Bernard Hickey is on site for an hour until 1pm to shoot the breeze with paid subscribers about the events of the week, including moves by the RBNZ and ECB to unwind and stop their money printing
When you say inflation is transient, how long are you thinking. Without specifying a time window 50 years could go by and you'd still be right. Like the old joke of the household cure for the common cold - guaranteed cure after only 4 weeks of treatment. Seriously, you seem to be basing your expectations on fairly recent historical policy trends, not to mention supply chain resilience we have seen is anything but, in the face of a black swan.
Thanks ASHJO. You're right that at some reasonable point the transient thing can't be called transient. As Keynes said: 'In the long run we're all dead'. But I still think inflation gets beaten down later this year and next year by recessions in the US and Europe, plus a big slide in asset values. That's assuming there's no new war shock and China continues to try to eliminate. In my view, those long run trends of weak labour power, the evaporation of services into big tech in the cloud and a more internationalised labour market will repress wages and therefore prices. If we're still seeing acceleration later this year and next, then I'm going to have to capitulate...
Will the decrease in house prices combined with tighter lending be putting pressure on Fletcher Living and encouraging a tighter grip on Fletcher’s plasterboard monopoly? Or do these issues not necessarily intersect?
Also, any news on council reducing red tape for building consents to encourage more plasterboard products in specs? Even if this red tape is reduced do you think there could be a significant delay in effect because architects will continue to design what they know?
Thanks Michael. Interesting question. Fletcher Living still has a relatively small share of the house building market, and not big enough to turn into a nasty feedback loop in GIb. Auckland Council, which tends to lead the rest, has said it is signing off on non-GIb products, which is hopeful. I think the real shift comes as the big project house builders like Simplicity Living and I hope many more get going. Part of the reason they can use non-Gib-Gib is because they're not using it in a structural way, which I'm told Joe Blogs builders are. Seems bizarre to me, but I need to do more research.
all new housing requires wall bracing in compliance with the building code. Gib have wall bracing values as a result of testing (by BRANZ I think). Other plasterboard products would have to be tested to show compliance with the NZ building code when used as wall bracing. Also, some walls are fire walls and again Gib have fire ratings as a result of testing. Other plasterboard products would have to be tested to show compliance with the NZ building code when used as fire walls. Noise transmission is another consideration in some cases for compliance with the NZ building code and again Gib has been tested for this.
The short answer (from me) is not within a decade or two. That's because politically and economically the Government (both sides) and the Reserve Bank can't afford to let it fall much more than 20%, which still means house price to income multiples are well over 8. They should be much closer to three to be affordable. It's a political economy problem. So many median voters are now addicted to tax-free and leveraged capital gains, they don't know how to stop it with a wealth or land tax. The parties just reflect what they can see with median voters, who tend to be older, more provincial, more suburban and more Pakeha. Nearly one million young renters don't vote. So game over until they do.
Not without a voter revolt, the percentage of home owners is still too high and rallies to National (who they know won't let anything happen) under a real threat of action.
Inflation will do more damage to saving power of renters than any 10% price drop will make back. Without seismic intervention a 3bed section will remain un-affordable on any practical time horizon to the median wage earner.
There is some small hope that due to the lower land value embedded that sustained emphasis on apartment building in centres under new planning regulations will lower the price on apartments into affordable territory for the median wage earner however apartments are likely to miss out on land related capital gains because of what is making them affordable.
Quite right Chris B. Until a land or capital gains tax is imposed, there is no prospect of breaking the fundamental problem: people value homes as investments, rather than as providers of services.
Bernard, is there any data yet, to show a drop in consumption of petrol and diesel caused by the climb in pump prices? If consumption has not fallen, then there must be a surge in GST receipts to the Government. That revenue stream could be allocated to road maintenance to replace that lost through the reduction of the hypothecated petrol tax.
I am wondering if you think, once house prices stop falling, whether they are set to sky rocket again? This could be due to a range of factors such as slow-down in supply, re-introduction of interest deductiblality, rising consumer confidence, etc. Or do you think there is a chance people will feel cautious towards the market, and prices could stay flat for a while?
And because I am greedy, one more question that is related: I am wondering how the government could (or should) support developers over the coming quarters, to ensure adding to our housing supply does not come to a screeching stop?
