Speaker 1: Curder and welcome to Shared Lunch. My name's Laighton Roberts.
Speaker 1: I'm the co CEO and co founder here at Chasis.
Speaker 1: On the program today, we're talking about everyone's favorite topic,
Speaker 1: interest rates and the property market. This is ahead of
Speaker 1: the Reserve Bank meeting to decide if the official cash
Speaker 1: rate will be cut again, and of course this dictates
Speaker 1: what we will all pay on our mortgages for our loans.
Speaker 1: To chew this over, I'm joined by independent economists Tony Alexander.
Speaker 1: But before we get started, here's some important information.
Speaker 2: Investing involves the risk you might lose the money you
Speaker 2: start with. We recommend talking to a licensed financial advisor.
Speaker 2: We also recommend reading product disclosure documents before deciding to invest.
Speaker 3: Everything you're about.
Speaker 2: To see and here is current at the time of recording.
Speaker 1: Hey, welcome, Tony. Thanks so much for joining us again.
Speaker 3: You have no trouble laden good to be here.
Speaker 1: He Oh, look, Tony, it's great to have you here.
Speaker 1: Very topical timing, I mean always is to have you here.
Speaker 1: And everyone loves talking about interestrates and property market in
Speaker 1: New Zealand, but specifically with some big changes in the
Speaker 1: central banks here and overseas and the last little bit.
Speaker 1: This one's going to be interesting, so I think let's
Speaker 1: get straight into it. How's it shaping up for the
Speaker 1: Reserve Bank announcement coming up?
Speaker 3: Yes, well, for that next announcement our next week Wednesday,
Speaker 3: it is likely we're going to see the official cash
Speaker 3: rate cut again. It would be pretty rare for the
Speaker 3: Reserve Bank to cut by zero point twenty five percent
Speaker 3: of the start of an easing cycle and then just
Speaker 3: take a pause. If they're going to take a pause
Speaker 3: and see how things pan out, maybe after they've taken
Speaker 3: the rate down by one percent in a few months
Speaker 3: time or so. My interest is mainly, of course, in
Speaker 3: not whether it's going to cut or not, but will
Speaker 3: it be point two five or zero point five percent?
Speaker 3: And I know a lot of people are thinking, well,
Speaker 3: because the Americans, the Federal Reserve just started their easing
Speaker 3: cycle and went for a big bang zero point five
Speaker 3: percent cut, maybe the Reserve Bank in New Zealand has
Speaker 3: some catching up to do as well, and they'll go
Speaker 3: zero point five percent. Now they might, but I can't
Speaker 3: help think that they'll still decide to plod it along
Speaker 3: at point two five for maybe another two or three
Speaker 3: times and then like I say, pause and decide if
Speaker 3: they need to do a bit more of a rapid move.
Speaker 3: So yeah, lower rates are coming.
Speaker 1: Yeah, No, I'm with you, and I also I mean
Speaker 1: my personal feeling is I think they should go fifty,
Speaker 1: but I don't know that's very much based on probably
Speaker 1: personal data. So interested in your view. What are the
Speaker 1: more macro pieces of data at the moment that mean
Speaker 1: that it looks like they're going to hit that twenty
Speaker 1: five as a post of the fifty.
Speaker 3: Yes, yeah, Well, if we look at things like consumer confidence,
Speaker 3: we can see that that has improved, but it's still
Speaker 3: firmly negative. My own Monthly Spending Plans survey two and
Speaker 3: a half, almost three months ago, I had a net
Speaker 3: forty two percent of people saying they were going to
Speaker 3: cut back on their spending, so terrible news for retailers. Now,
Speaker 3: with interest rates going down, it's improved, but it's still
Speaker 3: minus thirteen percent, and the A and Z Roy Morgan
Speaker 3: survey had a similar sort of movement improving. It's still
Speaker 3: firmly negative. So the Central Bank will look at that
Speaker 3: and think, okay, consumer spending makes up about sixty five
Speaker 3: percent of economic activity, and if people are still saying
Speaker 3: they're going to be cutting back, bad for retailers, bad
Speaker 3: for the economy overall, therefore probably inflation going down. However,
Speaker 3: there's something I've been talking about for quite some time now,
Speaker 3: and that's the pricing intentions of people in the business sector,
Speaker 3: and these had not yet been crushed. So the A
Speaker 3: and Z and their monthly business outlooks serve they actually
Speaker 3: have a measure of this week and track on a
Speaker 3: monthly basis, and we go back about three months ago,
Speaker 3: they had a net thirty five percent of businesses saying
Speaker 3: they were still going to increase their prices over the
Speaker 3: next twelve months, which is well above average. It's gone
Speaker 3: up to a net forty two percent of businesses planning
Speaker 3: to increase their prices. So you know, things are not
Speaker 3: necessarily bucketing off with the inflation as much as the
Speaker 3: Reserve Bank would like. And that is why I'm not
Speaker 3: convinced it's going to be a half percent move from
Speaker 3: the very near future. They may just still want to
Speaker 3: take it cautiously.
