TLDR: We don’t have an economy. We have a housing market with bits tacked on. That’s evident again in a fresh set of data and news below this morning that emphasises how the economy, our health system, our tax system, our infrastructure deficit and all levels of Government and politics are held hostage by a too-big-to-fail housing market in the grip of home-owning median voters who can’t see any other way.
Paid subscribers can hear more detail in the podcast above and in the text below.
In news from Aotearoa-NZ Real Estate Inc this morning:
ANZ and ASB have announced they have suspended high LVR lending as they come up against Reserve Bank-imposed speed limits designed to stop the housing market becoming even more inflated by leverage Interest;
KPMG has reported Aotearoa-NZ’s bank profits hit a record high $1.74b in the 90 days of the March quarter, which represents an annualised profit rate of almost 2% of GDP, and is a partial result of $12b worth of subsidised lending to them by the Reserve Bank over the last year;
Dunedin hospital has suspended non-urgent operations, the ODT reports this morning, joining most other hospitals being overwhelmed by winter-related cases through A&Es, of which at least 20% of which are caused by poorly-heated and damp homes that are the most expensive relative to incomes and rents in the OECD Newshub;
The Government’s spending on emergency housing since its election in late 2017 has now topped $1b, Jason Walls reports this morning via NewstalkZB;
The Auditor General has reported costs on Auckland’s City Rail Link project have blown out to $5.53b as our largest and fastest-growing city tries to re-engineer its way to higher density and more affordable housing with a functional transport system;
Wellington’s health system is also under intense stress this morning, with urgent care clinics overwhelmed and non-essential surgery also cancelled, the Dominion Post reports;
The Government is set to announce a Let’s Get Wellington Moving capital spending programme later this morning that won’t keep up with population growth and the need for much, much more housing supply. This is largely because both sides of politics are determined to keep public debt and taxes at or below 30% of GDP and because Wellington’s older suburban home-owning voters, like those that control other major councils, don’t want to allow the necessary housing intensification and the higher council debt and rates increases that entails (and today’s announcement won’t even touch the $7.3b of rail investment necessary for an extra 200,000 people in the next 30 years, as the Dominion Post reports);
PM Jacinda Ardern has announced a deal overnight with Spain’s President Pedro Sánchez Pérez-Castejón to allow an extra 1,800 Spanish backpackers to work in Aotearoa-NZ each year, as lower-wage temporary migration starts ramping up again to support the economy’s dependence on a low-wage-and-high-house-price model that benefits home-owning median voters who make more income tax-free from their homes than their jobs;
the Reserve Bank’s new chief economist Paul Conway is due to deliver his first major speech at 11.30 am
thistomorrow1 morning titled ‘Housing (still) matters- the big picture’, which is expected to detail and explain the bank’s view that the housing market is 10-30% (but not more) above its ‘sustainable’ (rather than ‘affordable’) level.
In the news elsewhere overseas overnight and this morning;
Turkey has just agreed to allow Sweden and Finland to join NATO Reuters
In good news for our biggest buyer of exports and the world’s second-largest economy, China moved overnight to ease its Covid restrictions on travellers, cutting its MIQ-style quarantine period to seven days from 14-21 days, depending on the origin and Covid status of arrivals CNBC
G7 leaders failed overnight to agree a deal to cap prices on Russian oil exports to their countries, saying only they would ‘explore’ such a deal, with political pressure from skyrocketing prices of US ‘gas’ (petrol and diesel) and European gas (actual gas) threatening to fracture the US-led coalition against Russia’s invasion of Ukraine Politico
European Central Bank President Christine Lagarde said overnight the ECB would fight inflation in a ‘determined and sustained’ manner, suggesting fast rate hikes, but she also confirmed plans for the ECB to buy ‘Club Med’ Government bonds (Italy, Spain and Greece) to keep their interest rates from blowing out; and,
US stocks are down 1.9% in late trade this morning after US consumer confidence slumped to a 16-month low in June because of worries about living costs and a rise in inflationary expectations to their highest levels since 1987. Reuters
Chart of the day
New high LVR bank mortgage lending flat in May
Number of the day
The credit squeeze behind the fall in house prices
0.2% - The seasonally adjusted increase in new high LVR bank lending to $6.817b in May from April, although it was down from $8.921b in May 2020, Reserve Bank data released yesterday showed.
Quote of the day
How Britain’s top General sees the war in Ukraine
“This is our 1937 moment. We are not at war - but we must act rapidly so that we aren’t drawn into one through a failure to contain territorial expansion.” Chief of the UK General Staff General Sir Patrick Sanders in a speech overnight to the annual RUSI Land Warfare Conference in London.
Some fun things
Ka kite ano
Bernard
PS: I’ll be covering the Let’s Get Wellington Moving announcement and the Paul Conway speech later today. I welcome suggestions for questions and lines of inquiry in the comments below from paid subscribers.
Making clear the speech is Thursday morning, not Wednesday morning. My apologies.
Wednesday’s Chorus: Just a housing market with bits tacked on