. I don't know about you, but I haven't enjoyed the past two years.
But even once we do physically rid ourselves of the pandemic, I'm afraid its shadow in an economic sense, is likely to be longer than anybody might hope.
That will be the legacy. And I hope it's not going to be as toxic a legacy as I fear.
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148 Comments
It’s not an angle at all, it’s no surprise delta (india) and now omicron (Southern Africa) have arisen from parts of the globe where vaccination rates are very low. If a virus can transmit from one host to another then each transmission allows it to mutate. Vaccination reduces transmission.
That's the narrative. Delta has mutations that may or may not have improved transmission (eg A30 and AY.4.2) but these don't get new names so we don't think it's occurring.
Omicrons "ancestors" were last seen mid 2020 so where has this super transmissible variant been hiding out where it did not spill back into the global population. It's not the general population of southern Africa.
The very first cases of Covid in China were "ancestors" of any subsequent Covid mutations. A mutation can occur at any time in any place, especially if the pandemic is not checked by high rates of vaccination, the wearing of masks, distancing, the stamping out of misinformation spread by anti-vaxxers, etc.
Mutation is just another name for the necessary first step of evolution. The general formula for evolution is:
RANDOM VARIATION of the genome of the particular species followed by SELECTIVE RETENTION of that variation ("mutation") if this new mutation facilitates the propogation of the virus ("the species") to ensure its survival which after all is the ultimate goal of evolution.
Let me clarify that (sorry I was not clear but what else could I have meant): The latest sequenced virus sample that is a likely candidate for an ancestor of omicron was from mid 2020 (I think it was alpha). It, the most infectious variant yet, has been hiding from the global population since then.
Nothing about actual details of omicron fits the narrative. So many mutations (with so few synonymous changes).
Well I think the "animal reservoir" theory is most likely of the non controversial alternatives (one source, you can read the whole thread):
https://twitter.com/K_G_Andersen/status/1465824078544048128
But the intense selection pressure (I have seen a couple of times the assertion of low synonymous changes) leads to some other options being on table.
Nice one. Definitely todays ‘burn.’ I find it funny when people start with “I think….” and cast an opinion on viral replication when they couldn’t differentiate between CD4, CCR5, GP120 or gag, pol, env. One commentator has it right. The others need throat punching. Go see a homeopath
Asimov was right: "Anti-intellectualism has been a constant thread winding its way through our political and cultural life, nurtured by the false notion that democracy means that 'my ignorance is just as good as your knowledge."
My opinion is just as good as your facts. My Facebook research is just as good as your expertise.
Yeah noticed that myself, any proof ? Mutations more likely to occur in the vaccinated if you ask me, especially in a vaccine that's not really a true vaccine. Super mutant strains that get round the vaccination would be the goal. Still its easier to blame the unvaccinated for pretty much everything. Chuck a bit more fear and anger into the mix, after all got to have someone to blame when the economy finally tanks.
"Mutations more likely to occur in the vaccinated if you ask me"
That's some top quality reckons. 100% of people who actually know about how viruses, cells, and the immune system work would disagree with you. Mutations happen when viruses run rampant in unvaccinated people - especially those with weak immune systems (e.g. people with Aids in South Africa).
Mutations happen when viruses run rampant in people, vaccinated or not. Even if being vaccinated does reduce the risk of transmission, it certainly doesn't stop it completely, especially in rooms full of people all breathing, eating, drinking, dancing, and otherwise enjoying their newly restored freedoms.
Strong immunities slow down the rate of replication and the likelihood of replication. Healthy people tend not to be vaccinated, while the immune compromised are lined up at the doctor's door. This science is never unarguable, questioning science, is science. Big Pharma needs a scapegoat for their failed gene therapy and more customers for their experimental drug as though $5 billion first quarter profits were not enough.
Andy, I never said 90% are unhealthy; but observing purchased commodities in grocery carts and watching the people waddle out of NZ grocery stores, with their refined, processed, trans fatty corporate junk and your new norm of 'health' is somewhat lower in expectations than mine. Great to watch them load the groceries amongst the discarded KFC and M'Donald's wrapper's and pop cans. Obesity, cancer, diabetes and all other diet causing diseases are killing more people every day than this mild cold that kill's these very people. My nutrient rich brain does not quite function like yours.
Strong immunities slow down the rate of replication and the likelihood of replication."
