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economy

There has been a run of particularly good data regarding the state of the NZ economy recently which calls into question the expectation many people have of interest rates remaining at record lows for many years and bespeaks of NZD appreciation.

In the labour market the creation of 17,000 jobs during the December quarter has contributed to a fall in the unemployment rate to just 4.9%. This is down from 5.3% in September, up from about 4.1% a year earlier, and less than half the rate many were predicting when the country was in lockdown over March through May last year.

This strong performance partly reflects a shortage of migrant workers unable to get into the country with some leaving as their visas have expired. But it mainly reflects strength across a range of sectors in the economy.

The public sector and health in particular are strong, and construction is on a strong growth track with job numbers ahead over 8% from a year earlier.

In the construction sector prospects for further growth are firm with the number of consents issued for the construction of new dwellings rising to a 45-year high in 2020 just shy of 40,000. Builders have buyers screaming for properties not so much because of the phenomenon offshore of people wanting to escape the cities or at least get a place with a backyard. Instead, there simply are not enough used houses being listed on the market to satisfy skyrocketing demand.

The number of properties sold around New Zealand was 33% ahead of a year earlier in the June quarter. But the number of properties listed was down 26% from the year before, and 73% from ten years ago. A shortage of listings amidst a surge in people wanting to buy something – literally anything – is proving a boon for the house building sector and the many industries which feed into it and off of it.

In the monthly REINZ & Tony Alexander Real Estate Survey this month a net 90% of agents said that they are seeing FOMO – fear of missing out – on the part of buyers. A net 92% say that prices are rising in their area and the data show that over the last four months of 2020 average house prices in New Zealand rose by 11.7%. Never before have house prices in New Zealand risen by such a percentage over a four-month period.

The scramble for property by investors has caused some banks to leap ahead of potential policy changes by the somewhat sleepy Reserve Bank and impose a 40% minimum deposit requirement for investors seeking a mortgage. Not all banks are yet demanding this, but it is becoming the de facto standard.

The only real question is whether minimum deposits will move to 50%. There is a chance they do because although the last time 40% deposits were implemented (in 2016) house price inflation in Auckland stopped whilst it halved elsewhere, this time things are different.

Back then in 2016 the average mortgage rate was around 4.5% rather than the current 2.5%. The average deposit rate was 3.3% and not 0.8%. Auckland had been on a four-year tear and was due to take a break. And one more thing.

My monthly Tony’s View Spending Plans Survey tells us that over the past few months the age group of people showing the greatest lift in intentions of buying an investment property has been those aged 51-65. These are people who have retirement returns and retirement wealth more at the forefront of their minds than the age group below them of 30-49.

They are the group most likely to have minimal or no mortgage and some savings. Their desperation to buy means a 40% deposit requirement may not prove the barrier it was back in 2016.

So, for New Zealand, the labour and housing markets are strong, we can see rising consumer confidence and strong plans to boost spending. Business confidence is strong and investment intentions firm, and wealth is rising from escalating house prices. Dairy payouts are even going up. With a central bank wary of signalling higher interest rates because of the upward impact this would have on the NZ dollar, growth in the NZ economy looks likely to be strong this year and accelerating into 2022 – especially with an eventual reopening of the borders then (fingers crossed) and anticipated much larger flood of people coming in.

If you want much more information on the NZ economy and housing market in particular you can sign up for my free Tony’s View weekly at www.tonyalexander.nz

CONTRIBUTOR

Tony Alexander

Economics Speaker

Kea member

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Now is the time to act to unlock the potential of our exploring Kiwi.

Click here to view the full #KeaFutureAspirations reportDownload

If you’d like to enlist the ideas and experience of our offshore and returning Kiwi to support your business, please get in touch and let’s engage our global explorers. 

The report builds on Kea’s Welcome Home survey released in November last year when we sought to understand the timeframes, skills, industry experience as well as needs – of our returning Kiwis.

With the world continuing to evolve and adapt to the Covid-era, we saw the need to reconnect with our Kea community – to understand how the last 6-12 months have affected them, and how that could be impacting their decisions for the future. We wanted to understand what’s changed for offshore and returning Kiwi? How can Aotearoa make the most of this moment in time?

