By Frank Newman on 3rd February 2017
The latest edition of the ANZ Property Focus has some interesting insights into the drivers of the property market.
About interest rates front they said, “Mortgage rates have risen across all terms since December, with larger rises seen for longer terms and only small changes seen for floating and 6 months…With further OCR cuts unlikely and banks not passing on cuts, the floating rate is unlikely to fall from here, making it unattractive compared to 6 month and 1 year terms. Although we still see some merit in fixing for a longer term, it is less attractive than it was a month or two ago. Despite the risks being skewed towards higher global interest rates (which drive NZ interest rates), breakevens suggest this upside is now priced in, leaving the 1 and 2 year rates as the ‘sweet spot’ for borrowers.”
About migration they say, “Migration flows to and from New Zealand are one of the major drivers of housing market cycles. The early-1970s, mid-1990s and mid-2000s booms coincided with large net migration inflows. On a three-month annualised basis, net permanent and long-term migration rose above 75k in November, which is at all-time highs and around 1½% of the resident population. More arrivals and fewer departures have both contributed to this large net inflow, although over the past 12 months or so, the former is the dominant factor. We are not expecting annual net inflows to ease back to the long-run average of around 15k any time soon. Due to its economic out-performance, perceived safety and political ructions elsewhere, New Zealand will remain an attractive destination for migrants.”
In my view migration is the most significant factor driving current property prices, and the strength of the economy generally. Here are some of the numbers behind the economic growth, as reported by the NZ Herald from IRD figures of individual tax returns between 2007 and 2015:
• The number of individual taxpayers has risen by 247,000 (7.4% to 3,614,000 since 2007, and the total amount of personal tax collected rose $4 billion (16.1%) from $25b in 2007 to more than $29b in 2015. The number of people earning more than $150,000 a year has more than doubled to more than 84,000. Individuals earning more than $150,000 account for 2.3% of taxpayers, but they contribute 21.4% of all the personal income tax collected.
• The overall taxable income in 2015 was almost $150b, up from $106b in 2007 (+41%).
That stronger economy is providing unbudgeted tax revenue for central government and the opportunity for the new finance minister to spend it in an election year. Prime Minister Bill English has announced 1125 new police staff over four years, including 880 sworn officers in a package worth $503 million. We should expect more big spending announcements to come between now and election day on September 23rd in key policy areas, particularly on issues like housing that have been targeted by opposition parties.
Not only will local politics loom large this year, but so too will Trumpolitics.
What is remarkable about President Trump is that he is doing what politicians typically don’t do – he is carrying out the promises he made on the campaign trail! His resolve and hard-nosed deal making is typical of an assertive business person, but totally foreign in the pretentious and phoney world of politics. In fact, it is actually quite humorous – especially when Trump berates world leaders like the Australian Prime Minister over a deal made with former President Obama to take refugees.
It’s this disregard for politics and his apparent indifference to upsetting world leaders and protesters alike, that appeals to those who have had enough of smooth talking politicians and politician correctness. The unnerving downside is the growing divisions emerging within the US. Who knows how that will end, given President Trump has shown no interest at all in appeasing those concerns. Trump has created a huge amount of upheaval in just a few weeks – what’s he going to do in four years!
A consequence of the remarkable, although divisive, approach taken by President Trump may well be an increase in migrant numbers headed our way. In an increasingly troubled world New Zealand will indeed remain an attractive destination for migrants.