Fair call, that is achieved by vaccination or exposure to disease
Healthy people tend not to be vaccinated" - Really, are people still this stupid?
Tell that to those who suffered from polio, measles, rubella, mumps, shall I continue on?
The purpose of vaccination is as a prophylactic to prevent the spread and severity of transmissible diseases, generating strong immunity.
As for your comments about Big Pharma, I won't comment, apart from their rapacious profit motives supported by a US government who won't allow states to join together to negotiate to reduce the cost of their drugs. But this vaccine is totally necessary, and worthy of support. In 1918, we didn't have the advantages of technology. To not use it now would be criminal.
Sorry got vaccinated against the mumps and got the mumps. Still remember the doctor telling my mum, "he probably will not have kids". Anything to create fear. The kid thing worked out, just not sure how many there is. How do you explain Vaccine derived Polio or wild polio as they like to call it, or the outbreak's of mumps in the USA in 94% of the vaccinated? The polio in Afghanistan is blamed on the Taliban. Mump's outbreaks in the vaccinated in US of course must be from the unvaccinated. Mother nature always wins and 1918 was a great example (18 months and done).
You have used the wrong word .Prophylaxis is the word and by the way the vacine was only trialled as a prophyactic. For herd immunity it has failed as we are seeing around the world.People are blaming the non vaxed for spreading. The data shows that is not the case,look at Gibralter
Frankly, I find it extremely depressing that his laughable comment actually has as many up-votes as your correct response does. This is what we're up against. There's no shame in not knowing, but when one places their 'reckons' above scientific knowledge...
Being an opinionated contributor on a financial website is no guarantee of intelligence.
well ... that is pretty much no one as it stands - certainly not the various "vaccine justice" campaigners that keep trotting out this line .
You will not find many scientists joining them ( to be fair you would not find many scientists supporting the opposing view .. it is just not really known ).
oh man the inane logic from those who still think the earth is flat...I know a liver surgeon who can replace a human liver so I would go to him for that, for my teeth I go to someone who has spent half their life doing that. Why is it so hard for some people to accept that very clever people with absolutely no agenda should direct us in life threatening diseases. We wont fall off the edge of the earth...but like my dad said, it doesn't matter what sort of wacky drum they beat, someone will march to it...
Carlos You do have to wonder why it is not reported that the Omicron virus was found in vaccinated travellers to Botswana or that Africa is one of the least affected places by C19 in the world.https://apnews.com/article/coronavirus-pandemic-science-health-pandemic…
And have you seen The Independent article where 68 hospital staff all triple vaccinated caught Covid 19 at a christmas party in Malaga Spain? https://www.independent.co.uk/news/world/europe/spain-hospital-covid-ch…
The only person I have seen who can explain this is Geert Vanden Bossche a virologist/vaccinologist who worked on the Ebola epidemic https://www.voiceforscienceandsolidarity.org/scientific-blog/breakthrou….
Well the last part of your article is a reason why I wouldn’t go back to National - immigration and foreign ownership.
As far as housing is concerned, I suspect you misread the mood. Many home owners have no fear of a drop - they own a home so their concern lies with their children and other non owners. Sounds like your mates at National still don’t get it.
A house market in decline is actually the best time for owners to buy up - contrary to what most think.
So bring it on, let them drop.
Cool, can you tell me what post-Covid migration is going to look like? Because it took a global pandemic to do what Labour promised to do, but didn't. And they aren't really talking much about whether we'll go back to 50K p.a. migration once Covid is lifted. I'll let you figure out why that might be, but it could involve critical thinking beyond "blue team bad, red team good" so make sure you do a few stretches to warm up first if you're not used to it.
The foreign ownership ban that doesn't ban one of the biggest sources of foreign buyers (Australia) didn't stop house prices exploding since it was implemented, so maybe the issue wasn't foreign buyers and was actually the backflips on state house building programs and promised tax reform after all.
Exactly. Polls consistently show the majority of New Zealanders think house prices are too high (80%)
Polls also show New Zealanders consider housing is the biggest issue facing the country.
why would opening the immigration floodgates again be an election winning strategy ?
Exactly. I'm nearing 40, and pretty much every single person I know has fewer kids than they want, because the cost of housing is too high. (And I'm not talking stupid numbers - it's 2 rather than 3, or 1 rather than 2, or most devastatingly, none rather than one - because they tried to be responsible by waiting til they had a stable place to live before trying, and now it is too late).