Kea Future Aspirations Survey Results Returning Feedback

We continue to see strong intentions of our offshore Kiwi planning to return to Aotearoa.

Kea Future Aspirations Survey Results Permanently Staying Feedback

Returning Kiwi are wanting to develop their roots in Aotearoa and invest.

Kea Future Aspirations Survey Results Experience Feedback

While their choice to return is primarily lifestyle-driven, our returning Kiwi bring significant expertise and skills. 40% of people who have Senior, Director, VP, C-suite or Board experience, indicated they have 10+ years experience in this space.

Kea Future Aspirations Survey Results Contributing Back To NZ Feedback

While many Kiwi choose to remain abroad, their connection to home and willingness to contribute remains.

I received a bit of a surprise recently when someone said that they were not happy to discover how much it would cost them to borrow money to buy a house in New Zealand. Considering that our mortgage rates are at record lows it seems unusual that someone would consider rates to be a problem.

But then it was pointed out that they were comparing our rates with those in the United Kingdom. The NZ two-year fixed mortgage rate ranges from 2.29% to 2.49% but in the UK it sits roughly 1.2% to 1.4%. So, the NZ rate is about 1% more.

This difference will of course generate quite a different ratio of interest expense to income than in the UK, especially as banks do not work out the ability of a borrower to service a mortgage using the rate they actually borrow at.

Instead, they typically use a rate closer to 5 – 6%. Why? Because no-one has demonstrated any acceptable ability to accurately forecast interest rates anywhere around the world since 2007 and there is not much to suggest that prediction accuracy will improve. 

We are still facing a global pandemic, governments and central banks are taking emergency economic measures. And we are seeing shifts in household behaviour which are surprisingly strong and which may or may not continue, and if they don’t (e.g. buying spas and pushbikes) we don’t know by how much the pullback from boom spending will be for different items.

Therefore, although central banks are at pains to stress that they intend keeping their overnight interest rates at current low levels for the next 2-3 years, it is not hard to imagine circumstances conspiring to force them to move rates up sooner than that.

History tells us that printing money can easily generate inflation if people choose to borrow and spend the extra funds sloshing around in the banking system. In New Zealand for instance the money printing since March last year has resulted in banks having almost $55bn on overnight deposit with the Reserve Bank whereas before the pandemic deposits had averaged just $13bn per night. 

If banks choose to lend the money and people choose to borrow it, then a surge in economic activity and inflation could easily ensue. But this did not happen in the United States or other countries which engaged in money printing during and the following the 2008-09 global financial crisis, so it seems hard to imagine it happening this time around.

And that is where the considerable uncertainty lies. Our economic models failed to predict the GFC or what would happen after, and no miracle has just occurred to improve modelling accuracy.

Therefore, when it comes to lending, for banks nowadays it is all about having big buffers in case unpredicted things happen.

At this stage, there is in fact nothing strong to suggest that inflation will surge and interest rates rise firmly. Nonetheless, there is an element of danger here for people shifting back to NZ and taking out a mortgage, or arranging a mortgage and property purchase before returning.

Your big risk is that you gasp at the level of NZ mortgage rates compared with UK rates, and decide you will fix one-year solely because that is the lowest rate available and your subconscious mind is telling you you’ll feel better if you get a rate as close as possible to what you could get in the UK.

Most Kiwis already here are following the same route and just fixing one year – because that rate is the lowest. But medium to long-term wholesale borrowing costs are rising, assisted recently by anticipation of a large fiscal stimulus in the United States and accelerating growth once vaccination gets close to producing herd immunity. 

The period since 2009 has been one of continuing, persistent, downside surprises to inflation and interest rates. But eventually, these surprises will turn, and as they slowly do, as is happening now, medium to long-term mortgage rates will start rising well before a central bank even talks about one day raising its overnight cash rate.

All this adds up to is this. Be careful about fixing 100% of your mortgage for just one year with a plan to stay rolling for one year terms from here on out. New Zealand has a history of interest rate volatility and community thick skins when it comes to interest rates eventually rising. That is, we tend to ignore rising rates and keep buying things, thus causing our central bank to keep pushing rates higher and higher.

