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Home / New Zealand

Bernard Hickey: Housing up, fishing down

Bernard Hickey
By Bernard Hickey
Columnist·Herald on Sunday·
6 Dec, 2014 04:00 PM3 mins to read

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Auckland is riding a property boom, but elsewhere the fishing industry is facing layoffs.Photo / Alan Gibson

Auckland is riding a property boom, but elsewhere the fishing industry is facing layoffs.Photo / Alan Gibson

Bernard Hickey
Opinion by Bernard Hickey
Bernard is an economics columnist for the NZ Herald
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The contrast in fortunes this week between two parts of New Zealand could not have been starker.

Dairy farming and fishing had a shocker, while real estate in Auckland celebrated yet another month of booming sales and prices.

Dairy farmers woke early on Wednesday to hear forecasts of a payout as low as $3.65/kg this season after another 7.1 per cent fall in whole milk powder prices.

A slump in buying from China, which they hope is temporary, combined with surging production in Europe, America, Australia and New Zealand has driven commodity prices down 50.1 per cent in US dollar terms since February.

Meanwhile, Barfoot and Thompson reported house sales rose 17.7 per cent from October to November and the median house price rose 5.6 per cent to a record high of $691,500.

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Managing director Peter Thompson reported buyers freed from the risk of a capital gains tax or any limits on foreign buyers had returned in droves to open homes and auctions after the election.

Pumped up with cheaper debt and lots of fresh equity, they have leaped back into the market boots and all. New council valuations confirming the windfall gains have encouraged many to leverage their new equity to buy more properties.

The banks are competing harder than ever, offering cash-backs aplenty, free televisions and gaming consoles to get deals across the line.

The difference between Auckland's champagne cork-popping real estate market and the kick in the guts for the export sector was clearest in Nelson this week, where Sealord confirmed it was cutting 111 jobs at its wet fish factory.

So how might all this end? Some say the surge in Auckland is just temporary until the economy slows down in line with the dairy prices and eventually the currency falls.

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But there are no guarantees these two parts of the economy will converge again any time soon.

There are two scenarios worth considering.

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First, there is the prospect of continued global deflationary forces pressing even further down on inflation and interest rates.

The Reserve Bank can't put up interest rates to slow Auckland's housing market, even if it wanted to, because inflation is right at the bottom of its 1-3 per cent target band.

The cheap money is continuing to flood into New Zealand and Auckland in particular, as are migrants wanting somewhere to live.

New housing consents in Auckland have flattened in recent months so a supply surge is also some way off releasing the pressure on prices.

Money is continuing to rush out of China, the Middle East and Russia in search of politically and legally safe places for storage, and a small fraction of that is ending up here.

In this scenario, there is nothing stopping Auckland's house prices from gathering a second wind and blasting on into next year.

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Only another Reserve Bank intervention, possibly to increase borrowing costs for owners of multiple rental properties, could slow the market in this scenario.

Another scenario suggests a dramatic slowdown in China further dragging on our commodity prices and overwhelming the interest rate differentials to drive the currency lower.

Slowing economic and employment growth would then sap demand for housing and naturally cool the market.

For now, the tailwinds are behind Auckland's property market and into the face of exporters.

And no one seems remotely interested in trying to change the weather.

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