It’s hard to see how responsibility and hard work are currently rewarded....but obvious how the alternative is
We have lost our compass. We think the magic dollar is our true north but it’s taking us off course.
im trying hard to understand the lines between govt and the banks.... are they one and the same....different branches and shareholders but operating in unison.... a social credit scheme where you can only be in debt....lots of debt....to play
if the market goes will the current mortgage holders become the new state tenants??
is this our new normal where the banks go through our statements and look at every private detail....
Good citizens and bad citizens.....make no record of hobbies, vices or dreams..... live in fear of the bank writing....welcometo the South Pacific matrix....
+100%. And ordinary Kiwis defend this status quo even though it is going to have a demographic effect that flows on long after the bitter and twisted fools who defend this system are dead in the ground. They've ruined this country, and all because they mistook being in the right place at the right time for actually having a clue about the effects of what they were doing.
I would pin al123's comment to every real estate story on this website if I could.
Brooke - absolutely, and if any government tries to keep it going, all hell will break loose - the social fabric will just rip further apart, people, especially young people, will just leave New Zealand in droves (as they have always done when their economic prospects are poor), while the rest of us will wonder what is happening to our country as things fall apart.
You could be right, but on balance I think despair will win. I can't see an uprising, more like a steady giving up and exodus, with 5 times as many replacements coming to Auckland, fleeing smoggy cities, thinking NZ is going to be great.
I think this because the above is a win for central govt (keeping businesses and landlords happy by putting downward pressure on wages and upward pressure on shelter) and they can point finger at local govt and say how crap they are at building roads and stuff. There is no way we can hold onto NZ - there is too much money at stake for the people with power.
Migration has exasperated the shortage of housing creating the most insidious aspect of the housing crisis, the worst levels of homelessness in the OECD. This underpins investor demand for housing which contributed to driving up prices (I agree the majority of the price issue is credit related).
Immigration roughly equal to other developed countries would be about a third NZ's world leading immigration rate. That would leave NZ with a healthy 15,000 immigrants each year and a stable population. A stable population would greatly reduce NZ's demand for new infrastructure - roads, hospitals, schools, sewers, etc and teachers, doctors, nurses, etc.
Since my arrival in 2003 Auckland has seen about half a million new Aucklanders and it has resulted in congestion, pollution and house price inflation - it hasn't made Auckland a better place to live.
interestingly 15,000 is roughly the net migration rate we averaged in the early 2000's, right up until 2014 when National decided to just increase it 4 fold. They never campaigned on it, they never had a referendum about it (they reserved that for critical things like flag designs). The real question is what was wrong with a relatively steady population?
I'm not "anti-immigration" and I think it brings in talented and motivated people who contribute greatly to the success of New Zealand. But if we aren't building the infrastructure and housing, then we have to limit net migration to what we can actually support.
Write as many articles as you can, there will be no substantial decline in prices, it is bound to go up in NZ.
You can say prices are increased in many countries but you have to accept it the increase is not as a wholistic increase as happened in NZ. If Sydney is expensive in that case people are moving to Brisbane, Canberra, Perth and other small cities with jobs and good infrastructure.
But in NZ every area is extraordinarily out of reach this greed will be paid by young Kiwis, if our youngsters are smart enough in that case they will never choose to live in a place with fewer opportunities, declining business confidence and extraordinary high living cost NO POINT. You will be seeing mass exodus and demographic change in the next few years to come.
The exodus will come from a totalitarian government, controlling your every move. Wait until the digital currency arrives giving government control of every aspect of your life. Vaccine passport is just the start. Perhaps government can slip a little smoking mandate on the passport and see how it works!
All very measured.
And you can feel in the author's writing that even they don't believe; deep down, that a correction to the residential property market is possible.
Ardern's Labour squandered the opportunity of fixing the mess; as did Key's National, and, yes, the next election is close enough now to be a political football. But both Parties know we are at the Point of No Return, and if they had any sense, they'd remove that topic from the agenda. But pollies being pollies, they won't. And one day, one of them is going to be left holding-the-bag when it all goes belly-up. I wonder if Luxon is keen on it being him? Or will he think, "There's one more push left in this sucker, and I'll get out before it all goes wrong". Now. Where have I heard that sentiment before?!