Can we reasonably predict when this might happen? Not at all. No chance. But it has happened before, it might again, and perhaps recognising that means it would be a good idea to have some portion of one’s mortgage fixed at a record low 2.99% five year rate as a partial hedge against goodness knows what the next half a decade may bring for us. 

If you want much more information on the NZ economy you can sign up for my free Tony’s View weekly at www.tonyalexander.nz

CONTRIBUTOR

Tony Alexander

Economics Speaker

Kea member

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A few years back I had some involvement with Kea, centred around speaking with different groups of Kiwis in the UK and Europe when conducting what back then for me was an annual trip overseas to gauge economic developments offshore. Eventually I will do that again, and when I do I look forward to again engaging with some of our near one million Kiwi expats.

I’ve become an independent economist now and thought it would be a good idea to write something for Kea members as we head into Christmas which for us in New Zealand involves near-normal freedoms and (hopefully) some hot weather. For others the situation is quite different.

Which brings me to an issue currently swirling around our clubs, pubs, supermarkets and over the back fences (or balconies) – the many expats expected to return when our borders fully open. I am assuming, like NZ Treasury, that such opening comes at the start of 2022.

The common belief here is that hundreds of planeloads of Kiwis will flock “home”. Kea’s recent survey certainly indicated that high scope exists for a large number to arrive. But with regard to the state of the NZ housing market currently and where it goes over 2021, it really does not matter what the flows actually turn out to be.

Asset markets are driven not just by what is happening in the present, but the things which people expect will happen in the future. All this year and especially since the March – May lockdown and Reserve Bank cutting its cash rate to 0.25%, the expectation has been that interest rates are going to remain low for a great number of years.

That expectation, along with hopes of a lot of distressed sellers, helped encourage a wave of first home buyers into our housing markets around the country as soon as lockdown ended in May. For investors who have recently become the key driving force, the impact was not immediate.

Their concerns about prices falling seemed to linger until four months ago when they capitulated and entered the market in droves. A key thing encouraging their purchases since then has been expectations that interest rates will remain low. 

There is no major bank in NZ now offering a term deposit rate above 1% for any term. Expectations that returns from this low-risk investment will stay low for years are encouraging a shift of focus toward property – both residential and commercial. At a minimum, many older people who were thinking about selling investment properties have decided not to as the cash received will simply go backwards in real terms from here on out.

The second big expectations factor driving the market is the above-mentioned belief that many expats are set to return. These expectations are encouraging both investors and first home buyers to make a purchase now, before the prophesied hordes arrive. 

So, in light of these two expectations, along with other more normal factors driving house prices up 10% on average in just the past three months, are we thinking prices will in fact rise 30% – 40% for calendar 2021? Definitely not, and for those who are contemplating a purchase back here, while I cannot deliver hope that prices will not rise or might even fall, the frenzy should be well gone before the middle of the year.

First, one major bank has just reinstated a minimum deposit requirement for investors of 40%. That will cool off the panicking under-capitalised buyers.

Second, as attention turns to vaccination and borders opening, budgets worth $10bn per annum currently redirected from trips overseas to house-buying and other purchases will return to plans for foreign travel.

Third, many people have altered their five-year plans from travel, spend, lark it up, then try and purchase a house, toward making that purchase first and then enjoying other activities one, three, or five years down the track. Shifts like this over a cycle are normal, and they always fade. 

Fourth, house construction faces a boom in New Zealand, and rising supply will slowly claw down expectations of prices always rising at the old 6.8% on average achieved since 1992. (Auckland 7.7%, Canterbury 5.4%, Wellington 6.7%.)

Fifth, the government is likely to do some tax tinkering in 2021 which will slightly reduce incentives to invest in property – but probably not by all that much.

Oh, and finally, how’s the economy looking? Strong, with a 14% rebound in the September quarter, unemployment at just 5.3%, companies reporting widespread difficulties sourcing labour, good prices for our exports, and lots of construction work for the next few years, not to mention strong IT, MedTech, horticulture, games development, etc. 

