Alex Malley: Dollar parity housing home truths

By Alex Malley

The kiwi dollar is poised to achieve parity with its Aussie equivalent. Photo / Getty Images
The kiwi dollar is poised to achieve parity with its Aussie equivalent. Photo / Getty Images

When it happens - and it's looking increasingly likely -- the event will go down in the annals of trans-Tasman rivalry, up there with beating Australia at cricket and league: the kiwi dollar is poised to achieve parity with its Aussie equivalent for the first time in the free-floating era.

It could move even higher on the back of last week's current account and GDP growth data, which has seen New Zealand move into an international class of its own.

New Zealand's annual current account has been in deficit since the early '70s and last week's figures brought the annual gap down to 2.9 per cent of GDP, a far cry from the 8 per cent in 2008 shortly after National took over the Government books.

GDP came in at 3.6 per cent annualised growth, a stellar headline figure which is more than double the OECD rate and shades the 3.3 percent in Australia.

The Key Government deserves credit for delivering these results.

Political stability is important and it's difficult to argue with a near-record low deficit, high growth, rising employment, strong consumer confidence and low inflation.

It's also an unusual mix. High growth usually comes with rising inflation and a blowing out of the current account deficit as families spend more on imported goods and services. The growth also comes at a time of relative commodity price weakness.

That GDP is so strong when dairy prices are still at historically low levels signals government ministers Stephen Joyce and Bill English have had significant success in encouraging diversification of the New Zealand economy away from its single soft commodity base.

But it also reveals the impact of unprecedented migration on the economy. Indeed, as a recent Deutsche Bank report demonstrated, the deficit reduction is in part due to record migration driving the unsustainable housing boom, which has been hoovering up foreign capital, and thereby narrowing the current account gap.

Australia too has a housing boom, but it is largely driven by domestic demand and rising house prices fuelling a corresponding increase in spending on imports - and a blowout in the current account.

This is why the Kiwi is strongly tipped to achieve parity with the Australian dollar. Tradeable currencies are sensitive to current account data because many investors and traders treat it as a de facto measure of a country's risk.

The Government has progressively unveiled a series of measures aimed at addressing housing affordability.

Irrespective of the drivers of these changes; New Zealand's deficit is decreasing, while Australia's rises.

Migration to New Zealand is at unprecedented rates - nearly 10,000 new inhabitants a month, mostly to Auckland - and is also partly responsible for the comparatively high economic growth. Just how much of an impact is illustrated by comparing to GDP on a per capita basis: which has increased by less than one per cent.

That should not be a concern. But the housing situation - so critical to every New Zealander - is.

Auckland is one of the least affordable housing markets in the world, right up there with Sydney, Melbourne and Vancouver in Canada. Ownership is at a 60-year low, average prices have topped an eye-watering $1 million with near 16 per cent growth in the last year and average rents cost the average wage earner a third of their income.

Critics have wrongly accused the Government of sitting on its hands while a crisis rages.

The Government has progressively unveiled a series of measures aimed at addressing housing affordability. It has strong-armed Auckland Council in order to accelerate the planning process and the city is presently undergoing the largest construction boom in the nation's history.

Big numbers have been earmarked for emergency housing, they've introduced financial assistance for first home buyers, who can also withdraw their Kiwisaver funds, while implementing a range of measures addressing the supply side of the equation.

It may take some time for the impacts to be seen but it's arguably a more prudent approach than some of the more aggressive interventions being pursed in other 'hot' global property markets. Take for example the new 15 per cent tax on foreign nationals purchasing residential property in Vancouver. This policy has, by some accounts, seen Vancouver property prices fall by up to 16 per cent in a matter of weeks. Such large falls over a short period of time, whether accurate or not, can flow through to consumer confidence and the broader economy.

Critics have wrongly accused the Government of sitting on its hands while a crisis rages. It has acted to meet this pressing and multi-faceted issue while steering clear of quick-fixes that may inadvertently provoke an over-correction in house prices and damage the economy.

Kiwis may soon get a warm glow from their dollar exceeding in value the Australian dollar but I'm equally sure, given a choice, they would prefer to defer that achievement for another few years in favour of a more accessible housing market.

- NZ Herald

Alex Malley is chief executive of CPA Australia

Get the news delivered straight to your inbox

Receive the day’s news, sport and entertainment in our daily email newsletter

SIGN UP NOW

© Copyright 2016, NZME. Publishing Limited

Assembled by: (static) on production apcf03 at 26 Sep 2016 09:25:29 Processing Time: 33ms