Never going to happen. Whoever is in Government at the time it all turns to shit simply blames the previous lot in government. Happens all the time, I'm sure Jacinda is still blaming National for everything. When's the last time you heard the words "That was my fault" coming out of the mouth of a politician ? Labour is most defiantly to blame for record house price increases, they are still sitting back just watching it happen. We have years more of them in power, who knows how much worse its going to get.
Don't agree at all that it will get worse.
One of Labour's biggest errors was introducing employment as one of the RBNZ's mandates, that's a key reason why the OCR was cut so much once covid hit.
Now that interest rates have risen so significantly and will rise further, all the heat is going to come out of housing demand, especially with all the other restrictions or barriers to carefree lending coming in to force.
You can never say 'never' with the NZ housing market but I would be very surprised if significant price rises are now maintained. And I will be somewhat surprised if they don't fall at least 5-10%.
We would be lucky if house price only fall 5-10% in a stagflation scenario. Check how stagflation had been dealt in 1970 in US. If that happens, that would be our worst nightmare. That's why I always express my concerns about further lockdowns due to Covid as it will make inflation worse and potential leads to stagflation.
Covid does not cause inflation. An increase in the money supply (wage subsidies, debt issued), creates inflation and this excess money creation has gravitated to the only game in town. Housing. Just as Covid got blamed for near zero interest rates and Covid got blamed for government deficits. Covid is just the excuse for central banks and governments to kick the can down the road.
"Never going to happen."
A farmer, who in the early 80's used to bring in +$1m a year from price-guaranteed wool never in his wildest imagination thought his Government would scrap the price-floor. The country wouldn't survive with its major economic driver, after all.
How is the Residential Property market any different today? Same driver - Government support. Yet both survived beyond the capacity of the country and our economy to keep the game going. "Never" is a long time, and often close to today, than we know.
Not sure that we need em do we? I mean we were told tirelessly by the fruit growers that this disaster was going to end up with the fruit "left rotting on the ground". Now all of a sudden it seems that enough kiwis (mainly students & itinerants) have put their hand up. I have also heard reports of rapid innovation in automated harvesting. I wonder how many other industries are adjusting with much more ease than promulgated. Of course the foreign student thing has been decimated and rightly so.
If someone in Auckland purchased a house at 1.3 million had 250 k deposit at 5% this will cost them 1300 a week to pay off over 30 years then you add on all expenses of living the average wage earners are going to struggle to pay this week in week out . If I inflation stays around 5% and interest rates go to 6% this will make it very difficult to live. Once a few people start to realise this is there lot in life you will see people running to the exits people start off with yes we can do this then a kid comes along one of them lose job only takes one thing to see you lose everything at this point people will sell and learn for this lesson.
Yea and that only makes their inflation issues worse because they don’t produce most of the goods they are buying - so they are less productive but the givers is giving them more and more money to buy goods which they aren’t making! At least buying services, that is something they produce.
Apparently the price of urea is up 150% in 6 weeks. Amongst other things it is used in fertilizer for cropping and diesel engines. You can expect double digit price rises in almost all consumable goods and energy in coming months. This is mostly because of net zero which I have always known will be hyper-inflationary.
Kiwis can go blue in the face regarding holding out for a price if they want but if other factors intervene eg job losses, interest rates increase etc then no amount of blue faces or foot stamping will alter the fact you have a financial problem and I doubt if the bank will be kind for long . N Z is very vulnerable to offshore shocks as a small economy with limited product range it will be affected by outside issues. Letting the gates open to rich people is not likely to make a difference to the average homeowners marketing prospects and letting in a million uber drivers and skilled courgette pickers won't either it will just restrict wages hurting middle and low income earners disproportionately.
Good article. Nice to see that like me you are one of the very few OCR bears David.
I would add that quite a few forced house sales could kick in later next year, which I think will be a factor in house prices dropping
Residential construction, directly or indirectly, is a major employment source and as I have said consistently and for quite some time I really see a slump coming in that sector, probably later in 2022 and into 2023.
There will be significant job losses and that could force quite a few house sales.
Something very similar to the CCCF Act was introduced in Australia not so long ago. Credit crunch ensued and the measures were quickly diluted to avoid a housing bubble burst. I would imagine the same happening here.
