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Good morning all to the last Hive News email for 2015, barring any major unexpected news next week. If the world ends in a political or economic sense before Christmas, we'll send you an alert. The last weekly summary PDF will go out later today. We'll formally return with our daily email on January 18 and the weekly PDF will begin again on January 22.
But there was plenty of news around the political economy yesterday to keep us busy, particularly around the thorny and crucial topic of Auckland housing supply.
The NZ Super Fund announced overnight it's first investment in residential housing. It said it was teaming up with Ngai Tahu Property and New Ground Capital to invest in a new housing development at Hobsonville Point in Auckland. They plan to invest NZ$113 million to build around 200 new homes by late 2018, including a mix of stand-alone homes, townhouses and apartments.
They plan to buy 1.95 ha of former NZ Defence Force land in two 'super lots' from the Hobsonville Land Company, a subsidiary of Housing New Zealand. The NZ Super Fund and Ngai Tahu Property are each investing 48% of the capital required, with New Ground Capital contributing the remaining 4%.
They said around 50% of the properties would be priced under the Auckland median house price (NZ$765,000 in November) and 30% would be priced at NZ$550,000 or below. They plan to sell around 75% of the homes as they are developed and hold the remaining as long term rentals at market rates.
Ngai Tahu Property would be the development manager, overseeing the construction of the houses, while New Ground Capital would run the rental part of the investment.
New Ground Managing Director and co-founder Roy Thompson said the planned long term rental concept was innovative for New Zealand.
"Families seeking security of tenure close to Hobsonville Point schools will find these rental properties and lease terms very attractive," Thompson said.
Council releases maps with denser zoning
The political debate around densification of housing in Auckland continues to heat up ahead of the elections next year. The risks are growing that anti-development forces within Auckland politics will frustrate efforts by the Government to solve the Auckland Housing crisis through extra supply and help the Reserve Bank reduce the risks to financial stability from Auckland's unsustainably over-valued housing market.
As Hive News reported first in July, the Auckland Council has responded to the recommendations of the Auckland Unitary Plan's Independent Hearings Panel to densify the zonings for the city to allow the building of more affordable houses inside the city limits -- in particular town-houses and apartments.
Pro-NIMBY councillors, which include Dick Quax, George Wood, Chris Fletcher, Cameron Brewer, Denise Krum, Cathy Casey, John Watson, Mike Lee and Sharon Stewart, and lobby groups such as Auckland 2040 have campaigned to stop or limit the development of more affordable housing inside the limits. They fear a proliferation of apartments and townhouses in the leafy suburbs close to the city centre, while the Independent Hearings Panel and others on the Council are pushing for the development of more affordable townhouses and apartments on major public transport routes and in or near city centres.
The issue bubbled to the surface again yesterday as the Auckland Council released new zoning maps reflecting its proposals to the Panel, which is set to come back with its own final proposal for the Unitary Plan next July. Some Councillors and Epsom MP David Seymour have accused the Council of not consulting all property owners, although the Panel process does not include notification of all property owners.
The issue is set to prove politically awkward for National, given many of its natural supporters in Auckland oppose intensification, while it needs intensification from a central Government point of view to achieve its Auckland housing supply, child poverty and financial stability aims.
Maps set to fire up debate
The maps show section by section what the new proposals to the Panel for denser housing development mean for each suburb.
It also released details of how much of Auckland has been 'up-zoned' to allow townhouses and low-rise character apartment blocks in areas where previously only single storey houses were allowed.
Auckland Development Committee Chair and Deputy Mayor Penny Hulse and Unitary Plan Committee Chair Alf Filipaina told a media briefing the Council had focused on 'up-zoning' those areas on public transport corridors and in and around town centres, but preserving the 'leafier' areas off the main rail and bus routes and further away from village centres.
"We don't want to turn suburbia into a high density urban landscape. We want to retain that feeling of our leafy suburbs," Hulse said, adding however that three storey character apartments like those projects developed by Ockham Residential would be made more possible by the zoning changes. See Ockham examples here.
"We think we've got the balance right," she said.
The Council has reworked its original 2013 Draft Unitary Plan to allow more houses to be built within the Auckland Council's boundaries. It is due to formally submit its reworked plan to the Independent Hearings Panel on the Unitary Panel on January 26. This followed recommendations by the Panel earlier this year to change the plans to allow more house building and remove restrictions on developing pre-1944 buildings.