Merry Christmas to everyone over and up there and if you want much more information on the NZ economy you can sign up for my free Tony’s View weekly at www.tonyalexander.nz

CONTRIBUTOR

Tony Alexander

Economics Speaker

Kea member

HOW KEA CAN HELP

Join

Join the Kea community, and stay connected to New Zealand, its people and businesses wherever you are in the world.

READ MORE

Jobs

Post job opportunities and attract internationally experienced Kiwi talent.

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Kea press release for the results of the Welcome Home Survey

The data within this report was gathered via Kea’s ‘Welcome Home Survey’, launched in August to enable New Zealand to better understand its offshore Kiwis. Within this research, Kea sought to understand returning Kiwis timeframes, skills, industry experience and wealth, as well as their needs.

‘The survey was met with an “overwhelming response” and Kea chief executive officer, Toni Truslove says the resulting data reveals surprising insights about this group and their potential impact on New Zealand, both economically and socially.

“It is clear that the pandemic of 2020 is causing a once in a generation opportunity for New Zealand, as many of our one million-plus expats look to return home seeking safety, family and a new future,” Truslove said.

“Kiwis are coming home as they always have, but the new trend identified sees a high volume of Kiwis returning at the height of their careers, with many of the skills that New Zealand as a nation is in genuinely in need of. 

Truslove says the report indicated that the top industry for returners is technology. “And we also see a desire to return from teachers and healthcare workers, giving New Zealand a potential edge over countries with less distributed populations in this closed border era.

“And with a large majority planning to stay permanently, bringing family, pets and investment as well as a desire to give back to their communities, this group has the potential to be incredibly transformative for New Zealand, now and in the future,” Truslove said.

Highlights of the report include:

  • Over 15,000 people completed the survey, from regions including the UK, Australia, US and Canada.
  • 49% are planning to return, with half of those planning to arrive within the next two years.
  • The majority of those intending to return stated that Covid-19 was a key factor in their decision.
  • 75% of those intending to return plan to stay permanently.
  • 75% of respondents have been away for 5+ years, and are primarily aged between 35 and 54.
  • A large majority of respondents will potentially be looking for senior positions, stating their employment category as Senior, Manager, Director, Owner, or C-Suite.
  • 20% of respondents want to invest in a business and 11% intend to start their own business, with 8% intending to employ between 2-5 staff.
  • While 32% intend to reside in Auckland, the remainder are looking to return to regional New Zealand, with 22% leaning towards a region they haven’t lived in before.
  • Nearly a third are returning with a spouse, some bringing children and pets.
  • 65% of returning kiwis indicated they identify with progressive rather than traditional values.

The report’s analysis was supported by Distinguished Professor Sir Peter Gluckman, Economist Julie Fry and Distinguished Professor Paul Spoonley.

Sir Peter Gluckman said he believed that Covid-19 is having an undisputed impact on the volume and calibre of returnees.

“Clearly New Zealand’s response in contrast to global impacts has triggered many offshore Kiwis of vast experience and talent to think about returning to contribute to New Zealand. This includes a significant number in an age range and talent pool at the height of their game, that previously had been assumed to be unlikely to return,” he said.

Anna Curzon, Chief Product Officer for Xero agrees, saying that as senior and experienced Kiwis return home, it will be imperative that we make the most of this ‘brain gain’.

“Their experience overseas means they can bring new perspectives to the problems we need to solve. They will help reinvigorate the employment market both as potential employees and employers, and ultimately, give us the ability to continue to innovate and produce world-class products and services,” Curzon said.

On social aspects of the report, the respondents have primarily been away from New Zealand for a not-insignificant amount of time. And for some of the respondents, they will be arriving back to a very different New Zealand from when they left.

Distinguished Professor Paul Spoonley said we need to welcome these overseas Kiwis home.

“New Zealand has more of its skilled population overseas than any other OECD country. But they are coming home, bringing with them skills and experience that make them an extremely important addition to our economy and society.

“It is critical that if this is to happen, then employers and others need to embrace these new arrivals and use their skills and experience – and their willingness to give.”

 Toni Truslove agrees.