Speaker 1: Initially, yeah, because of course you have intent, but you
Speaker 1: also need the market to support that, right, So you
Speaker 1: can put your prices up as much as you like.
Speaker 1: But people stop buying it because of it, And obviously
Speaker 1: there's some things that we're just going to have to buy.
Speaker 1: But is there any data there to say how much
Speaker 1: capacity the market can really support still, because from where
Speaker 1: I'm sitting and hearing like it still seems like a
Speaker 1: lot of pain out there.
Speaker 3: Definitely, I think a lot of pain out there. Businesses
Speaker 3: generally have got cash flow problems and that's causing what
Speaker 3: I predicted about eighteen months ago would be a weeding
Speaker 3: out process across all business sectors this year. As the
Speaker 3: cash flows tighten up, customers aren't buying as much, the
Speaker 3: ird is chasing up on tax obligations. Savings buffers that
Speaker 3: were built up during the pandemic have been used up
Speaker 3: as well, and so that means for businesses they definitely
Speaker 3: would like to increase their prices out there, because for
Speaker 3: most of them, the costs are still going up. And
Speaker 3: this is why in my many talks, I've been noting
Speaker 3: to people that at some stage, like around about now
Speaker 3: eighteen to twenty four months down the track from the
Speaker 3: real tightening of monetary policy in November twenty twenty two,
Speaker 3: this is when you've got the greatest pressure on businesses
Speaker 3: on the cash flows, and this is when the businesses
Speaker 3: will be having meetings and saying, well, our costs have
Speaker 3: just gone up another eight percent. We've got to increase
Speaker 3: our price is eight percent. It's worked before, so let's
Speaker 3: keep doing that. But then the marketing manager is going
Speaker 3: to jump up and say we can't do that because
Speaker 3: the customers are already shopping more and more online. They're
Speaker 3: pulling back on what they're buying. Generally, we've got unsold
Speaker 3: goods building up in the warehouses. We're not going to
Speaker 3: get away with an eight percent increase, maybe two percent
Speaker 3: if we are lucky. And that's the environment we are
Speaker 3: in for the economy right at the moment. And that's
Speaker 3: why I wouldn't have cut the official cash rate back
Speaker 3: in the middle of August. I'd have kept the throat
Speaker 3: on the foot, on the throat of businesses just a
Speaker 3: bit longer to really get away those positive price intentions
Speaker 3: for businesses. Of course, I mean, you might have your
Speaker 3: cost go up eight percent and you can't increase your prices.
Speaker 3: Then you've got to make some hard decisions. You've got
Speaker 3: to start laying people off, you've got to cut back
Speaker 3: to only your most profitable products. Processes, people locations. That's
Speaker 3: the disturbed part of the economy that we are in
Speaker 3: at the moment, and it says to me a lot
Speaker 3: of the economic indicators are still going to be fairly
Speaker 3: poor for the rest of this year through to maybe
Speaker 3: the middle of next year, and then I expect a
Speaker 3: more solid upturn in the economy.
Speaker 2: Yeah.
Speaker 1: Interesting, just for my own interests, is here much in
Speaker 1: the way of seasonality data point of one this weekend
Speaker 1: was absolutely humming and Wellington admittedly it had waw had
Speaker 1: at All Blacks tests, but it also had some good
Speaker 1: weather and it just seemed like there's more activity out
Speaker 1: in town. I'm just INSI how that might flow through
Speaker 1: into summer.