The Panel has until July 22 next year to make recommendations to the Council about the Unitary Plan. The Council then can either choose to accept those, or reject any revised plan and take the Panel's ruling to court. The timing means the Panel's recommendation is set to become a major election issue ahead of Council elections on October 8.
'Likely to reduce 100,000 dwelling shortage'
Auckland is forecast to need an extra 400,000 houses by 2040 to handle an extra 1 million people. The Council wants to focus 60-70% of that within its existing boundaries, which amounts to needing to be able to build 240,000 to 280,000 houses inside that boundary. The previous 2013 Draft Unitary Plan only allowed the economically viable building of 180,000 houses, leaving a potential shortfall of 100,000. This would add to the current shortfall of 25,000 to 30,000.
Auckland Council's General Manager Plans and Places, John Duguid, said the Council was still re-forecasting the economically viable amount under the new zoning maps, "but we know we are heading in the right direction, although we're not quite there in terms of achieving the overall forecast capacity (of 240,000 to 280,000)."
"If we're a little bit short of capacity it's not the end of the world. If we're a little bit over capacity it's also not the end of the world," Duguid said, adding the new forecasts would be available within two months.
Auckland Council released documents showing the percentage of Auckland in the most intense Terrace Housing and Apartments Zone had risen to 5.93% from 5.39% before the changes. This zone allows building heights of up to 16 metres (five storeys), 19.5 metres (six storeys) or 22.5 metres (seven storeys) in specifically identified locations. The minimum dwelling size in this zone was set at 30 square metres for studio apartments, with the minimum one bedroom size being 45 metres squared. No parking or balcony requirements were specified.
Growth in 'Mixed Housing Urban'
The biggest change was in the Mixed Housing Urban Zone, which has increased its percentage to 16.89% from 10.91%.
"The zone seeks to achieve an urban residential character and generally provides for three storey dwellings in a range of forms (detached, terrace and three‐storey apartments) surrounded by open space," the Council said.
"A high degree of design quality is sought within the zone, with development expected to achieve attractive and safe streets and public open spaces and high quality on‐site amenity," it said.
This zone allows three storey dwellings in the form of either apartments, townhouses or stand-alone houses that can cover 45% of a section's area and be up to 12 metres high. The minimum dwelling size for studios and apartments of 30 square metres and 45 square metres respectively is the same as for the Terrace Housing and Apartments Zone. It also allows multiple housing units on sections less than 800 square metres.
The next less intense zone is the Mixed Housing Suburban zone, which allows two storey buildings on up to 40% of the section. It is the most widespread zone under the new plan, with 43.82% of Auckland covered by the zone, up only slightly from 43.75% previously.
"The zone seeks to achieve a suburban residential character and generally provides for two storey dwellings in a range of forms (detached and terrace houses) and within a spacious landscaped setting," the Council said.
The single house urban zone percentage fell to 25.62% from 31.13%. This zone has a minimum site size of 600 metres squared and only allows one house with only one or two storeys.
The least dense zone is the 'Large Lot' zone, which has a minimum section size of 4,000 square metres and allows only one one storey house. That percentage dropped to 7.74% from 8.82%.
Controversy has emerged in recent weeks over whether the Council changes, which were notified in response to the Hearings Panel's recommendations months ago and do not have to be notified to each property owner, should have been more broadly publicised. The broad details were publicised to the Panel's website, which is publicly available, in July, while the maps are being published today. The Panel process is not part of the usual Unitary Plan process, which was notified in 2013.
Also, the Panel has the right to make recommendations to the Council and to issue a final plan, none of which have to be referred to individual property owners.
"The Panel has the right to do this without us," Hulse said. "The Panel can modify it themselves without us."
Seymour described the Council's actions as "breathtakingly undemocratic arrogance," by publishing the maps a week before Christmas after decisions on zoning changes were taken behind closed doors.
"When similar changes were proposed in 2013 the people pushed back hard. Small wonder the councillors wanted to keep quiet," Seymour said.
National disposable income down per capita
Statistics NZ reported overall economic growth bounced back in the September quarter after a slow start to 2015, but it was reliant on tourism and strong population growth and inflation remains subdued enough to keep interest rates lower for longer.