Depressingly I agree with the general thrust of the article. Housing is a sacred cow and immigration is now seen as magic beans to keep the show going. But in doing so, we're effectively selling our lifestyle (but at the same time diluting its value) to achieve growth for growth's sake (and keeping wages low for the benefit of business owners).
Realistically, I don't think they will be able to open the immigration floodgates for at least 6-9 months. Much of the economic carnage would have started by then.
But I agree it will happen, it's one of the favored 'economic growth' strategies of both major parties. Why would they give it up now?
However, will the jobs be there? Many of the 'go to' jobs for immigrants have been in tourism, retail, hospo and residential construction - all areas likely to face big headwinds in the next 1-2 years, and less need for staff.
"But even once we do physically rid ourselves of the pandemic, I'm afraid its shadow in an economic sense, is likely to be longer than anybody might hope."
Unlike post-WW2 there may not be any country or institution left globally that can set us free again to social and economic freedom.
We might see people trying to flee the western world in order to free themselves from the hell that is being forced upon the young people that live within it.
Living in a tin shack free of debt in a third world country sounds quite appealing compared to being a debt slave to a dodgy banking oligopoly, making record profits off a government and central bank backed housing ponzi. I bet there’s far less suicide in most of those third world countries also, which is a real indicator of how much hell people are going through to survive within those living conditions.
As long as it is supported by the bulk of greedy kiwis, politicans will open the migration floodgates to keep the property ponzi going if there is any hint of a property downturn. Predictively justified on the basis of "labour constraints" and "not enough workers in xx sector".
How does this correlate to the policital "concerns" of:
Increased transport emissions
Urban sprawl
Child poverty - young families unable to access affordable housing
The answer is the politicans are hypocrites and all that matters is votes, power and GDP
Tony Alexander has talked about borders opening and has repeatedly suggested that due to the excessive cost of living there will be a net exodus and a secondary decline in demand for houses. I don't know what to think to be honest.
I agree that price declines in property here in NZ are more stubborn and rises happen in a flash. However, the sheer cost of property here is not simply a matter of being unpalatable, it's simply not possible for a much larger portion of the population and that has to hit demand. Add to that the restrictions in lending descried in the article and head winds are building.
The deciding factor for me is human behaviour. If the large number of property investors see a change in the market and feel the landscape is more favourable elsewhere it's possible that the market could see them diversifying away in part from property. Given the fiscal metrics that drive that market are pretty uniform (mortgage servicing, rent, yield and capital gain) then a "herd" type change in behaviour could spark a run. That could be the difference between a period of stagnation and a pop.
The deciding factor is credit availability. Or in our case increasing lack of.
The majority of nz mortgages come due for renewal in the next 12 months. Something like 70 or 80 percent.
Every single one will be on higher rates with a now hostile lending env.
Its already started.
The deciding factor is credit availability. Or in our case increasing lack of.
The majority of nz mortgages come due for renewal in the next 12 months. Something like 70 or 80 percent.
Every single one will be on higher rates with a now hostile lending env.
Its already started.
https://www.cnbc.com/2021/12/08/another-powell-pivot-raises-questions-a…
Chickens coming home to Roost.
Credibility of reserve bank Governors is at stake and now can measures the health damage by pandemic but how does one measure the economic damage that is about to follow and will only know once the tide of covid19 settels downs. Consequence of unlimited printing and distribution of money is bound to have effect. Between pre pandemic and post pandemic - word million has lost its value, is it because people are earning more or is it because of policies and measures adopted by RBNZ and Government to pump asset class thereby channeling time and money only to asset class. How many have switched business and jobs in favour of housing market as easy, quick way to mint big money. Recent data suggests that last month alone house made more than average annual wage - So.......
Characteristic of any ponzi is that have to find one fool bigger to pump or pyramid will collapse as one in pyramid it is either up or down - no room for sideways.
I personally know someone who sold a business and got into house flipping a couple of years ago. I remember thinking at the time that house prices are already crazy your not going to make any money doing that, those days are long gone. Then Covid hit and I was absolutely sure that flipping houses was a dead duck .As it turned out I couldn't have been more wrong, still sometimes you get lucky.