Speaker 3: Yeah, I'd be pretty cautious about summer. I think people's
Speaker 3: behavior is changing quite a bit out there. Hey and
Speaker 3: all Blacks test on. Yeah, clearly a lot of people
Speaker 3: are going to be showing up. They may have put
Speaker 3: money aside from other things and decide that's where we're
Speaker 3: going to have a blowout. We're going to watch the game,
Speaker 3: and then if we're going to go to a bar
Speaker 3: or a restaurant afterwards or before, et cetera. But we
Speaker 3: saw data out recently showing that spending and takeaways has
Speaker 3: gone up. And my own experience of going to cafes
Speaker 3: these days is I'm paying prices I used to pay,
Speaker 3: like I'm thinking only three or four years back going
Speaker 3: to a restaurant, and I'm thinking to myself, well, maybe
Speaker 3: if we are going to go out and have something
Speaker 3: to eat, frankly, it would be cheaper just to go
Speaker 3: to McDonald's any other sort of takeaways like that, and
Speaker 3: maybe the fish and chip shop rather than paying fifteen
Speaker 3: dollars for a little felo pastry, mushroom and chicken roll
Speaker 3: out there. I'd walk at doing that. People are changing
Speaker 3: the way they spend money and so you might still
Speaker 3: get people out and about, but they won't necessarily be
Speaker 3: spending as much in the retail the hospitality outlets as before.
Speaker 3: And yet when the weather's good, you've got to get
Speaker 3: out in Wellington because you know what's just around the corner.
Speaker 3: It's going to revert to normal fairly quickly.
Speaker 1: Let us talk a little bit about unemployment. You touched
Speaker 1: on you know some actions that business need to take
Speaker 1: in a weeding out process that's happening in the moment,
Speaker 1: But what's that training like at the moment.
Speaker 3: Yeah, we've already seen the unemployment rate rise from an
Speaker 3: unsustainably low three point two percent a couple of years
Speaker 3: ago to four point six percent, and it's likely that
Speaker 3: the unemployment rate will keep rising towards five and a
Speaker 3: half percent, sort of best estimate for most of us
Speaker 3: out there, And that principally is because we're seeing businesses,
Speaker 3: as I say, across all sectors, not just you know,
Speaker 3: house building is falling away and so you're getting unemployed carpenters,
Speaker 3: et cetera. Across all sectors. Businesses are having to sort
Speaker 3: of trimly at their sales there, find cost savings, change
Speaker 3: what they do and how they do it. And as
Speaker 3: we go through that, prices meaning businesses can handle costs
Speaker 3: still rising and not have to put their prices up
Speaker 3: up On the other side, yet the unemployment rate is
Speaker 3: going to go up. And what interests me here is
Speaker 3: that for younger people out there who let's say even
Speaker 3: join the workforce, took your first job ten years ago,
Speaker 3: this is a totally new thing because all you would
Speaker 3: have known to date will have been a generous employment environment.
Speaker 3: The unemployment rate was four percent going into the pandemic.
Speaker 3: There were predictions that would go through the roof, and
Speaker 3: that was pretty concerning. Well, it only briefly went to
Speaker 3: five point three percent, and then voom, with all the
Speaker 3: money thrown around the end of the economy, weent to
Speaker 3: three point two percent. Now we have a more sustained,
Speaker 3: cyclically normal increase in unemployment and a lot of people
Speaker 3: have not seen this before. So job security has gone
Speaker 3: down out there, and I think that especially is hitting
Speaker 3: into the willingness to spend make big decisions of younger
Speaker 3: people as opposed to older people, middle aged baby boomers,
Speaker 3: et cetera, who've seen a lot worse in the past.
Speaker 3: Unemployment rates around eleven percent or so and not quite
Speaker 3: so negatively affected by that particular dynamic, but certainly for
Speaker 3: younger people, this job in security is likely to be
Speaker 3: around until late twenty five more probably twenty twenty six,
Speaker 3: and there'll be a cap on some of their willingness
Speaker 3: to spend out there.
Speaker 1: Yeah. That's a pretty grim listening, isn't it. But it's
Speaker 1: super interesting from a you know, someone who owns and
Speaker 1: run runs businesses as well. It's my first time through
Speaker 1: this sort of cycle two thousand and eight, which I
Speaker 1: guess was the last major sort of economic crisis. I
Speaker 1: was in the army and pretty much oblivious, which still
Speaker 1: fascinates me given how interested and finance and money I was,
Speaker 1: but really learned about that when I started university in
Speaker 1: nine twenty ten, but haven't actually experienced the cycle play
Speaker 1: out and how different things can turn so quickly. But
Speaker 1: on the other side of that, it gives me optimism
Speaker 1: they can turn the other way recently quick and maybe
Speaker 1: we'll talk about some of the things that could drive
Speaker 1: that soon, but let's just keep hitting with the key
Speaker 1: macro numbers at the moment. Got migration, where's that at
Speaker 1: the moment, and what sort of impacts that having, and
Speaker 1: any views on the brain drain that we're a lot about.