Rory. And to you. Great question I think about a lot. I think the RBNZ and Govt allow the house price fall to extend to about 20%, which takes us back to early 2021, before some tweaks and lower OCR forecasts come to the rescue, thanks I think to an approaching recession and a softening of the other inflation pressures. And then there'll be some natural market and political forces that kick in. Lower longer-term interest rates will boost demand and the now very-real prospect of a National Govt will fire things up. National plan to keep interest rates low, repeal the interest deductibility tax change and shift the bright line test back to two years from 10 years. The collapse in new supply development and falling prices will also stop the new supply in its tracks. Also, both Labour and National will unleash the temporary migration flows too to boost the economy and keep wages from rising too much. My purely speculative bet is house prices are rising again by the end of next year. I doubt the Government can or will do much to help developers. GOvt will argue there's 'plenty of supply' now and they don't need help. Free markets etc... The real issue there is the banks don't want to touch them with a barge pole.
What would the effect on inflation be if instead of raising interest as quickly or as much, that the RBNZ sped up the Quantitative Tightening to drag all that stimulatory cash out of the economy?
Now you're talking Steve. There'd be a very fast increase in longer term mortgage rates towards double digit levels and you'd have a proper 40-50% fall in house prices. Unwanted by both the Reserve Bank (for monetary policy and financial stability reasons) and the Government (for political reasons).
As the clock counts down to the dissolution of the DHBs and the formal establishment of Health New Zealand and the Maori Health Authority on July 1, what are your thoughts on the role EY has had in preparing for this? https://www.newsroom.co.nz/ey-paid-more-than-2m-for-health-review
As the US Fed's .75% hike ripples around, would you expect kiwi home loans rates to take another bump? To the extent NZ lenders are relying on foreign money it seems that cost of capital would be going up.
Thanks Duane. The banks rely on a lot less foreign money than they used to. They have also borrowed $12.2b from the Reserve Bank in the last 18 months at the OCR (ie 0 to 2% now). But the two-year swap rate here, which is the wholesale market rate that often drives fixed mortgage rates, has jumped 50 basis points this week. So I'd suspect some hikes are coming... https://www.interest.co.nz/charts/interest-rates/swap-rates
Hi Bernard - you've often talked about residential property recently, but the rise in interest rates and potential fall in retail sales must be putting the squeeze on commercial landlords. And about time - with retail rental costs rising steadily over the years at a time when foot traffic has been declining. I'm sure many landlords will be wanting to hold their rents or even increase them with the cpi, but surely it's time for a correction in the commercial sector, especially as retail has had such an incredibly tough couple of years. Any thoughts welcome!
Thanks Paul. I agree. It feels like a wylie coyote moment (off the cliff but yet to fall) for lower-end office rents and lower end retail in particular. I think industrial property (especially warehousing) is still pretty strong. I'd love to see a lot of these lower-tier office buildings turned into residential.
The Auckland city fringe where I live is awash with empty or half-empty low-rise office buildings - many like that since before Covid. Presumably the owners are interested only in the land value? They’re certainly not filling up with startups or co-ops or artists’ studios. Most conversion to accommodation seems to be improvised and bottom-end though a bit of a shift on a small scale seems to be happening.
Are you still dovish with regard to the interest rate environment or are you starting to sway towards a permanent shift towards a higher interest regime that may be here for some time!!
I recall Bernard many years back now when you were presenting to us at Mortgage Choice/Roost that you were steadfast in maintaining that falling/low interest rates were here to stay when the banks were always predicting their rise in “about 6 or 9 months “. They were perpetually kicking the can down the road. Enjoy your insightful analysis. John B
Thanks John! I remember those presentations well. Everything was going along swimmingly with my view until pesky Covid and the Ukraine War came along. I haven't been convinced yet this is a multi-decade shift to higher interest rates and a 1970s and 1980s style breakout. Workers still have much less union power and legislative help than in the 1970s. They also have to fight the contracting out and offshoring forces, which I don't think are over. I also see plenty of runway left in the evaporation of services into big tech in the cloud globally (or even locally!). All of those trends are disinflationary. Mind you, when the facts change, I change my views sir....I'm hanging on to the end of next year just to check...
