NZ Economy

Reserve Bank remains bullish about economic prospects

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Today's Quarterly Monetary Policy Statement from the Reserve Bank is a bullish one, with GDP growth now tipped to hit 3.8% during 2018 before easing off to 2.6% in late 2020. These are both up slightly from Treasury's August PREFU.

The main change from PREFU is that economic growth is expected to peak earlier - in June 2018 versus June 2019, and while it's projected to ease off to 2.8% by June 2020, it's still expected to slightly better than the easing forecast in PREFU.

That being said we're talking a difference of 0.1 percentage points between the two forecasts, so it's not a major difference. The Reserve Bank is also limited in its ability to calculate any potential effects from the new Labour-led Government's policies given that other than the coalition and confidence and supply agreements, we're yet to see fully costed policies.

The drop in the exchange rate with stable commodity prices are expected to help our exporters, while any drop off in construction and housing is forecast to be offset by the OCR staying low and not being forecast to rise until June 2019, as well as the Government's increased fiscal stimulus - basically all the extra spending the Labour-led Government is indicating it will undertake.

There's good news for home buyers with house price inflation expected to remain low, and while there may be some upswing to inflation, it's expected to headline at around 2%.

Still, it's good news for the economy, and should give Grant Robertson a little more fiscal headroom to accommodate the various policy commitments made to Labour's support partners.

The pointlessness of a foreign buyer ban

None. Zilch. Nada. That's the effect Labour's ridiculous decision to ban non-residents from buying existing residential houses will have. How do we know? Australia implemented the same thing in December 2008 it had no impact there either. In fact, much like New Zealand's prices, house prices in Sydney and Melbourne have nearly doubled since 2008.

All the non-resident ban achieves is shifting the two or three per cent of property investment that comes from overseas from existing homes to new builds instead. The small resulting increase in prices there pushes citizens and residents back into the existing home market, and thus increases competition there by the same amount.

The overall result? You're no better off than you were before, unless you're a property developer. Because the other lesson to come out of Australia's experience was that overseas investors are much more comfortable buying off the plan developments than local house hunters are, largely because they're able to absorb and afford the wait between the units selling and construction being completed, whereas local house hunters aren't able to as much, as they're in need of a place to live.

Given Labour's previous racist dog-whistling over Chinese surnames, Labour should probably be aware (but I suspect they're not) that as Chinese regulators seek to limit the amount of Chinese capital moving offshore to be invested in property, whatever the small impact that non-resident buyers were having on house prices will be further minimised by changes afoot overseas.

What's also concerning is that at her first post-Cabinet press conference, Prime Minister Jacinda Ardern admitted that there was no advice on the potential economic impact of a ban on non-residents. It's rather incredible isn't it? The new Labour-led government was able to get legal advice that said their non-resident ban wouldn't breach free trade agreements, other than the Singaporean FTA, but not on the potential economic impact of this action, which undoubtedly sends negative signals to some of our most important trading partners.

With a timeline of introducing the legislation before the end of the year and having it passed in early 2018, so it can take effect before the earliest date that Trans-Pacific Partnership comes into effect (which would be February 2018), suggests that Labour will be ramming through the legislation under urgency.

It's disappointing that after two terms where urgency was largely reserved for genuinely urgent legislation, such as responding to natural disasters or fixing major legislative mistakes (like the ability for local authorities to set speed limits), Labour is throwing that all out the window to appease the xenophobic itch that New Zealand First represents.

It's also the height of hypocrisy that having stupidly agitated against TPP negotiations being conducted behind closed doors (which has been the norm for FTA negotiations for quite some time) Labour is now looking to stop, or minimise any public input into the amendments they're proposing to make to the Overseas Investment Act.

The reality is that there are much more factors that are influencing New Zealand, and especially Auckland's, property market. These have to do with immigration, economic growth, and a historic failure across nearly three decades to adequately balance out urban intensification and urban sprawl with decent investments in transport infrastructure (both roads and public transport).