Speaker 3: Okay, first point to note about migration. If it rarely
Speaker 3: drove the economy as much as people have traditionally thought,
Speaker 3: then we wouldn't have had a recession lasting almost two
Speaker 3: years because the net migration gain and it boomed from
Speaker 3: about eighteen twenty four months ago. We had a record
Speaker 3: net gain in the year to October last year of
Speaker 3: one hundred and thirty seven thousand people net. So that's
Speaker 3: those coming in lest those going out. There's one hundred
Speaker 3: and thirty seven thousand in there. That's a strong boost
Speaker 3: to the population. In fact, our population has grown about
Speaker 3: two point one percent in the past year, and four
Speaker 3: point four percent from where we were three years ago,
Speaker 3: So lots of people slashing around, and yet still our
Speaker 3: economy has been phenomenally weak. Now the net migration numbers
Speaker 3: are falling away relatively strongly, and in the year too. August.
Speaker 3: I think we're up to for the data there August
Speaker 3: or July, it's a net gain of about sixty seven thousand,
Speaker 3: but we're heading down to something who knows, maybe around
Speaker 3: twenty thousand as a net gain or so. And I
Speaker 3: can already see the impact in the rental market if
Speaker 3: we go back are we weighs a year year and
Speaker 3: a half ago, I had the likes of a net
Speaker 3: twenty four percent of landlords and one of my surveys
Speaker 3: saying it was easy to find good tenants, lots of
Speaker 3: people sloshing around in the middle of twenty twenty three.
Speaker 3: Now I have a record net twenty two percent of
Speaker 3: landlords saying it is hard to get a good tenant.
Speaker 3: So that rental market is actually shifted on a dime.
Speaker 3: One thing Contributing to that has been some developers who
Speaker 3: have not been able to sell the let's say townhouses
Speaker 3: up in Auckland in particular. They've put them into the
Speaker 3: rental market for a while, waiting for the housing market
Speaker 3: to pick up, and then they'll go and sell them
Speaker 3: to end buyers. But migration has an impact, certainly in
Speaker 3: the rental market, but for the overall economy, it's not
Speaker 3: the big driving force necessarily that people would be thinking.
Speaker 3: And so as we look now towards a week net
Speaker 3: migration period and more of a focus on Kiwis going
Speaker 3: to Australia particular, it doesn't leave me aggressively depressed about
Speaker 3: the economy. It will be some restraint, for sure. It'll
Speaker 3: be something that people will focus on, but it won't
Speaker 3: stop the economy's pace of growth from turning positive, accelerating
Speaker 3: through twenty twenty five, twenty six, and probably twenty twenty
Speaker 3: seven as well, because there's a lot of other factors
Speaker 3: in play. Increased infrastructure activity out there, probably more foreign
Speaker 3: students coming into New Zealand as well, the real estate
Speaker 3: activity picking up, and eventually that will lead to house
Speaker 3: building picking up in twenty twenty six, not twenty twenty five.
Speaker 3: But yeah, migration numbers turning around reasonably quickly at the moment.
Speaker 1: Yeah, just if you have them off the top of
Speaker 1: your head. But how's that net number being made up
Speaker 1: at the moment? Is the is the sort of the
Speaker 1: number coming in and the is the number going out
Speaker 1: being more impactful or is it the number coming in
Speaker 1: is dropping off? Like what's making up that net number?
Speaker 3: Yeah, the two numbers tend to move together to work
Speaker 3: in the situation. So we do have a few more
Speaker 3: people that are leaving the country. That's especially some Kiwis
Speaker 3: that are leave in the country and people who came
Speaker 3: in on short term working visas two years ago are
Speaker 3: now leaving the country as well. So there's quite a
Speaker 3: dynamic going on there the number coming into the country
Speaker 3: while falling away at the same time. So you take
Speaker 3: the stack of those coming in falling, those leaving going
Speaker 3: up and form you can get a pretty quick change.
Speaker 3: Is the New Zealand historical experience in the net flow.
Speaker 3: And that's why actually forecasting population growth in New Zealand
Speaker 3: is a complete dog's breakfast because forecasting net migration flows.
Speaker 3: I remember first proving this back in about nineteen ninety two.
Speaker 3: You can't do it. They can't do it in Australia either,
Speaker 3: because these flows are so strong on both sides of
Speaker 3: the ledger, doesn't take much of one or both of
Speaker 3: them moving, and the numbers can train change fairly quickly.