Hmm!the evaporation of services to he cloud , that’s going to impact on professional, legal and accounting services isn’t it?probably back office in the commercial world as well.
Do you have any thoughts about the influx of rentals "Available Now" on Trademe. (In Auckland there is currently over 4200 listed). I only noticed this as the house opposite us down our right of way has been vacant for nearly 3 months and after two price drops still has no interest. Could this be a result of emigration or lots of "ghost houses" coming up for rent? It seems not that long ago there were queues down the street competing for the leakiest house in town.
Thanks Simon. Great insight. I can see an interesting data point developing. I'm going to see how that 'available now' stat has changed. The lack of international students and temporary migrants is the issue, on top of the covid migration to the suburbs. Great for rents in Auckland. Sadly, not enough supply to see the same thing in Wellington. I don't think it's ghost houses. I'm yet to see evidential proof it's a major issue in Auckland, despite all the anecdotes.
Not sure if this data exists, but if it weren't for the housing market, would NZ have already been in a recession given that was our only real economic activity during COVID anyway?
Second question on housing - is there likely to be any assistance for recent first homebuyers who will be under the pump from rising interest rates? I shudder to think of a family that scrapped together their savings to put a 10% deposit down on a $1mil+house in Auckland now getting wacked with a rising 10% deposit rate - I have no idea how they could manage now. Not that their plight is a as bad as those locked out of the market entirely, but given the government was sending signals that it was going to do nothing to reign in out of control housing prices surely it owes this group some assistance?
Great thought. I agree that would be a good chance. The wealth effect powered an awful lot of new spending and activity through late 2020 and well into 2021. On the second question: that marginal buyer thing is very tricky. The more subsidies and cheap credit you shovel at first home buyers, the higher the house prices go and the tougher it gets for the next batch of first home buyers, or those who are just on the edge. There will always be some on the edge, without properly affordable houses. A lot of the parents arguing for these subsidies are arguing for help so they don't have to stump up deposits. There's an awful lot of bargaining behavour going on at the margins, when we actually just need to fix the supply problem.
Do you think this, or the next, Government will take sensible and precautionary measures in the energy sector to protect the country from energy and price shocks? Options that are timely enough would be subsidising solar for consumers, ensuring we can produce and refine our own petrol and diesel supplies to transition instead of relying on expensive and risky importation and as WA does to ensure its own supply is secure? Every other plan seems required but too long term to rely on now.
Thanks Kath. I agree on the solar stuff. I doubt this or a National Government will do it because they remain committed to the small government low-government-debt model that aims to lower interest rates and keep housing supply low to maximise the tax-free and leveraged gains of median-voting homeowners.
Its not all doom and gloom Bernard, If pumped Hydro (location is important though) keeps its legs that would do a lot to alleviate dependence on coal peaker plants and help with dry summers.
The real Achilles heel to NZ's energy sector is the vehicle fleet and its not going to get solved. BEV's will not be able to replace the Diesel fleet for decades and Hydrogen engines (particularly for heavy vehicles) just are not getting the traction due to lack of public or private investment in distribution networks or regulatory frameworks.
Here we would actually make Hydrogen from splitting seawater with excess wind or hydro power during the peaks of excess renewable production. It's "more expensive" than fossil fuel hydrogen while there are no emissions taxes on that fossil fuel hydrogen but the current pump price does illustrate that things change without taxes.
Do you find it difficult to resolve the paradox (hopefully this is the right word🤞) between our need to stop using fossil fuels to help solve our climate crisis and our obsession with fossil fuel costs?
Absolutely CraigB. It's really a contest between our collective short term 'lizard brain' instincts to maximise value from existing assets, and our better angels of knowing we have to use new tech to get more value in the long run. It's the inbetween that is the problem...and our political lizard brains.
I think your idea of introducing a broad based land value tax offset by a reduction in GST is brilliant both from an economic and public acceptability point of view. Can any costing be done on this? Would any political party be open to researching it?