Per capita disposable income fell after the population rose 1.8% and higher import prices reduced the purchasing power of incomes, reinforcing the risks the economy is growing in an income-lite and inflation-lite way. Real GDP per capita was flat in the first nine months of 2015 as a population rise of 66,000, including net migration of 45,532, overwhelmed a 1.3% rise in total real GDP.
Overall GDP rose 0.9% in the September quarter from the June quarter and was up 2.3% from a year ago as legal and accounting services expanded strongly and manufacturing grew at its fastest rate in almost three years.
The jump in manufacturing was driven partly by extra culling of cows by loss-making dairy farmers and services sector growth of 0.9% for the quarter was helped by a fast-growing tourism sector. Consumption spending by non-residents grew 31% in the September quarter from a year ago to a record high NZ$2.6 billion.
The 0.9% growth in GDP was slightly stronger than the 0.8% consensus forecast from economists, although the 2.3% annual rise was in line with expectations after the June quarter growth was revised down to 0.3% from 0.4%. It was the slowest annual growth rate since the December quarter of 2013, but the quarterly growth was higher than the Treasury and Reserve Bank forecasts for a 0.6% rise.
The bounce-back from growth of 0.2% and 0.3% in the March and June quarters was helped by a surge in population, tourism and included a 10.3% rise in meat manufacturing for the quarter. Dairy cows slaughtered in the September quarter rose 90% from the same quarter a year ago to 182,000. Construction spending surprised by falling 2.9% for the quarter due to lower civil and heavy construction.
The New Zealand dollar rose around 20 basis points to 67.9 USc soon after the results, having already risen the same amount after the US Federal Reserve's first rate hike in almost a decade at 8 am. It opened on Friday morning around 67 USc.
Spending power per capita down
Statistics New Zealand's measure of Real Gross National Disposable Income (GNI) per capita fell 0.2% in the September quarter and was down 0.4% in the year to September after the population rose 1.8% to 4.577 million.
The fall in real GNI per capita also reflected a 3.7% fall in New Zealand's terms of trade as import prices rose more than export goods prices.
Expenditure-based measures of GDP per capita in current prices rose 0.2% for the quarter, but rose 0.4% in real terms. Expenditure-based GDP per capita in current prices was up 0.9% in the year ended September from a year ago, while real GDP per capita was up 1.1% .
The implicit price deflator, which is another way to measure inflationary pressures, fell 0.6% to 1109 in the quarter and was barely up from the 1105 reported for the September quarter of 2015, reinforcing the disinflationary pressures in the economy that the Reserve Bank faces.
Westpac Senior Economist Michael Gordon said the growth was in line with Westpac's expectations and represented 'payback' for the weaker than expected growth in the first half.
"The growth was domestically-focused this quarter, with weakness in agriculture but strong gains across manufacturing and a range of services. The main sour note was an unexpectedly large fall in construction, related to the lumpy civil components," Gordon said.
"We caution that solid GDP growth needs to be seen in the context of very strong population growth. The pace of GDP growth has slowed in per capita terms, and low inflation and rising unemployment indicate that the economy has been operating with increasing spare capacity," he said.
First NZ Economist Chris Green said the slightly stronger tone to the GDP data at the margin was likely to increase the RBNZ’s comfort in keeping interest rates unchanged at 2.5% over the whole of 2016.
"The slightly more robust tone to these GDP data can be expected to help ally some of these downside concerns," Green said, noting however that risks for the OCR remained "skewed to the downside."
"Looking further ahead, while we expect the NZ economy to be supported by reasonably robust housing market activity, high net migration, strong in-bound tourism numbers and supportive interest rate settings, the likely headwinds of below average dairy prices, rising unemployment and heightened El Nino drought risks, suggests a GDP growth profile around the 2.0-2.5% region over the year ahead," he said.
ASB Senior Economist Jane Turner said there was some encouraging signs of resilience in the data, "but once accounting for population growth, momentum is lacking."
"We continue to expect two further OCR cuts next year, but RBNZ may take some time to swing toward our view," she said, noting ASB still saw the Reserve Bank having to cut the OCR by a further 50 basis points from June next year to 2.0%.
"The RBNZ may want to be mindful that despite peak annual growth of 3.7% over the past year, inflation pressures remain very muted," she said.
"On a per capita basis, growth has been very subdued. If it were not for strong tourist activity the NZ economy would be in a vulnerable position as NZ heads into a dairy-sector downturn."
