Download New Zealand housing market

New Zealand housing market
Presentation for Cabinet Economic Growth and
Infrastructure Committee
Graeme Wheeler, Governor
8 May 2013
Economic and financial challenges
• Global economy
- still a long way to go
• Appreciating exchange rate
- near post float high
• Drought
- around 0.7% of GDP
• Fiscal Consolidation
- 3¼% of GDP
• Canterbury Rebuild
- around $40 billion in real terms – 20% of GDP
• Overheating Housing Market
Housing is a major source of risk …
• To the housing sector
- around ¾ of household assets
• To the banking sector
- mortgages are over ½ of bank assets
•
Housing market relevant for price stability and
financial stability
RBNZ Concerns
• Current escalation of house prices:
- Increases financial system risk by increasing the
probability and potential impact of a significant
downward price adjustment
- Increases inflation risk
• IMF, OECD, rating agencies also concerned
Reasons for House Price Appreciation
• Supply shortages
• Pent up demand
• Lowest mortgage interest rates since mid 1960s
• Immigration not a major influence
Supply factors are key
Christchurch
• 8,000 houses red zoned
• Insurance industry plans to build 10,000 houses
Auckland
• Current shortfall of 20,000 – 30,000 houses
• Productivity Comm identifies multiple issues:
-
Zoning and MUL
development costs
consent process
building costs
Weak residential investment since
2008
Residential investment
% of potential
% of potential
7
7
6
6
5
5
Total
4
3
2
Ex-rebuild
2002
2004
2006
2008
2010
2012
4
3
2
7
House prices rising, led by
Auckland and Christchurch
House price inflation by region
%
25
%
25
20
20
15
15
10
10
5
5
0
0
-5
-5
-10
-10
-15
Auckland
06
Canterbury
07
NZ ex. Auckland and Canterbury
10
09
08
11
12
-15
Households still highly leveraged
despite post GFC correction
Household debt as a percent of disposable income
%
160
%
160
140
140
120
120
100
100
80
80
60
60
40
1990
40
1994
1998
2002
2006
2010
House prices already look high –
increasing downside risk
House prices relative to income and rents
Ratio
22
Ratio
6.0
5.5
5.0
House price-to-household
disposable income
20
Lower quartile house price-tomedian rent (RHS)
18
4.5
4.0
16
3.5
14
3.0
12
2.5
2.0
1990
10
1994
1998
2002
2006
2010
NZ’s house price to income ratio
elevated by international comparison
Source: RBA
Reducing the imbalances
Supply Response
• Free up land for subdivision
• Reduce time and cost of development
• Improve productivity of building sector
Monetary policy
• Increase OCR if necessary
Reducing the imbalances
Prudential measures
• Increase bank capital requirements
against high LVR lending
• Possible use of macro-prudential
instruments