The recent NSW plan to out stamp duty for LVT is flawed and I wonder if it originated with the property lobby. The option of not paying tens of thousands of stamp duty and going for the annual land tax attached to the property will be very welcome by speculators with quick turnover ambitions. It will act on the market to increase prices just as first home owner grants have but with much greater magnitude.That the federal government will cover the state revenue shortfall will be decreasing revenue from land tax (a resource rent) and increasing it from tax on individual effort like income tax and GST. The annual land tax will be unpopular simply because it arrives as a bill whereas payg income tax and GST are automatic payments that happen unnoticed. That will provide scope in the future for election pork barrelling to abolish the LVT as happened in Canberra in the 70s.
Dominic Perrottet seems to be an ultra right wing politician and an admirer of Trump. He has been in favour of privatising the public assets as much as possible. He was trying to sell off the state forests when the bushfires ruined the deal.
This is Australian economist Cameron Murray on the stamp duty transition.
Interesting thoughts Sally. I need to do a lot more reading about what Perrottet is planning. It will depend on the relative levels of stamp duty and land value tax. As long as the LVT tax is higher, that's good. This is a useful reminder for me to do more work on it.
It seems like a very sound idea worth exploring. Wait for the uproar from churches schools, unis and charities including all the Iwis (yes they are all registered as charities to avoid paying tax) claiming exemption though. Without strong cohesive political leadership this could be dead at birth.
Hi Bernard thanks so much for doing this. I want to talk about the Christchurch stadium cost blowout. Two questions. First what would you advise the Christchurch City Council to do? And second and more important is it just my imagination or have the costs to building new infrastructure like stadiums motorways housing e.t.c grown much faster than inflation over the last 30 years and why/what can be done to being such costs down?
Thanks Nicholas. I think you're right that the inflation for such stadiums has risen faster than for other structures. I'd suggest the Council go small and also ask NZ Rugby's Private Equity owners to stump up...
When you say inflation is transient, how long are you thinking. Without specifying a time window 50 years could go by and you'd still be right. Like the old joke of the household cure for the common cold - guaranteed cure after only 4 weeks of treatment. Seriously, you seem to be basing your expectations on fairly recent historical policy trends, not to mention supply chain resilience we have seen is anything but, in the face of a black swan.
Thanks ASHJO. You're right that at some reasonable point the transient thing can't be called transient. As Keynes said: 'In the long run we're all dead'. But I still think inflation gets beaten down later this year and next year by recessions in the US and Europe, plus a big slide in asset values. That's assuming there's no new war shock and China continues to try to eliminate. In my view, those long run trends of weak labour power, the evaporation of services into big tech in the cloud and a more internationalised labour market will repress wages and therefore prices. If we're still seeing acceleration later this year and next, then I'm going to have to capitulate...
Will the decrease in house prices combined with tighter lending be putting pressure on Fletcher Living and encouraging a tighter grip on Fletcher’s plasterboard monopoly? Or do these issues not necessarily intersect?
Also, any news on council reducing red tape for building consents to encourage more plasterboard products in specs? Even if this red tape is reduced do you think there could be a significant delay in effect because architects will continue to design what they know?
Thanks Michael. Interesting question. Fletcher Living still has a relatively small share of the house building market, and not big enough to turn into a nasty feedback loop in GIb. Auckland Council, which tends to lead the rest, has said it is signing off on non-GIb products, which is hopeful. I think the real shift comes as the big project house builders like Simplicity Living and I hope many more get going. Part of the reason they can use non-Gib-Gib is because they're not using it in a structural way, which I'm told Joe Blogs builders are. Seems bizarre to me, but I need to do more research.
all new housing requires wall bracing in compliance with the building code. Gib have wall bracing values as a result of testing (by BRANZ I think). Other plasterboard products would have to be tested to show compliance with the NZ building code when used as wall bracing. Also, some walls are fire walls and again Gib have fire ratings as a result of testing. Other plasterboard products would have to be tested to show compliance with the NZ building code when used as fire walls. Noise transmission is another consideration in some cases for compliance with the NZ building code and again Gib has been tested for this.
Do you think housing prices will ever become affordable for the average New Zealander? If so, when do you think that would be?
The short answer (from me) is not within a decade or two. That's because politically and economically the Government (both sides) and the Reserve Bank can't afford to let it fall much more than 20%, which still means house price to income multiples are well over 8. They should be much closer to three to be affordable. It's a political economy problem. So many median voters are now addicted to tax-free and leveraged capital gains, they don't know how to stop it with a wealth or land tax. The parties just reflect what they can see with median voters, who tend to be older, more provincial, more suburban and more Pakeha. Nearly one million young renters don't vote. So game over until they do.