Speaker 3: So people should just be aware that when we get
Speaker 3: a bit more downward moment picked up in the media
Speaker 3: about the net migration falling away, there will be extrapolations
Speaker 3: into negative numbers. And if a journalist comes through to
Speaker 3: me and say, is it realistic that we could have
Speaker 3: a net outflow again of minus twenty thousand people in
Speaker 3: a year's time, I'm going to have to say yes,
Speaker 3: because we don't know. You can't predict it.
Speaker 1: All right as possible. Super interesting, So let's just get
Speaker 1: properly what most people want to talk about and property
Speaker 1: and the impact that it's going to have on that
Speaker 1: huge impact through to New Zealanders and across the economy.
Speaker 1: So firstly, what are you hearing out there at the moment,
Speaker 1: what's the anecdotal talk and what's the data showing us?
Speaker 1: And are they are they similar or are they are
Speaker 1: they quite different?
Speaker 3: Yeah? No, the anecdotes and the data would be would
Speaker 3: be similar. And so if we look at some of
Speaker 3: the data in terms of price movements, and I use
Speaker 3: the ARII and Z's monthly nationwide house price Index measured
Speaker 3: there in the three months through to May, on average
Speaker 3: each month house pride this is foul one percent around
Speaker 3: New Zealand. But in the three months since then, was
Speaker 3: that Jurn July, three months to August, on average house
Speaker 3: prices have fallen only zero point three percent, so they've
Speaker 3: still been falling. In the month of August they were flat.
Speaker 3: So I'm prepared to say right now at a September
Speaker 3: end of September start of October, now we are in
Speaker 3: the low point of the house price cycle on average,
Speaker 3: and from here the prices will start to rise, but
Speaker 3: not necessarily rapidly. And that's because of what's happening with
Speaker 3: both demand and the supply of property. So if we
Speaker 3: look at the demand side, I can get a really
Speaker 3: good feel for what's happening in the coal face from
Speaker 3: my monthly survey of residential real estate agents, and about
Speaker 3: three months ago it was pretty dire. I had a
Speaker 3: net thirty five percent off the agent saying there are
Speaker 3: fewer people at open homes. No one's showing up. No
Speaker 3: one's drinking the coffee, even the donuts, et cetera. And
Speaker 3: in my most recent survey, I'll be sending a new
Speaker 3: one out any day now. Four weeks ago and net
Speaker 3: forty two percent of agents were saying there are more
Speaker 3: people showing up at open homes. I've got similar strong
Speaker 3: movements towards the other positive territory. When I asked them,
Speaker 3: are there more first home buyers showing up? Are there
Speaker 3: more investors showing up? So I can show definitively from
Speaker 3: my survey there, yes, the buyers are out there, they're
Speaker 3: looking at property, they are going out to starting to
Speaker 3: go to the auctions now as well. Now what about
Speaker 3: on the other side, what we can see is that
Speaker 3: there are more vendors who are coming forward as well.
Speaker 3: So at the end of August, the number of properties
Speaker 3: listed for sale was up about thirty percent from a
Speaker 3: year earlier, at the highest number nationwide about thirty four thousand,
Speaker 3: highest number since two thousand and fifteen. And again when
Speaker 3: I asked the agents, are you seeing more or fewer
Speaker 3: people come forward asking for property appraisals? I mean you
Speaker 3: do that if you're thinking about selling. I think I
Speaker 3: had a net fifty percent, most recently saying, yeah, there
Speaker 3: are more people wanting to know what their property might
Speaker 3: get if they were put it in the market. So
Speaker 3: this is where it gets interesting for real estate agents.
Speaker 3: This is fantastic news. More buyers and more sellers coming through,
Speaker 3: so good real estate turnover is in the offing. You know,
Speaker 3: I expect seasonally adjusted improvements in sales, but what it
Speaker 3: does to prices. As an economist, I've got to say,
Speaker 3: you can't really tell if both demand is rising and
Speaker 3: supply is rising. Nothing obvious pumps out in terms of
Speaker 3: the new equilibrium levels of prices. My expectation is, however,
Speaker 3: with the interest rates are falling out there, and they're
Speaker 3: having quite an impact on people's optimism, you will see
Speaker 3: prices edging up. But we're not seeing anything in terms
Speaker 3: of my view of prices taking off for a long time,
Speaker 3: and even if we go back to previous cycles, it
Speaker 3: usually wasn't until about four years, four years after prices
Speaker 3: bottomed out that you really got things cranking along, with
Speaker 3: nationwide prices rising over fifteen percent for the year for instance,
Speaker 3: So prices rising really soon, but at a relatively mild pace. Initially,
Speaker 3: i'd suggest what I.