ANZ Senior Economist Mark Smith said the data confirmed momentum had strengthened after a sluggish first half, but risk was still skewed lower for the OCR.
"The economy is on a stronger growth trajectory and we have some optimism looking into 2016, but some recoil is to be expected given the impact of a likely dry summer on agricultural and food manufacturing and the recent weakening in housing market activity," Smith said.
"Today’s solid data is consistent with a period of stability in the OCR. But given the inflation backdrop, the risk profile is skewed to the downside. We are paying close attention to five things: the NZD, global funding markets, China and export prices, our Monthly Inflation Gauge and domestic credit growth. If combinations of these factors begin to shift, then a lower OCR next year could well be still on the cards," he said.
BNZ's Doug Steel saw signs of growing consumer inflation in the national accounts, pointing to a quarterly rise of 0.6% in the personal consumption expenditure (PCE) deflator, up from 0.3% in the June quarter and deflation of 0.2% in the March quarter. The PCE rose 1.0% from September 2014. Although he also pointed to the strength in the New Zealand dollar today that puts the TWI at 73.6, which is 6.0% above the Reserve Bank's forecast for the March quarter of 2016 of 69.4.
"Other things equal, this would reduce around 0.6% off the Bank’s eighteen-month-ahead inflation forecasts," Steel said.
"Speaking of inflation, while it is clearly low at present it was interesting to see the private consumption expenditure (PCE) deflator in today’s national accounts tick upwards. While the PCE deflator is conceptually different to the CPI, it is another gauge of consumer price inflation and it just snuck up to the bottom of the CPI target band," he said.
Bill English said the figures showed the Government was on track to deliver more jobs and further wage increases.
"It is clear the economy was softer than expected in the first half 2015 on the back of lower dairy prices. But New Zealand is a confident, open economy that responds quickly to international fluctuations - and we are seeing that in the more positive performance that has occurred since July," English said.
"Of course risks remain - particularly with a potentially significant El Niño cycle over the summer. Treasury has factored in an impact of 0.3 per cent of GDP, but the final result could be larger," he said.
Grant Robertson pointed to the fall in economic growth over the first nine months of 2015.
“Per capita GDP still remains lower now than it was at the end of 2014. This shows many Kiwis are not getting ahead under this Government. It is why employment is falling and unemployment is rising," Robertson said.
“Although some headline figures in today's GDP numbers appear encouraging, the details show the economy is struggling to keep up with population growth," he said.
“The economy is meant to work for people, not the other way around. Along with unemployment at six per cent and rising, this emphasises the fact that this is a job-‘lite’ recovery. Growth in jobs and incomes are not meeting the needs of New Zealand workers or businesses. National's Plan A is clearly failing New Zealanders. Bill English has now admitted Plan B is needed, but the lack of urgency from the government is letting New Zealand down."
Metiria Turei said relying on migration to drive GDP growth was not a sustainable way to grow, adding that unemployment had averaged 6.3% under the National Government while it had averaged 4.6% under the Labour Government of 1999 to 2008.
“The National Government will settle for short-term growth of any kind, happy to expand polluting industries like oil mining and dairying without any kind of plan about how to pay for the long term costs these industries are causing to our air, our climate, and our fresh water," Turei said.
“Not all GDP growth is necessarily good or sustainable. We should ensure polluters pay for their mess and invest in industries that are clean and sustainable," she said.
In other economic and financial news...
The Commerce Commission announced it had filed proceedings in the Auckland High Court for alleged price fixing and anti-competitive behaviour by 13 national and regional real estate agencies, a company owned by a number of national real estate agencies, and 3 individuals. The allegations relate to collusion by the agencies to push vendors to use their Realestate website instead of Trade Me after Trade Me tried to increase listing prices.
The Commission also announced it had extended its decision date for the Z Energy takeover of Caltex to April 29 from today, saying the decision was complex and it was still assessing the effects of the deal, which could deliver Z Energy control of 50% of New Zealand's petrol stations.
Tweets of the day:
Thomas Beagle after the High Court ruled a policy raid on Nicky Hager's house was unlawful:
I admit I'm amused that the police computer forensic examiner in the Hager search case was a Mr Whale.
Have a great day, and a great summer (although it doesn't feel like summer in Wellington this morning...)