Not without a voter revolt, the percentage of home owners is still too high and rallies to National (who they know won't let anything happen) under a real threat of action.
Inflation will do more damage to saving power of renters than any 10% price drop will make back. Without seismic intervention a 3bed section will remain un-affordable on any practical time horizon to the median wage earner.
There is some small hope that due to the lower land value embedded that sustained emphasis on apartment building in centres under new planning regulations will lower the price on apartments into affordable territory for the median wage earner however apartments are likely to miss out on land related capital gains because of what is making them affordable.
Quite right Chris B. Until a land or capital gains tax is imposed, there is no prospect of breaking the fundamental problem: people value homes as investments, rather than as providers of services.
Bernard, is there any data yet, to show a drop in consumption of petrol and diesel caused by the climb in pump prices? If consumption has not fallen, then there must be a surge in GST receipts to the Government. That revenue stream could be allocated to road maintenance to replace that lost through the reduction of the hypothecated petrol tax.
Interesting idea Jim. I had a quick look here https://www.mbie.govt.nz/building-and-energy/energy-and-natural-resources/energy-statistics-and-modelling/energy-statistics/oil-statistics/ and found some fascinating stuff. Huge increase in consumption in the March quarter. Maybe some stockpiling? The GST will be there, but I'd prefer it was redirected to transitioning to bikes, walking, scooters and buses, than repairing roads.
Fair enough!
Hi Bernard
Happy Friday!
I am wondering if you think, once house prices stop falling, whether they are set to sky rocket again? This could be due to a range of factors such as slow-down in supply, re-introduction of interest deductiblality, rising consumer confidence, etc. Or do you think there is a chance people will feel cautious towards the market, and prices could stay flat for a while?
And because I am greedy, one more question that is related: I am wondering how the government could (or should) support developers over the coming quarters, to ensure adding to our housing supply does not come to a screeching stop?
Rory. And to you. Great question I think about a lot. I think the RBNZ and Govt allow the house price fall to extend to about 20%, which takes us back to early 2021, before some tweaks and lower OCR forecasts come to the rescue, thanks I think to an approaching recession and a softening of the other inflation pressures. And then there'll be some natural market and political forces that kick in. Lower longer-term interest rates will boost demand and the now very-real prospect of a National Govt will fire things up. National plan to keep interest rates low, repeal the interest deductibility tax change and shift the bright line test back to two years from 10 years. The collapse in new supply development and falling prices will also stop the new supply in its tracks. Also, both Labour and National will unleash the temporary migration flows too to boost the economy and keep wages from rising too much. My purely speculative bet is house prices are rising again by the end of next year. I doubt the Government can or will do much to help developers. GOvt will argue there's 'plenty of supply' now and they don't need help. Free markets etc... The real issue there is the banks don't want to touch them with a barge pole.
What would the effect on inflation be if instead of raising interest as quickly or as much, that the RBNZ sped up the Quantitative Tightening to drag all that stimulatory cash out of the economy?
Now you're talking Steve. There'd be a very fast increase in longer term mortgage rates towards double digit levels and you'd have a proper 40-50% fall in house prices. Unwanted by both the Reserve Bank (for monetary policy and financial stability reasons) and the Government (for political reasons).
As the clock counts down to the dissolution of the DHBs and the formal establishment of Health New Zealand and the Maori Health Authority on July 1, what are your thoughts on the role EY has had in preparing for this? https://www.newsroom.co.nz/ey-paid-more-than-2m-for-health-review
Thanks David. If it works to make us all healthier for an awful lot longer then it will be worth it, given it's forecast at $30b this year
As the US Fed's .75% hike ripples around, would you expect kiwi home loans rates to take another bump? To the extent NZ lenders are relying on foreign money it seems that cost of capital would be going up.