Speaker 1: Am hearing is quite a few people in a bit
Speaker 1: of a rush now, which is not a massive case
Speaker 1: study of people, i'd say, but those anecdotes come in
Speaker 1: again sort of that I don't want to miss the
Speaker 1: bottom of this market for those who can afford to.
Speaker 1: So it is interesting just seeing that language change, and
Speaker 1: I wonder how much of that is deliberately, sorry, is
Speaker 1: specifically attributable to the interest rates environment changing.
Speaker 3: Yeah, I think the interest rates. People have enough awareness
Speaker 3: of what that is like going to do to the
Speaker 3: housing market eventually to the economy overall. There have been
Speaker 3: a lot of people who have been sitting out of
Speaker 3: the housing market wanting to buy, but you know, not
Speaker 3: willing to make a move with so many uncertain times,
Speaker 3: low job security recently, and the interest rates being high,
Speaker 3: who are now looking at getting in because they know
Speaker 3: eventually there'll be greater momentum out there. They know more
Speaker 3: investors will start looking again. Once the price of a
Speaker 3: thing gets up with momentum, it drags investors into that market,
Speaker 3: as we can see with the price of gold for instance,
Speaker 3: internationally at the moment rising and so it keeps rising
Speaker 3: for a while. And although I think the high job
Speaker 3: insecurity for a while will give reason for pores for
Speaker 3: many people. A lot of young people have been building
Speaker 3: up a strong deposit for a number of years now,
Speaker 3: and not everybody is being laid off, and so we
Speaker 3: are definitely seeing first time buyers realized or making the
Speaker 3: decision of you know, if we move now, it's going
Speaker 3: to be better than if we wait. We're still going
Speaker 3: to be paying a higher interest rate than we really want,
Speaker 3: but the rate is going to get better. So let's
Speaker 3: only fix for six or twelve months and then we'll
Speaker 3: get a more affordable interesstrate twelve, eighteen, twenty four months
Speaker 3: down the track.
Speaker 1: Yeah, there's a few things that play there, isn't there
Speaker 1: because what the specific person I was talking to about
Speaker 1: this has savings balances and at the same time as
Speaker 1: starting to see those deposit rates, you know, they're not
Speaker 1: really in that six six and a half percent range
Speaker 1: that we're getting not so long ago, so they're seeing
Speaker 1: that role on to different amounts. Most of them recognized
Speaker 1: key Wei saver is at a pretty good level. You know,
Speaker 1: I've got the S ANDP back record levels and can
Speaker 1: we save as a well used tool in that world?
Speaker 1: So yeah, super interesting. See how that plays out for
Speaker 1: first home buyers. Over the things a little bit. I
Speaker 1: just want to get into Chris Bishop is very vocal
Speaker 1: at the moment the starts on loosening regulation to bring
Speaker 1: house prices down. What's your thoughts on that? And you know,
Speaker 1: is it a slam dunk?
Speaker 3: Do you think not a slam dunk in terms of
Speaker 3: getting house prices down? Everybody talks about that until they
Speaker 3: think about hang on, there are more of us with
Speaker 3: houses wanting prices to go up than there are people
Speaker 3: who don't have houses and one house prices to go down.
Speaker 3: And this is where the boats lie with the homeowners.
Speaker 3: So I don't expect the government will have such strong
Speaker 3: policies that there's a massive flood of new house construction
Speaker 3: out there where house prices will be falling and expected
Speaker 3: to fall in New Zealand over a number of years.
