The April issue of Property Focus published by the ANZ has some interesting comments about immigration, lending, and mortgage borrowing.
Saturday, April 29, 2017
Frank Newman: Property drivers and local co-governanceLabels: co-governance, Economic Affairs, Frank Newman, Northland Regional Council
On immigration they say, "On a three-month annualised basis, net permanent and long-term migration was close to 74,000 in March, which is near all-time highs and over 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 has been the dominant factor.
"Migration inflows are expected to remain strong. New Zealand’s current strong labour market (particularly relative to Australia, by far the most relevant comparator) will allure people home. In a world of fractured international politics (Brexit, US political uncertainty), there’ll be no shortage of people with a desire to move to New Zealand."
Migration is a major driver of housing market cycles. House price spikes in the early-1970s, mid-1990s and mid-2000s all coincided with large net migration inflows. The risk for property investors occurs when the inflow stops, and the most likely cause of that, in the near future, is politics. Labour, Greens and New Zealand First have indicated that they would reduce the levels of net migration if they are in a position to do so after the 23 September election. That will not only put a break on property price rises, but on economic activity as well. A long-term criticism of our economy is our poor productivity and the lack of growth in the export sector, which makes it vulnerable to housing cycles.
About credit growth the ANZ say, "The latest tightening of the high-LVR (loan-to-value ratio) lending restrictions – together with increased credit rationing by banks – appear to be having a marked impact on both house sales and credit availability. Add in recent modest increases in mortgage rates (and widespread expectations of more to come), and we expect to see mortgage lending growth remain at this more moderate pace over the coming months."
There is little doubt that "credit rationing" is affecting housing demand, and I hear of some surprising examples of home buyers with sizable deposits and good incomes being declined mortgages. A major property developer remarked to me recently that this may become a significant constraint on house price rises in the near term.
With resect to mortgage borrowing, they say the one year fixed mortgage rate is the best option ("the sweet spot") at present.
"While partly a reflection of the fact that it’s the cheapest rate, it’s also a reflection of our judgement on the future given what’s built into the term structure of interest rates, and where they are headed... At the moment we see limited benefit in paying a premium to fix for longer. This is because the term structure is building in a more rapid rise in mortgage rates than we expect, implying that it is likely to be cheaper to go for back-to-back 1 year fixes than a single 2 year fix."
A few weeks ago the Northland Regional Council (NRC) entered into a warm, strong and mutually beneficial Memorandum of Understanding with a Chinese state-owned conglomerate to investigate infrastructure opportunities in Northland. A request for further details about that entity has been unanswered by the NRC.
It appears the NRC is also extending the hand of co-operation to local iwi. In a supplementary item tabled at the 18 April Council meeting, staff recommended that two of the four councillors on the Council's working committees be replaced with members appointed by the Te Tai Tokerau Maori Advisory Committee (TTMAC). These unelected members would have equal status as councillors.
There are four working groups involved. Working groups typically do detailed work and make recommendations to the full council. From my experience, the recommendations of a delegated working group are usually accepted by councillors, but that is not always the case. The danger of course, is that if half of the members of a group are appointed to represent a particular vested interest group then inevitably the decisions of the group will be biased towards that view.
It looks to me like this is another step towards a goal to have a 50/50 "partnership" between iwi and elected councillors. It seems councillors were divided on this issue as the matter is sitting in abeyance for the time being. Not for long I suspect. One hopes councillors will show respect to residents and ratepayers - the people they represent - by asking them what they think before they vote on this matter.
Coming up: Australian Budget delivered on Tuesday 9th May. Our Budget will be presented on Thursday 25 May.
at 8:51 AM