Thanks Duane. The banks rely on a lot less foreign money than they used to. They have also borrowed $12.2b from the Reserve Bank in the last 18 months at the OCR (ie 0 to 2% now). But the two-year swap rate here, which is the wholesale market rate that often drives fixed mortgage rates, has jumped 50 basis points this week. So I'd suspect some hikes are coming... https://www.interest.co.nz/charts/interest-rates/swap-rates
Hi Bernard - you've often talked about residential property recently, but the rise in interest rates and potential fall in retail sales must be putting the squeeze on commercial landlords. And about time - with retail rental costs rising steadily over the years at a time when foot traffic has been declining. I'm sure many landlords will be wanting to hold their rents or even increase them with the cpi, but surely it's time for a correction in the commercial sector, especially as retail has had such an incredibly tough couple of years. Any thoughts welcome!
Thanks Paul. I agree. It feels like a wylie coyote moment (off the cliff but yet to fall) for lower-end office rents and lower end retail in particular. I think industrial property (especially warehousing) is still pretty strong. I'd love to see a lot of these lower-tier office buildings turned into residential.
The Auckland city fringe where I live is awash with empty or half-empty low-rise office buildings - many like that since before Covid. Presumably the owners are interested only in the land value? They’re certainly not filling up with startups or co-ops or artists’ studios. Most conversion to accommodation seems to be improvised and bottom-end though a bit of a shift on a small scale seems to be happening.
Greetings Bernard,
Are you still dovish with regard to the interest rate environment or are you starting to sway towards a permanent shift towards a higher interest regime that may be here for some time!!
I recall Bernard many years back now when you were presenting to us at Mortgage Choice/Roost that you were steadfast in maintaining that falling/low interest rates were here to stay when the banks were always predicting their rise in “about 6 or 9 months “. They were perpetually kicking the can down the road. Enjoy your insightful analysis. John B
Thanks John! I remember those presentations well. Everything was going along swimmingly with my view until pesky Covid and the Ukraine War came along. I haven't been convinced yet this is a multi-decade shift to higher interest rates and a 1970s and 1980s style breakout. Workers still have much less union power and legislative help than in the 1970s. They also have to fight the contracting out and offshoring forces, which I don't think are over. I also see plenty of runway left in the evaporation of services into big tech in the cloud globally (or even locally!). All of those trends are disinflationary. Mind you, when the facts change, I change my views sir....I'm hanging on to the end of next year just to check...
Hmm!the evaporation of services to he cloud , that’s going to impact on professional, legal and accounting services isn’t it?probably back office in the commercial world as well.
Hi Bernard,
Do you have any thoughts about the influx of rentals "Available Now" on Trademe. (In Auckland there is currently over 4200 listed). I only noticed this as the house opposite us down our right of way has been vacant for nearly 3 months and after two price drops still has no interest. Could this be a result of emigration or lots of "ghost houses" coming up for rent? It seems not that long ago there were queues down the street competing for the leakiest house in town.
Thanks Simon. Great insight. I can see an interesting data point developing. I'm going to see how that 'available now' stat has changed. The lack of international students and temporary migrants is the issue, on top of the covid migration to the suburbs. Great for rents in Auckland. Sadly, not enough supply to see the same thing in Wellington. I don't think it's ghost houses. I'm yet to see evidential proof it's a major issue in Auckland, despite all the anecdotes.
Kia ora Bernard,
Not sure if this data exists, but if it weren't for the housing market, would NZ have already been in a recession given that was our only real economic activity during COVID anyway?
Second question on housing - is there likely to be any assistance for recent first homebuyers who will be under the pump from rising interest rates? I shudder to think of a family that scrapped together their savings to put a 10% deposit down on a $1mil+house in Auckland now getting wacked with a rising 10% deposit rate - I have no idea how they could manage now. Not that their plight is a as bad as those locked out of the market entirely, but given the government was sending signals that it was going to do nothing to reign in out of control housing prices surely it owes this group some assistance?
Great thought. I agree that would be a good chance. The wealth effect powered an awful lot of new spending and activity through late 2020 and well into 2021. On the second question: that marginal buyer thing is very tricky. The more subsidies and cheap credit you shovel at first home buyers, the higher the house prices go and the tougher it gets for the next batch of first home buyers, or those who are just on the edge. There will always be some on the edge, without properly affordable houses. A lot of the parents arguing for these subsidies are arguing for help so they don't have to stump up deposits. There's an awful lot of bargaining behavour going on at the margins, when we actually just need to fix the supply problem.