Speaker 3: Generally people associate that with bad economic times and it
Speaker 3: generally doesn't go down too well for a for a
Speaker 3: government getting re elected when that happens. So I don't
Speaker 3: believe that they're going to have slam dunk huge policies
Speaker 3: that cause house prices to fall on a sustained basis,
Speaker 3: But what the changes that they are looking at making
Speaker 3: will be one of the strong factors suppressing the pace
Speaker 3: of price increase the cycle. And if we have a
Speaker 3: look at the learnings we've got from our two biggest
Speaker 3: cities over the past well decade. From christ Church Canterbry
Speaker 3: twenty fifteen we saw a freeing up of huge quantities
Speaker 3: of land zoned as residential and following that we saw
Speaker 3: the increase in section prices around christ Church be much
Speaker 3: much less than in the rest of the country over
Speaker 3: that period to fifteen through two twenty or so. Make
Speaker 3: more land available, you control the land prices, they don't
Speaker 3: rise so much as people are out there looking to
Speaker 3: buy and build. And the example from Aucklands with the
Speaker 3: unitary plan coming in from twenty sixteen is if you
Speaker 3: allow greater densification, you will get greater intensification of the land,
Speaker 3: more units being built. And this is one important dynamic
Speaker 3: out there. So if we go back to the global
Speaker 3: financial crisis, things got bad. House building fel away and
Speaker 3: at its low point in two thousand and eleven, so
Speaker 3: two years after the crisis, there the number of consents
Speaker 3: issued for new dwellings to be built in New Zealand
Speaker 3: was below fourteen one four thousand. Now we've seen the
Speaker 3: number of consents fall away from two years ago a
Speaker 3: record high level of fifty one thousand. We're at thirty
Speaker 3: four thousand now, but we're probably only going to go
Speaker 3: down to maybe thirty thousand or so. A decrease in
Speaker 3: the production of townhouses. That underlying house supply dynamic is
Speaker 3: structurally changed now. Already there are more places being built
Speaker 3: and the supply dynamic structurally is different from what it
Speaker 3: was before, and more moves are going to be made
Speaker 3: by the government to improve supply, especially if they move
Speaker 3: on the building consent area there. It can only be
Speaker 3: positive quite frankly going forward.
Speaker 1: Yeah. Nice. So you predicted trouble a foot for developers
Speaker 1: not so long ago, and there's now has been a
Speaker 1: few high profile instances where that's played out. What's your
Speaker 1: sense of how many more might be on shaky ground
Speaker 1: in the property development space.
Speaker 3: Yeah, hard to know, but I do think there is
Speaker 3: more negative news to come along there in that it
Speaker 3: is very difficult for these developers to get pre sales
Speaker 3: and if you can't get pre sales, then you can't
Speaker 3: get the financing from the from the banks there, so
Speaker 3: not so much for group home builders or even individual builders,
Speaker 3: but for the multi unit developers out there, that's where
Speaker 3: I think there's still some negative news over the next twelve,
Speaker 3: maybe fifteen months or so. There's a bit of a
Speaker 3: lag in the cycle in that you gets standalone house
Speaker 3: building doing a certain thing, and then the multi unit
Speaker 3: developments then may be twelve months behind in their cycle.
Speaker 3: So I'll have a view on multi unit development going
Speaker 3: up once I can see individual house construction going up.
Speaker 3: Going to be a story from some point in twenty
Speaker 3: twenty five, probably in the second half of the year.
Speaker 3: But with the IRD certainly chasing unpaid tax bills, that's
Speaker 3: been a new dynamic this year in New Zealand. Exactly
Speaker 3: the same across the ditch in Australia as well, the ATO,
Speaker 3: the Australian Tax Officer are getting in touch with businesses
Speaker 3: and saying, you know, palling me my money. We've got
Speaker 3: a similar, even if slightly less strident thing happening in
Speaker 3: New Zealand as well. The cash flows. That's what puts
Speaker 3: businesses under and like I say, for all sectors, there
Speaker 3: are some cash flow problems, but I do think there's
Speaker 3: a few more adjustments to happen in the property development
Speaker 3: sector as well.
Speaker 1: Just such large numbers, aren't they and can be quite fickle,
Speaker 1: move quickly, just a couple of quick fires. So capital
Speaker 1: gains tax for me, I've always felt like it's more
Speaker 1: of a when, not an if. But again it's topical
Speaker 1: and both political parties business lea there speaking about it.
Speaker 1: What's your view on capital gains tax?
Speaker 3: I expect it will be introduced at some stage in
Speaker 3: New Zealand. It's a question of what will be the
Speaker 3: context of the debate and if the debate for introducing
Speaker 3: it is revolving around envy and not wanting people to
Speaker 3: make a capital gain from property and a belief that, oh,
Speaker 3: if people don't invest in property, they're going to invest
Speaker 3: in other productive activities. I don't know if it gets
Speaker 3: across the line from my point of view. To get
Speaker 3: it across the line, it has to be in the
Speaker 3: context of the country needs to generate more tax revenue
Speaker 3: in the future because of the aging population, the increased
Speaker 3: demands on the health system, for instance, just to modernize
Speaker 3: what's already sitting out there, we do need to raise
Speaker 3: more revenue. New Zealand has already highly dependent upon the
Speaker 3: income tax and GST rate is already fifteen percent. Put
Speaker 3: it in that context and I can see myself probably
Speaker 3: voting in favor of it coming in. But as long
Speaker 3: as it is couched in terms of some people have
Speaker 3: made money and we don't think they should have made
Speaker 3: that much money, I would struggle. Then I think to
Speaker 3: go and support it. It has to be part of a
Speaker 3: broader fiscal debate. But it's going to come. But I
Speaker 3: think it's impossible to predict what parliamentary term it's going
Speaker 3: to appear.