Next year could very easily see an economic decline as Covid rapidly spreads throughout the community given it is already in the community and internal borders are opening. This will have a flow-on effect for businesses. For real estate sales and people looking for houses for sale in Wanganui and other places around the country and the growth in property listings, this will potentially stop real estate prices from increasing as buyers have more properties to choose from. We have seen a 50% rise in listings around Whanganui/Marton which is huge. We now promote 230 houses, lifestyle blocks, farms and sections for sale at Whanganui Mansions. So this is bound to have an effect on the market as buyers feel less pressure and have more properties to choose from. Prices have certainly gone crazy but I would expect prices may now level off with better supply. If you are looking to buy a house in Wanganui I would highly recommend Whanganui Mansions www.whanganuimansions.co.nz which is a free online real estate magazine and real estate search facility featuring houses for sale in Wanganui, Waverley, Marton & Bulls, New Zealand. You can find all the local real estate agents & private listings in all price ranges. And if you are a real estate agent or a private seller, your listings are all free.
A 50% rise is pretty meaningless off an almost zero base. Houses for sale in Tauranga are still HALF what I was looking at pre-Covid 3 years ago. Currently just over 600 on Trade-Me and it was touching 1200 at the pre-Covid peak. With low numbers of listings, inflation hitting building materials, rising wages etc there is no way there will be a decline in the short term. The economy will have to hit a brick wall with forced sales and Kiwis will hang on tooth and nail to their houses because its suicide falling off the ladder.
It's very meaningful if the trend continues for another 2 or 3 months.
All other factors re supply and inflation are meaningless if credit supply dries up and people can no longer borrow enough to support the previous price expectations.
Also, due to the low level of transactions, its only be comparatively few properties that have been exchanged over the past 2 years.
There are absolutely no guarantees on house prices either way.
So, faced with the prospect of falling houses most kiwis will sit, holding breath, blue in the face, till the market improves again. Because it always does and nobody loses money on houses. Therefore, I think the barrier to actual price falls is a high one.
Prices are set at the margin. What 'most' kiwis will do is irrelevant.
by Audaxes | 15th Nov 21, 11:48am
The RBNZ has very little control over how much lending the banks do other than through monetary policy by the use of interest rates which regulates the demand for borrowing...
The emphasis on prices then also helps to justify the charging of usury (interest), which until about 300 years ago was illegal in most countries, including throughout Europe.
However, this narrative has suffered an abductio ad absurdum by the long period of near zero interest rates, so that it became obvious that the true monetary policy action takes place in terms of quantities, not the interest rate.
Thus it can be plainly seen today that the most important macroeconomic variable cannot be the price of money. Instead, it is its quantity. Is the quantity of money rationed by the demand or supply side? Asked differently, what is larger – the demand for money or its supply? Since money – and this includes bank money – is so useful, there is always some demand for it by someone. As a result, the short side is always the supply of money and credit. Banks ration credit even at the best of times in order to ensure that borrowers with sensible investment projects stay among the loan applicants – if rates are raised to equilibrate demand and supply, the resulting interest rate would be so high that only speculative projects would remain and banks’ loan portfolios would be too risky. - Link - section II-3
"I think a significant pause in interest rate hikes and maybe even some pullback is more than possible"
Exactly. As Orr overshot going down, so too could he overshoot going up. I am in no way convinced that the global economy is strong as some believe. As higher mortgage rates bite here, a great deal of discretionary income is going to be sucked out of the market.
Yes, we will have higher inflation for some time-say 3/4 years-but after that, the disinflationary forces which have dominated for many years, will reassert themselves.
We replaced NZ manufacturing with rapidly expanding cheap Chinese manufacturing. But now the Chinese don't have any more peasant farmer/internal immigrant workers to exploit and will need a lot more investment to grow. The China driven deflationary cycle is over and we can't do it again.
Even 0% Mortgage Rates can be accommodated in a fragile economy IF new debt is directed into economy-saving endeavours. In other words, lower the cost of Debt but make even tougher restrictions on actually getting new, property-backed debt. Banks WILL lend to another sector IF Residential Property Speculation is no longer available. They have to, if they want to survive.
New Zealand can't keep going by tying up even more economy-necessary debt in stranded assets, which is what residential property is.
A singular home is a residence to productively work from. A secondary (and more) property is a stranded asset if debt is not available to resell it. And at 0%, it's also retainable for those who get caught with it (them).
