Bernard Hickey: Calm before policy storm

State control of electricity would have a chilling effect on investment, the business community argue. Photo / Mark Mitchell

The blast waves from the Labour/Green electricity policy bombshell reverberated further into the business and political landscapes this week.

Business NZ and the Chambers of Commerce protested publicly that a return to state control would have a chilling effect on investment, and massively destroy shareholder value.

It was as if there had been a death in New Zealand's policy family. For almost 30 years, a generation of politicians, lobbyists, business leaders and policy wonks agreed deregulation and unfettered markets were forces for the greater good.

Parties of the centre-right and left bickered over the details, but there was never any real debate about a reversal of this assumption.

The business community is now well into the second of the five stages of grief - denial, then anger, followed by bargaining, depression and finally acceptance.

The first response from share-brokers and fund managers was to deny such a policy would be enacted, either because a Labour-Green government would be unelectable or because they wouldn't do it even if they were.

Now the anger is welling up as business leaders realise the policy is broadly popular with voters, and that National doesn't have many MMP mates left. Some muttered darkly this week about foreign investor flight, capital starvation, higher interest rates and power blackouts.

Yet interest rates have fallen, the dollar has strengthened and the stock market has surged back to record highs since the April 18 announcement. However, there have been real drops in the share prices of Contact and Trustpower.

The share market is good at price discovery after bad news. Investors can buy and sell in reaction quickly. Verdicts take minutes rather than months.

The real-estate market is harder to read. It can take months for a shock to go through the meat-grinder of sales campaigns, auctions, settlements and other factors such as interest rates, foreign investor demand and housing supply.

But I'm surprised we have seen so little anger from real-estate investors at the prospect of a Labour-Green government.

Both parties remain committed to a capital gains tax. Both want large-scale building of state houses. Both are eyeing reform of the Accommodation Supplement, a huge subsidy for private landlords.

Labour and the Greens are also determined to rewrite the Reserve Bank Act to extract economic policy from its catch-22 situation, where a high NZ dollar helps keep interest rates low and reassures foreign property investors they are on to a one-way bet. The Greens and NZ First would also push for a ban on non-resident purchases of local houses, as well as for land.

The combined effect of a capital gains tax, more housing supply, lower rents, less foreign investor demand, fewer rent subsidies and potentially higher mortgage interest rates would have at least a dampening effect on house prices.

Yet there is not a whisper of this in the auction rooms around the nation, and certainly not in Auckland where the market is in full boom.

How long before the reaction we've seen this week extends to property owners about a Labour-Green "attack on property wealth and its chilling effects on private investment"?

Perhaps what is needed is a joint press conference and policy news release, as we saw on April 18. That is bound to come before the November 2014 elections.

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