If it appears too good to be true …

The government announced in the budget anintention to investigate the feasibility of introducing a shared equity housingscheme to assist low-income individuals and families to purchase a house. Theapproach follows overseas examples where the government purchases the housewith you, ie a shared equity arrangement where the government could own say 30%of the house. The house is co-owned between you and the government, but youget to live in the house. The government shares in the capital gain, but thereis no obligation for you to repay the government until the property is sold.

A silver lining to jobs lost to Asia

The rampant Kiwi dollar is likely to encourage more manufacturers to relocate production to low cost Asian countries. In fact, several manufacturers had already announced plans to move production before the latest Kiwi dollar rally. This will mean more job losses in an industry that has been shedding jobs over the past few years. In April our iconic whiteware producer Fisher and Paykel signalled their intention to relocate 350 jobs to Thailand. Next was Sleepyhead with a possible 250 jobs, followed by Dynamic Controls with another 200 jobs, both to China.

Soaring dollar reflects strong economy

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.

More credibilty at homeowners’ expense

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.

Why the hype about saving?

New Zealand doesnot have a long term saving problem. With open capital markets, the decisionto save or borrow is purely a financing decision, and one that is driven by theprice of credit. The international price of credit is very low at present. Taking advantage of these low prices is a rational response by New Zealanders.

A soft spot for a tough policy change

Annual average GDP growth is at a seven-yearlow, but economic forecasters appear to have broadly accepted the ReserveBank’s commitment to raising interest rates higher. This combination suggeststo us that the Reserve Bank has explicitly grown less accepting of medium-terminflation pressure, and that it has largely convinced the market that anaggressive stance is necessary.

A turning point for property yields?

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.

Blame it on the boomers

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.