This time it might be different. If prices are high due to over leveraging of existing housing (would like to see some analysis of that) and prices start dropping, we could have a significant deleveraging event occur and a disorderly correction, with the RBNZ etc being limited in it's options (other than bailing out banks who have participated).
Owner occupiers may stubbornly hold on until prices improve (as long as they have jobs), but leveraged investors, which anecdotally make up much of the market, may not be able to. They may be forced to sell at any price to remove the leverage from their portfolios. The way house prices are calculated, this may have a domino effect into surrounding houses and everyone starts going underwater...
The next year won't ALL be about the housing market - but will be a LOT about the housing market
This confirm that this past two years have been all about housing = Economy.
2022 ay? What will The New Year bring? That's the question we'd all like to know, isn't it? In terms of the larger cycle first, the world has a lot of older people about to die off. A long drawn out goodbye to the boomers & they will not be missed by some. This will mean a lot of their offspring will inherit the bulk of their wealth, although I suspect there will be a lot of stories around wills & court cases. But many younger people will inherit wealth & we can only hope they will be grateful for it. In terms of the lessor cycles, reality is due to make its ugly comeback regardless of how much munny you print. Double the debt can only work once in a generation & the tooth fairy & her fat friend have spent it already. But back to houses. Houses are the new currency. We measure our wealth in property. This hasn't changed much for a couple of thousand years. Longer perhaps. And we're devaluing our dollar also by double, the first time printing it & giving it away & the second time with its inflationary effects, as we've been witness to now for a while. Our grocery bill has increased noticeably over the past 12 months. Will it slow down? Will things return to normal? Well, the second answer is there is no normal anymore. We are the most unnormal generation of human history, in a very civilised way of course. The first answer is my guess for 2022. Yes, things will slow down, or settle down is what I'm really hoping for. But you know, things haven't been that settled for a long time now.
"a lot of their offspring will inherit the bulk of their wealth"
Quite right. But many more will have nothing, or very little, to leave behind when they go. Witness the rise of Reverse Mortgages here, and similar schemes overseas ( the Government runs one in Aussie, that increases your weekly pension, but recoups that increase from your estate). And it's the Denominator that's important in any distribution of Wealth calculation - how many beneficiaries there are.
a lot of their offspring will inherit the bulk of their wealth
I'm 50 now, my parents in their mid 70's. Mum and Dad cared for their parents in our home right up to end. It was hard, but made possible because Mum wasn't working. Sadly, they wont be getting the same deal out of us. I expect the bulk of their savings will be used to provide nursing care for themselves, as myself, my 2 siblings and our partners all work full time either paying mortgages or trying to get one......
There is a basic problem here to be solved.
Younger people (20's - 40's) on decent salaries should be able to get on the property ladder. A greater proportion of them can't because house prices are too high relative to incomes.
In the past this problem was overcome by using state advances loans and guarantees to increase the ability of young people to be able to buy homes and by increasing the state housing stock.
It looks like we will have to accept that Labour just does not have the competence to increase the state housing stock and National has an aversion to state housing.
So if the govt does not have the competence to build new houses at scale I cannot see why govt should not target the younger house buying cohort with state advances loans so that the social and demographic fabric of the country can be maintained.
I just don't see this obvious solution being mentioned anywhere. Is it because the neoliberal propaganda has so inoculated New Zealanders against practical, straightforward solutions to problems?
The govt allocated $60 billion for covid wage subsidies and loans, and spent about $20 billion of it. Why could the govt not allocate $20 billion for state advances loans for new buyers and ensure a pipeline of construction for the next 10 years rather than this stop start kneejerk method of ad hoc decision making that just stuffs things up more and more.
Any assistance granted to whoever-they-are (young people, in your post) will just get capitalised into the price of property.
State Advanced Loans of, say, $20 billion will see property prices rise by....$20 billion.
What would you do with the prices of your products if you knew that buyers had been granted the capacity to buy what they could not afford before?
Keep them the same? Drop them (shudder!) or....put your prices up to meet the new capacity to buy?
The answer is .... Lower Purchase Prices, not subsidies to inflate existing prices.
Witness the $10,000 grant a few years ago.
Almost Instant $50,000 price increase ($10,000 grant enables $40,000 borrowing).
It's not subsidies we need it's lower house prices and oddly enough house prices were lower when loans were much harder to obtain. Availability is the problem not the solution.