“This has never been more true and it seems that New Zealand’s pandemic response, contrasted with the ongoing challenges being faced by those offshore, has reminded Kiwis everywhere what an incomparable nation, environment and culture we have. New Zealand has a unique opportunity to make the most of this strong brand and to adequately plan on how we welcome these Kiwis home’

“To those remaining offshore, please stay in touch, and to those returning, we say, Nau Mai, Haere Mai, welcome home”.

Notes on the Research:

The survey and the analysis have been supported by:
Distinguished Professor Sir Peter Gluckman
Economist Julie Fry
Distinguished Professor Paul Spoonley
Survey analytics, strategy and design by TRA Research

For more information contact:

PR Representative: Paul Blomfield, 021 970 871, [email protected] 

Kea: Ele Quigan 027 773 7779 [email protected] 

About Kea

Kea is a Public/Private partnership, supported by NZTE, MFAT, MBIE and Tourism New Zealand

New Zealand has the second largest offshore community per capita in the OECD.  Kea was founded in 2001 to connect and engage our global people, for the benefit of Aotearoa.

Almost two decades on, Kea nurtures a vibrant and diverse community who share a strong passion for New Zealand and the success of its people and businesses.

Our mission to connect New Zealanders has never been more important. See keanewzealand.com

New Zealand is unique in this opportunity – with one of the largest offshore populations of any developed country, we’ve dealt with an ongoing ‘Brain Drain’ for several decades. Now, we’re facing a sudden injection of much-needed skills and talent that other nations only dream of.

This week Kea had the pleasure of releasing our latest report; Unleashing the Potential of our Returning Kiwis, and it reveals that the pandemic has caused many of our million-strong diaspora to rethink their plans for the future and to return home.

This report suggests we’re facing a ‘once in a generation’ opportunity to bolster our labour market in sectors where we need volume, such as education and healthcare, as well as sectors where new ideas and global perspectives fuel growth such as technology and construction. Coupled with a strong desire to give back to charities and their communities, these returning Kiwis present enormous potential for transformation across the entire social and economic fabric of New Zealand.

The statistics are striking – in the period March 2019 to end March 2020, New Zealand saw the highest homeward migration in recorded history with 42,800 New Zealand citizens arriving home. Looking to the future, 49% of respondents to the Kea survey indicated their intention to return, 24% in the next 12 months and the remainder over the next four years – signalling a long-term trend. Many of these returners are Kiwis who have been away for 10+ years, on average aged between 35 – 55 and many holding senior positions in high-value sectors. 

These are Kiwis that, before 2020, would have been unlikely to come home – 77% stating that their intention to return has been directly influenced by COVID-19. Due to global instability and a desire to be closer to family, these affluent senior professionals are bringing their international ideas, experience and perspective back to New Zealand, with the majority planning to stay permanently.

This wave of returning migrants is what Distinguished Professor Peter Gluckman is referring to as “a once in a lifetime, seismic, Kiwi population shift”. It presents New Zealand with an unparalleled advantage in the global skills race: 12% of those intending to return are in the technology and science sector; 10% are in academia, 9% in infrastructure and 3% in agribusiness. 

Distinguished Professor Paul Spoonley said this week that these skilled expats “are coming home, bringing with them skills and experience that make them an extremely important addition to our economy and society.”

Kea was created in 2001 to maintain New Zealand’s connection with the then thousands of expats who were leaving our shores for greener pastures.  Through cultivating this community, we have introduced expats to thousands of New Zealand businesses with global aspirations and watched them generously offer market intelligence, advice and networks. Now, 19 years later we’re seeing an incredible reversal as these same passionate Kiwis arrive home. Many have supported New Zealand from afar and now they’re here and more willing than ever to roll up their sleeves.

As a nation, we need to welcome these returnees, and enlist them to help us rebuild our economy, to create new opportunities for the long-term growth of New Zealand.  

Kea believes it is time to initiate a taskforce to look at how best we welcome these Kiwis, how we integrate them into our communities and businesses, utilise their skills and how we prepare ahead of time for any resource challenges. 

CONTRIBUTOR

Toni Truslove

Chief Executive Officer

Kea

Kea member

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