I start with a slightly dated webpage put up by MBIE aimed at informing overseas investors. This says:
“Growth for 2015 is expected to be around 3%, supported by net migration flows, labour income growth, and construction activity. It is expected to fall back for 2016 and 2017, largely due to deteriorating terms of trade, particularly for our dairy exports….”(My colour emphasis added). And the next slide is what the Governor of the Reserve Bank of NZ said in his statement of 3 February this year:
“…NZ’s economy has faced a wide range of shocks since the 2007 GFC, some positive for growth, some negative,including:• Tightening global liquidity;• Canterbury earthquakes;• 2012/13 drought;• 70 percent peak to trough movement in dairy prices;• 75 percent fall in oil prices;• Record net migration;• Sizeable movements in the real exchange rate;• Annual house price inflation in Auckland that reached 27%..."(Again, my emphasis added.) So we see here a clear indication that the drivers for the property boom (including record levels of immigration) and its consequences (? - including 27% annual increases in property value), are all high-lighted. And here I will divert from my lecture notes.
Turning now to Jane Clifton, Listener 6 August, we read:
"National's studiously unacknowledged position is that galloping house price inflation and immigration are vital economic growth fuel and it dare not interfere. All the measures it has taken so far in the cause of promoting housing affordability - never once admitting that the market is in any way a problem - have been minimal...."I would add to that account the Labour Party. My reading of its policies is that they will add fuel to the fire. Fan it in fact. It's clearly a good plan to provide more State Housing - especially for those accommodated in cars and caravans. But that provision won't address house price inflation. And while a $billion for infrastructure might sound good, it is a small sum when measured against the need, and in any case will function to assist Auckland Council in releasing a little more developable land, but not enough to meet the insatiable demands that are being fuelled by immigration - among other things.
And it's the "other things" that I turn to now. With difficulty because the black box of economics is outside my area of expertise. But because I think the GFC was one of the signs we entered a new world, which we are still in, and struggling to adjust to, I am curious and interested in what's actually happening.
Other signs that old dogma don't help much is the public discussion about deflation, inflation and the official cash rate. Why is it that in NZ inflation is less than 0.5%, while household inflation is crazy? And what is it about inflation that we need to get it back to 2%, and that the lever for this is to decrease the official cash rate by 0.5% (it's already the lowest it's been in recent history) to something less than 2%? There has been commentary on these matters from NZ Herald's Brian Fallow and Bernard Hickey. A recent piece from Hickey strongly advises investors to shift their money away from housing. But he struggles to offer clear advice on what to do with the money. Across the internet commentators are expressing similar concerns. Armageddon concerned too.
Big Picture Factors
Reading across the many views that are out there, a number of ideas arise:
- demographics. The baby-boomer demographic proportion of the western world population holds much of the wealth, are retiring, down-sizing in various ways, and re-investing. The subsequent generation is smaller in proportion in number, have not benefitted from the economies, are much less wealthy, spend less, and therefore consume less.
- natural resources. The low hanging fruit that attracted speculative investment around the globe - cheap labour, easily extracted resources - are fewer in number and harder to hold on to. Globalisation and trade is not the economic engine it was. Concern is growing - Brexit is one manifestation, cross-party attacks on the TPP in the USA are another.
- money is worth less than scarce or productive assets.
This last one is a bit of a long bow. But when you can get 3% for your money in a bank (which is worrying about loans that might go bad in future), and 20%+ for your money in an investment unit - you'd be mad to have your money in the bank. With dairy and mining and other commodity related activities generating poor returns, then maybe the salvation is Facebook and Google and the panoply of social media producing factories that feed phone apps, not forgetting the producers of goods easily marketed by digital means.
Someone with wisdom mentioned to me the other day that whenever Australia looked like having a lull in its economy, there would be a hosuing boom. As if central government turned those particular taps on. Sounds like a plan.
Someone else - an economist - mentioned to me that he wondered whether New Zealand was capable of development planning at all. His view was that New Zealand's economy is largely unplanned, and that its development has been a sequence of speculative adventures. Starting with gold. Then frozen meat. Wool. Timber. Dairy. And in between speculative urban development. All of these activities were initiated by risk takers, acting as agents for speculative investors. Central Government's role was to clip the ticket as money came and went, and every now and then build a road to keep the investors interested and happy.
Not for New Zealand the Miti approach in Japan, or Germany's central planning, or even Thatcher's revolutionary service economy interventions. Mustn't pick winners is the opposing argument. Tried that with the think-big projects. Well, maybe not. But surely, the MBIE brains trust, and some applied strategic thinking (National, Labour, Greens...?) could come up with something more solid and future looking than a policy of increased immigration, low interest, limited investor controls and high pressure rural land rezoning.
And finally, someone else. There is another factor to add to the list above. Economic policies and political programs over the past 30 years have led to increasing inequality and concentration of wealth (the rich now want somewhere to put it that's more lucrative than under a mattress in a bank). The dispossessed, disenfranchised and alienated members of western nations are becoming the new majority. This was one of the surprising Brexit revelations. Imagine if there was an equivalent vote in New Zealand - not the new flag, but something of Brexit dimensions (and I don't mean leaving CER) - would the mob rule? Isn't it time that an alternative development plan was prepared for New Zealand rather than "studiously" ignoring that responsibility and leaving it to the mob to say no to the status quo?
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