Economic Weekly: Housing policies bring modest forecast tweaks

We have crunched the numbers in the wake of the Government’s recent housing policy announcement.  Perhaps it won’t be too much of a surprise that we have essentially flat-lined our house price outlook for the rest of 2021, made slight trims to our consumer spending and construction forecasts, and nudged up our rent outlook.  Aside from the house price changes, the shifts aren’t dramatic – you can read more on the next page.

Much of NZ’s housing challenges lie with the high cost and sluggish response of NZ’s housing supply.  We simply haven’t been building enough homes to adequately house our population.  Key long-term solutions lie with improving that supply response, particularly successful RMA replacement.  Anything that speeds up the planning/construction phases and provides greater certainty of time and cost to those taking the risk of developing will help.  As we have seen with KiwiBuild, it is not that easy to build homes.  The Government is working hard on policies to permanently improve the supply response, but it will take time for those efforts to impact.

Meanwhile, we run the risk of a housing whack-a-mole game.  To whack the house price ‘mole’ in the interim, the Government has materially increased the cost structure of private-sector landlords – collectively the biggest rental provider – through eliminating the tax deductibility of interest expenses.  As we pointed out in our Note, private-sector investor appetite to hold rental property is likely to fall and rents are at risk of going up – at a time when rental properties are in hot demand and social housing waiting lists are growing.  As yet there is no official advice on the rental market impact of the policy change, though the actual impacts will become clearer with time.

The next housing ‘mole’ that is popping up is rents: the new class of property ‘speculator’ is people musing about rent controls.  Rent controls do give a benefit to the incumbent renters (regardless of their financial circumstances) of properties brought into the rent control web.  But pretty much everyone else bears costs.  Future would-be renters tend to face shortages of (rent-controlled) properties, as few incumbents want to give up their windfall gain and private landlords shy away from providing rental stock.  Properties tend to either be undermaintained (New York’s post-war experience) or can be over-renovated in order to boost the rent if such adjustments are permitted (which impacts rental affordability).  Berlin’s year-old rent controls on pre-2014 dwellings have created a shortage of rent-controlled properties while sharply boosting the rents of exempt new builds, as new renters have little alternative. Stockholm has an average 11-year wait to officially rent a rent-controlled dwelling.  A thriving black market has developed for sub-leases of rent-controlled dwellings, which has attracted criminal gang involvement and even sparked homicides.  In summary, a policy that distributes the benefits irrespective of need, and potentially constricts rental housing supply in the midst of a housing shortage, may not help resolve NZ’s problem of an expensive and undersupplied housing stock – for both would-be owners and renters.

Anyway, that’s enough commentary on NZ’s ongoing obsession.  The rest of the week brings another insight into the durability of dairy prices’ recent jump, and an early read on ANZ’s business confidence survey.  Across the ditch the Reserve Bank of Australia makes its latest policy pronouncement.

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Jane Turner

Senior Economist

Originally hailing from sunny Nelson, Jane moved to Auckland to join the ASB team in 2008.  As Senior Economist, Jane's main focus is co-ordinating the team’s macro-economic forecasts.  In this key role, Jane was thrilled by the team’s twice consecutive win of the Consensus Economics Forecast Accuracy award.   

During her decade-long career in economic forecasting, Jane has gained a thorough knowledge of the New Zealand economy.  Her current focus is on New Zealand GDP growth, including both manufacturing and the construction sectors.  She has spent time forecasting most sectors of the economy, including inflation, trade, housing, labour and financial markets.

Prior to joining ASB, Jane honed her macro-economic forecasting skills at the Reserve Bank of New Zealand.  Jane is a qualified scarfie, attending Otago University and graduating with a Bachelor of Commerce in Economics with 1st class honours.  In 2014, she took a career break from ASB to travel the world and learn to snowboard.

Mark Smith

Senior Economist

Mark joined ASB in 2017, with over 20 years of public and private sector experience working as an economist in New Zealand and the UK.

His resume includes lengthy stints at ANZ and the Reserve Bank of New Zealand, and he has also worked at the Bank of England, HM Treasury and the New Zealand Transport Agency. Mark's areas of specialisation include interest rate strategy, macro-economic analysis and urban economics.

Born and bred in the Waikato, Mark studied at Waikato University where he graduated with a Master of Social Sciences, majoring in Economics.

Mark's key strengths are the ability to use his extensive experience, inquisitive nature, analytical ability, creativity and pragmatism to dig a little deeper and to deliver common sense solutions to tackle complex problems.

When not at work Mark likes to travel, keep fit and spend time with his friends and family.

Mike Jones

Senior Economist

Mike joined ASB in 2019 armed with almost 15 years of experience in applied macroeconomic and financial markets analysis.

Mike's career has been all about distilling the risks and opportunities of economic and financial market trends for business. Basically asking the "what does it all mean" question. Mike's enthusiasm and skill for drawing out practical, commercial insights from the murky world of economics has been honed over a relatively broad base of experience.

After spending the early part of his career on the tools at the Reserve Banks of both NZ and Australia, Mike had a lengthy stint at BNZ where he was NZ’s top-ranked currency strategist. His regular and topical macro research also saw him pick up several FX forecast accuracy gongs from Bloomberg.

Drawn in by the prospect of putting strategy into practice, Mike moved from Wellington to Auckland in 2013 to join Fonterra as GM Treasury Risk Management. In this role, Mike lead Fonterra’s macroeconomic research output, and was responsible for the strategy and execution of Fonterra’s foreign exchange, debt, and interest rate hedging programmes.