Speaker 1: It'll be. If someone can nail that story of you know,
Speaker 1: it'll help me more growth over time and stuff, I
Speaker 1: think that would be amazing as well. So for our listeners,
Speaker 1: what should they as investors be thinking or bearing in
Speaker 1: mind over the next six to twelve months.
Speaker 3: Yeah, expect a lot of uncertainty out there. We're at
Speaker 3: a turning point in a number of cycles. And my
Speaker 3: experience of having been in this business back in New
Speaker 3: Zealand since nineteen eighty seven is that we're volatile economy.
Speaker 3: We get hit by shops all the time, domestic ones
Speaker 3: and offshore, and when cycles turn sometimes they don't keep
Speaker 3: going in the direction that you expect. This happened a
Speaker 3: year ago. The housing market was picking up quite strongly.
Speaker 3: Prices on average in New Zealand increased zero point nine
Speaker 3: percent a month for a five month period July through
Speaker 3: to November, and then they started falling away. It was
Speaker 3: a false start. I don't think it's a false start
Speaker 3: this time around in terms of the residential property market
Speaker 3: picking up, but there are a number of things out
Speaker 3: there that are going to occupy people's minds and so
Speaker 3: obviously keep an eye on what's happening in the Middle
Speaker 3: East and the potential for greater discord over there that
Speaker 3: may cause an impact in the oil market. It hasn't
Speaker 3: so far, but that is always a risk that's sitting
Speaker 3: out there. We've got the American presidential election in about
Speaker 3: a month's time coming along, and if mister Trump gets
Speaker 3: back in then we're looking at higher tariffs for the
Speaker 3: thirteen percent of New Zealand exports that go to the
Speaker 3: United States, and then other countries may be looking at
Speaker 3: putting tariffs in place as well. So that's a risk
Speaker 3: for New Zealand because vulnerable to these things that we
Speaker 3: need access overseas keep an eye on the Chinese economy.
Speaker 3: At its peak three years ago, thirty three percent of
Speaker 3: our export receipts came from China, including Hong Kong. Now
Speaker 3: we're down to twenty seven point three percent falling away.
Speaker 3: China's economic outlook is not particularly good, and that means
Speaker 3: still low demand for forestry products and it's going to
Speaker 3: be suppressing prices for the likes of red meat, and
Speaker 3: i'd suggest also a bit on the dairy product side
Speaker 3: as well, So keep an eye on that one. And
Speaker 3: outside of that, it's simply the usual things. You know,
Speaker 3: at some stage we're going to get another decent earthquake,
Speaker 3: a big earthquake. Unfortunately in New Zealand, I don't tend
Speaker 3: to buy into there's another pandemic just around the around
Speaker 3: the corner, one in every seventy years in terms of
Speaker 3: you know, COVID et cetera. Maybe that's so that that
Speaker 3: is more my underlying assumption with that regard, But people
Speaker 3: need to remember diversification in your portfolio and watch for
Speaker 3: over extrapolation of cycles once they start, because I can
Speaker 3: assure you from you know, three and a half or
Speaker 3: so decades in this business, there isn't a tendency to
Speaker 3: over extrapolate the up and the down. Things move in cycles,
Speaker 3: and watch out you don't get overly optimistic mystic the
Speaker 3: other way around.
Speaker 1: It's one of my favorite quotes actually from one of
Speaker 1: the Chaza's shareholders told me early days of the pandemic
Speaker 1: when we didn't know what was going to happen. But
Speaker 1: as words of advice to me maybe I was looking
Speaker 1: at stressed was it was nothing as ever as good
Speaker 1: as it seems, and nothing as ever as bad as
Speaker 1: it seems. It's always just somewhere in the middle.
Speaker 2: Yeah.
Speaker 1: So that's a great summary. Thank you, Tony, and very
Speaker 1: much appreciate you joining us on Shared Lunch again today,
Speaker 1: and thank you also everyone for tuning in. You can
Speaker 1: watch Shared Lunch wherever you get your podcasts and leave
Speaker 1: us a rating and a comment about what you'd like
Speaker 1: to hear about next.
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