Kiwis love housing and it'll never go down. HODL - Every investor suffers from intermittent losses however, a paper loss is not crystallised until the asset is sold. When I look around with so many families with 3-5 kids each, I know with certainty that everyone of them will need to buy or rent a home down the track in the next 10-20 years and it'll will guarantee that house prices will be up 2-4 fold. No way, longer longer term, house prices will go to zero.
"a paper loss is not crystallised until the asset is sold."
Quite right.
So why did Terry Serapisos go bankrupt, given the size of his property holdings? Or Dave Henderson? Or even Winston's' brother? Why did New Zealand (Dunedin) property prices fall by ~90% in 1890?
Because HODL isn't an option when the lenders want their money back, or there are other bills to pay. And as we all know, crystallised prices are only what someone else CAN pay, and if banks stop or reduce their lending, then what? (NB: In Dunedin - possibly the richest city in The Empire at the time, The Gold; Rush; the capacity to pay, came to an end)
Fair points, it really depends on what the banks are going to do.
It's an interesting time and whether banks want to margin call their debtors on their mortgages. If I use recent history as an example during COVID-19 lockdowns, banks should have forced mortgagors to liquidate their homes and repay their loans however, they didn't and instead enable mortgagors to defer their payments and setup payment arrangements albeit in collections. Repossession is always a last resort and banks have a legal responsibility to assist mortgagors during a time of hardship.
If they did this force mortgagors en masse to sell, not only will the borrower suffer, the banks themselves will suffer as the value of their security (held against housing assets from mortgagors) would decline and lead to a solvency crisis (as less security is held against their loan portfolios, they will demand existing mortgagors to front more capital to maintain LVRs [that they may not have]). This will trigger a negative cascade into hell, which has happened time again throughout history (indicated with your case).
As with the GFC, the forced selling of housing assets will trigger a new cycle of FONGO and the traditional trajectory of a economic/ financial crisis would eventuate. Time will tell and in my opinion, banks will unlikely do what they did in history because their own livelihood depends on it, to live another day and there's no domestic bank in ANZ that would bail out the Big 4 [ANZ, CBA, WBC or NAB] unlike when the BoA bought out ML.
"there's no domestic bank in ANZ that would bail out the Big 4"
Of course there is! It's called The (domestic) Government(s). Take RBS in the UK for instance, or Lloyds. There was no buyer for them at the time, but they were 'taken over' buy a Bad Bank - The Government. And then we have the Barclays debacle - saved by 'lending themselves the money' via a ME sovereign. "Here's a loan, to buy my shares, to keep me going" etc.
South Canterbury Finance might be a clue as to what we'd do!
Banks are not your friends when things get bad. During the 2008 GFC, a friend of mine who had business loans secured by her home was asked to pay down her loans. They didn’t give a stuff about her situation. Several of my neighbours, all small business people or self employed lost their businesses or had to sell their houses. The banks pressed them all. I had no idea how things really worked until I heard their stories. It was a real eye opener.
When I look around with so many families with 3-5 kids each, I know with certainty that everyone of them will need to buy or rent a home down the track in the next 10-20 years and it'll will guarantee that house prices will be up 2-4 fold.
I think you forgot to take into account that plenty of people who currently live in a house will either die or move into a rest home in the next 10-20 years. And that that demographic is a lot bigger than the under-15s.
Our Minister of Housing is a bit of a joke:
'The housing crisis has been a long time in the making but tens of thousands of new homes are coming, says Housing Minister Megan Woods.
“Let’s be clear, the housing crisis is a result of decades of inaction, where it was assumed the market would meet the demand for more new affordable homes. Not surprisingly, it didn’t.”
So she says this yet most of the things her government is trying to do is 'enabling the market'!!! (eg. the Housing Supply Bill) What a joke!
https://www.oneroof.co.nz/news/40598
Hope your right Gekko,
Unprecedented debt, shrinking economy, rampant inflation, growing poverty & violence, unemployment looking shakey, China conflict and we've not seen light at the end of the virus tunnel yet. Why would any one want to come to NZ? More like leave! We simply don't have the infrustructure.
Except cheap poor immigrant labour to fill those low paying jobs that barely cover living cost that cause young Kiwis leave.
Many have everything riding on the house in the hope the tax payer will save them, when really it's better prices fall to affordable levels and after all it's only paper value.
Yes it will be a defining year, the system is on edge and at breaking point.
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