Do you think this, or the next, Government will take sensible and precautionary measures in the energy sector to protect the country from energy and price shocks? Options that are timely enough would be subsidising solar for consumers, ensuring we can produce and refine our own petrol and diesel supplies to transition instead of relying on expensive and risky importation and as WA does to ensure its own supply is secure? Every other plan seems required but too long term to rely on now.
Thanks Kath. I agree on the solar stuff. I doubt this or a National Government will do it because they remain committed to the small government low-government-debt model that aims to lower interest rates and keep housing supply low to maximise the tax-free and leveraged gains of median-voting homeowners.
Its not all doom and gloom Bernard, If pumped Hydro (location is important though) keeps its legs that would do a lot to alleviate dependence on coal peaker plants and help with dry summers.
The real Achilles heel to NZ's energy sector is the vehicle fleet and its not going to get solved. BEV's will not be able to replace the Diesel fleet for decades and Hydrogen engines (particularly for heavy vehicles) just are not getting the traction due to lack of public or private investment in distribution networks or regulatory frameworks.
Hydrogen takes gas to make. Duh.
Here we would actually make Hydrogen from splitting seawater with excess wind or hydro power during the peaks of excess renewable production. It's "more expensive" than fossil fuel hydrogen while there are no emissions taxes on that fossil fuel hydrogen but the current pump price does illustrate that things change without taxes.
Working for central banks then, not us.
Hi Bernard,
Do you find it difficult to resolve the paradox (hopefully this is the right word🤞) between our need to stop using fossil fuels to help solve our climate crisis and our obsession with fossil fuel costs?
Absolutely CraigB. It's really a contest between our collective short term 'lizard brain' instincts to maximise value from existing assets, and our better angels of knowing we have to use new tech to get more value in the long run. It's the inbetween that is the problem...and our political lizard brains.
I think your idea of introducing a broad based land value tax offset by a reduction in GST is brilliant both from an economic and public acceptability point of view. Can any costing be done on this? Would any political party be open to researching it?
The recent NSW plan to out stamp duty for LVT is flawed and I wonder if it originated with the property lobby. The option of not paying tens of thousands of stamp duty and going for the annual land tax attached to the property will be very welcome by speculators with quick turnover ambitions. It will act on the market to increase prices just as first home owner grants have but with much greater magnitude.That the federal government will cover the state revenue shortfall will be decreasing revenue from land tax (a resource rent) and increasing it from tax on individual effort like income tax and GST. The annual land tax will be unpopular simply because it arrives as a bill whereas payg income tax and GST are automatic payments that happen unnoticed. That will provide scope in the future for election pork barrelling to abolish the LVT as happened in Canberra in the 70s.
Dominic Perrottet seems to be an ultra right wing politician and an admirer of Trump. He has been in favour of privatising the public assets as much as possible. He was trying to sell off the state forests when the bushfires ruined the deal.
This is Australian economist Cameron Murray on the stamp duty transition.
https://fresheconomicthinking.substack.com/p/a-comment-on-stamp-duty
Interesting thoughts Sally. I need to do a lot more reading about what Perrottet is planning. It will depend on the relative levels of stamp duty and land value tax. As long as the LVT tax is higher, that's good. This is a useful reminder for me to do more work on it.
I don’t think the details have been fully revealed yet but it will only be possible with federal revenue.
It seems like a very sound idea worth exploring. Wait for the uproar from churches schools, unis and charities including all the Iwis (yes they are all registered as charities to avoid paying tax) claiming exemption though. Without strong cohesive political leadership this could be dead at birth.
Hi Bernard thanks so much for doing this. I want to talk about the Christchurch stadium cost blowout. Two questions. First what would you advise the Christchurch City Council to do? And second and more important is it just my imagination or have the costs to building new infrastructure like stadiums motorways housing e.t.c grown much faster than inflation over the last 30 years and why/what can be done to being such costs down?
Thanks Nicholas. I think you're right that the inflation for such stadiums has risen faster than for other structures. I'd suggest the Council go small and also ask NZ Rugby's Private Equity owners to stump up...
Has there been any push back from ratepayers to the project happening at all?