The ANZ Bank has made mention in theirÂ NZ Market Focus newsletter ofÂ 22 April (PDF) that they are not impressed with the “Chicken Little” style commentary over housing.
The âbubbleâ is not about to burst, and we donât find âChicken Littleâ style commentary useful. That said, New Zealand is facing challenges, as we have highlighted many times before, and with euphoria sky high according to both business and consumer confidence surveys, itâs perhaps timely to remind readers of that. New Zealand is navigating a potent combination of legacy issues from the last business cycle (a weak balance sheet and high debt levels) and opportunity (high commodity prices and growing exposure to Asia) â while addressing a fairly urgent and demanding to-do list in terms of housing shortages and a city rebuild along the way. Itâs an outlook fraught with tensions and frictions, and a bun-fight for resources. Net immigration is set to touch a decade high.
The so-called âbubbleâ is not about to burst.Â Thatâs our opening salvo in response to headlines over the weekend about New Zealand facing an economic disaster. Throw together rising interest rates, overvalued property prices, large household leverage, and the high New Zealand dollar and you have the so-called recipe for a crisis. If thatâs the case, then major parts of the world are pretty well cooked. Somehow government debt made it on the list of 12 reasons as to why the bubble will burst â somewhat surprising given that New Zealandâs government debt is in the lower quartile across the OECD. For that matter the article also claims New Zealand is not an agriculture-based economy (ânothing could be further from the truthâ).
If you strip out all the positives, the outlook will be negative.Â There is a reason why interest rates are moving up; the economy is moving forward. If New Zealand is going to have problems in terms of rising interest rates biting into leverage, the world should be very afraid: a host of other countries have interest rates at or near zero and government debt through the stratosphere! A 40-year peak in the terms of trade means the NZD should be high, though weâd still put it in overvalued territory. New Zealand has had an income boom that the article ignores. Yes, New Zealand has some clear issues in the housing arena; they wonât be sorted overnight but at least weâre seeing some action on the supply side. LVR restrictions were bought in precisely to curtail some of those systemic risks bubble trouble can lead to, and the RBNZ has other tools available as well. The OCR will be lifted a second time this week.
Nonetheless some clear challenges cannot be ignored, and itâs timely to remind readers that the NZ economy is going through a material transitionÂ â probably one of the most significant in fifty years. Weâre moving from legacy issues to opportunity, amidst the demands of rebuilding our second-largest city, housing shortages in our largest city, and an overvalued currency. There will be bumps in the road. Read more »