With the New Zealand dollar surging tonew post-float highs on a regular basis, the viability of exporting is underthreat for those outside the dairy sector. The pressure on exporters has seen US professor Steve Hanke recently assert that our economy is in a "death spiral". Hestated that "you get a flood of capital coming in chasing the high interestrates, and the flood of capital, of course, aggravates the inflation problem"leading to even higher interest rates.
Alan Bollard’s recent reappointment asgovernor of the Reserve Bank for another five years saw Michael Cullen lauding"his integrity and outstanding general management skills". Those qualities maynot be in question, but in terms of actually doing his job and keeping acredible rein on inflation, Dr Bollard’s results have been unimpressive. Nevertheless, this year’s interest rate rises have shown a steelier side to theReserve Bank governor, and imply little hope of relief for mortgage holders inthe foreseeable future.
The popularity of property investment thisdecade has led to declining yields across the board, with rising prices hittingthe returns available from residential, commercial, industrial, and evenaccommodation buildings. With lease agreements coming up for their 2-3 yearrenewal, the property sector is now in the midst of a period where landlordsare looking to recover some of the ground lost during the price boom of thelast few years. Building owners almost always hold the upper hand in thesenegotiations, but current economic conditions suggest they may not have it alltheir own way this time around.
The affordability of housing is currently ahot topic. But even with house prices so high, over 102,000 properties changedhands last year – implying that housing is still affordable for some. Simpleeconomics tells us that prices would not keep rising if they weren’t beingdriven by demand.
There has been a trend towards volumebuilders over the last decade – an increased number of larger firms expandingmarket share at the expense of small building companies. A similar trend hasbeen evident in other areas of business – supermarkets and department stores,for example. We believe the trend towards volume builders has further to go,with tighter regulations and the desire to keep building costs down both factorsthat will give larger players an advantage over their smaller rivals.
Petrol prices in the March quarter were at their highestlevel, in real terms, since 1986. This article examines the outlook for oilprices, their effect on people’s behaviour, and the resultant impact onmonetary settings and the broader New Zealand economy.