Mōrena. Long stories shortest: Professional investors who are paid a lot of money to be careful about lending to the New Zealand Government think it is wonderful place to put their money. Yet the Government itself is so afraid of borrowing more that it is happy to kill its own popularity by starving our hospitals, schools and houses of the investment needed to become more productive and healthy.
Surely, the Government would be so certain of the dangers of borrowing more that it could point to evidence of reluctant bond investors or a blowout in bond yields? Yet there is nothing, week after week, and there hasn’t been for a couple of decades. Yesterday, bond investors bid $2.073 billion for $500 million of New Zealand Government bonds being offered and bond market experts say demand is the strongest it’s been in three years. So why is the Government sacrificing itself on the altar of fiscal rectitude?
(There is more detail, analysis and links to documents below the paywall fold and in the podcast above for paying subscribers. If we get over 100 likes from paying subscribers, we’ll open it up for public reading, listening and sharing, although we’d love it if you subscribed to join The Kākā’s community and support making this journalism public. Students and teachers who sign up for the free version with their .ac.nz or .school.nz emails are automatically upgraded to the paid version for free. Our special are: $3/month or $30/year for under 30s & $6.50/month or $65/year for over 65s who rent.)
Long stories short, my top six news items in Aotearoa’s political economy around housing, climate and poverty on March 21 are:
Treasury’s Debt Management Office sold $500 million worth of bonds yesterday for a lower-than-expected interest rate because bond investors, including banks, pension funds and central banks, bid $2.073 billion or four times the amount on offer. Demand for Government bonds has averaged just below three times over the long run, so demand this year has been significantly above the long-run average.
As BNZ Senior Markets Strategist Jason Wong said this morning of yesterday’s bond tender: “In the domestic rates market, there was very strong demand at the weekly bond tender. Bid to cover ratios were above 4 across all the lines offered and all were priced at 2½-3bps below pre-tender mids.” That means bond investors had to pay a bit more than expected, as prices move in the opposite direction to yields. (See charts of the day below)
Yet the Government continues to prostrate itself before the god of ‘saving for a rainy day’ and being wary of bond vigilantes somehow calling time on New Zealand Government borrowing. The Government’s fear of the vigilantes is the single focus of its entire strategy of reducing deficits and borrowing, just in case the markets react badly to the next auction.
That fiscal stringency is evident across the news this morning, with widespread reports of delays, failures, shortages, understaffing, budget cuts and spending restraints across health, education, housing and social welfare. (See my ‘pick n’ mix below)
The drumbeat of bad news in health, education and the wider economy because of the self-imposed fiscal restraints are taking a heavy toll on the Government’s popularity, with a new Ipsos poll published this morning showing voters believe its performance is the worst since this series began in 2017. (See charts of the day below)
Even conservative mayors such as New Plymouth’s Neil Holdom have started breaking ranks to criticise the Government for its lack of spending on fixing a homelessness crisis that is cascading on the main streets of cities and towns up and down the country. (See quote of the day below)
Charts of the day
My Pick’ n’ Mix Top Six at 6am
Poll: Ratings of government performance hit new low - Ipsos survey RNZ
Budget cuts: ‘The point of crisis’: Nearly 300% more youngsters ending up in Christchurch Hospital ED for mental health. Christchurch’s ED has become the last stop for hundreds of struggling youngsters — but experts warn the real crisis starts long before they show up. The Press-$’s Mariné Lourens
Op-Ed by Neil Holdom in Stuff: Time for Government to help with housing. Where has the Government gone in helping find solutions to homelessness?
Climate deep-dive: What are NZ's international climate targets and do we have to meet them? RNZ’s Eloise Gibson
Auckland NIMBYism deep-dive: Do tall buildings belong on K’ Road?. An 11-storey timber building planned for the thoroughfare has been denied consent, and it's not just the passionate yimbies who are up in arms. The Spinoff Catherine McGregor
Council debt news: S&P cuts councils' credit ratings - will their borrowing costs rise? NZ Herald-$’s Jenee Tibshraeny
Here’s the full suite of Pick ‘n’ Mixes from this morning.
Quote of the day: In which a mayor calls bullshit on ‘going for growth’
“Taranaki needs a housing plan. We have homeless people living on the streets of our towns and in cars. The Government’s record of investing in social housing in Taranaki is appalling and we will have to make our own plans if we are to address the growing gaps in our system over the long term.” New Plymouth Mayor Neil Holdom in a Stuff Op-Ed
Number of the day: Another winter power crisis looms
93 years - “ National hydro storage continued to decline last week, hitting 77% of the historic mean for this time of year. Storage dropped to below the 6th percentile, meaning it is near the lowest level in 93 years of records. Inflows continued to remain below average last week. Inflows during January and February have been the lowest on record resulting in national storage currently sitting below the 6th percentile for this time of year.” Transpower’s weekly operations report
Doc of the day: How to reverse an asymmetry
Research paper: Zoning for housing supply: modelling the asymmetric welfare costs of errors in demand forecasts Ministry for Regulation Chief Economist Kevin Counsell
“The paper looks at how population forecasts are used to zone enough land for future housing, and how uncertainty in these forecasts creates a risk of regulatory error. The costs of this error are asymmetric: the costs of zoning 'too little' land to meet actual housing demand far outweigh the costs of zoning 'too much' land. If not enough land is zoned, it pushes up house prices, locks people out of the housing market, and has implications for productivity. These same costs are not present if too much land is zoned.
“My paper models this asymmetry, and shows that it is better to be over-generous in how much land is zoned for housing, to mitigate the risk of the larger costs from under-zoning. My model shows that a margin of anywhere between 4% and 21% can be used to 'uplift' forecast demand to account for this generosity. The precise margin depends on things like how much uncertainty there is about future population growth, and whether zoning is greenfields or brownfields.” Ministry for Regulation Chief Economist Kevin Counsell via LinkedIn post
Substack essentials: Offering up the future
Graphic of the day: An austerity vaccine
“I’ll just leave my Austerity narrative flowchart here in case anyone needs to persuade a Lefty pundit/politician not to try to compete with the Right on debt hawkishness. Remember, all routes down that path lead to austerity. “ Patricia Pino via bluesky
Podcast of the day
Thread of the day
“Welcome to debt brake d-day. Germany is quick to adjust to the new global order and is doing so in force. David E Oneglia shows the package outstrips the spending booms that came with the postwar Marshall Plan and with German Reunification in the early 1990s.” Centre for European Reform Chief Economist Sander Tordoir via BlueSky
Cartoon of the day
Timeline-cleansing nature pic of the day
Ka kite ano
Bernard
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