Newsroom Pro's 8 things at 8 am: Housing affordability failure; Kerry McDonald's challenge to the RBNZ; a budget surplus tailwind

Photo: Lynn Grieveson

In today's email we look at the new Housing Affordability Measure and how shows it a generational failure to provide one of the basics of living at a reasonable cost for both renters and homebuyers.

1. Trying to catch mercury

MBIE finally published its Housing Affordability Measures (HAM) yesterday after years of gestation and debate within and between the Beehive and the ministry.

It's a useful addition to a fairly crowded landscape because it drills down very deep on incomes and right down to individual wards, and because it looks at rental affordability.

It tells us in more detail (and in a slightly different way) what the Massey and Interest.co.nz home loan affordability series have been telling us for a decade or so.

Housing became a lot more unaffordable for first home buyers nationally from the early 2000s onwards as house prices accelerated and interest rates rose. The sharp fall in interest rates from 2009 to 2014 improved affordability a bit, but it has begun worsening again since then, particularly in Auckland, as house prices accelerated again.

The HAM measures show renting is more affordable than buying for first home buyers, and that renting affordability improved in most places from 2011 onwards as rent inflation was slower than income inflation.

However, there are limitations to the usefulness of the HAM. It only has data up until June 2015 and it doesn't take into account the time and difficulty of building up a deposit, which now has to be much bigger since the Reserve Bank's limitations on Loan to Value Ratios.

The other limitation is an understandable but convoluted way of expressing affordability. The Interest.co.nz and Massey measures simply work out the proportion of income used to service the mortgage.

The HAM measure looks at the proportion of households with residual income of less than $663 per week after paying the mortgage or rent. It means that more than 80 percent and just under 70 percent of first home buyers and renters respectively have less than that threshold for living expenses.

It does show though what we knew: that housing takes up much more of our incomes than it should, and that this got a lot worse in the early 2000s and is not getting any better. It also reinforces the message that adding significant amounts of housing supply can help, with the measures showing improvement in both rental and first home buyer affordability in Christchurch.

The HAM shows a generational failure to provide one of the basics of living at a reasonable cost, however it is measured.

And measuring it is a tough thing to do. I compare it to trying to capture mercury in my piece over at Newsroom.

Here's the link to the full results at MBIE.

2. Luxury living for a returned fugitive

The other major story yesterday was the revelations out of the courts from Jared Savage at the New Zealand Herald that William Yan (or Bill Liu, Yang Liu or Yong Ming Yan depending on the alias at the time) is now serving five months home detention in a luxury apartment for money laundering.

That was after he returned from China after going there to face fraud charges.

New Zealand First Leader Winston Peters described the sentencing as a joke and Internal Affairs Minister Peter Dunne asked officials for advice on what the conviction would mean for Yan's citizenship status.

Jared Savage's summary of the case going back almost a decade is well worth a read.

3. A bolthole for fugitives?

Newsroom's Foreign Affairs and Trade Editor Sam Sachdeva has taken a deeper look at the thorny issue of a potential extradition treaty between China and New Zealand.

There have been discussions at high levels about such a treaty and an Australian attempt to pass one through its Parliament recently failed.

Sam finds the experts say achieving a treaty will be very difficult.

Here's Sam's full piece on Newsroom Pro.

4. A big Budget tailwind

Treasury yesterday released its last set of monthly accounts before the Budget on May 25 and they showed the Government's books sailing towards the election with a healthy fiscal tailwind.

Treasury reported the operating balance before gains and losses in the nine months to March 31 was a surplus of $1.5 billion, which was much better than the forecast surplus of $147 million.

Tax revenue was 1 percent higher than forecast and 7.3 percent higher than for the same period last year as strong economic, employment and spending growth boosted the income and GST take.

5. 'A flawed system to protect savers'

The debate over the need for deposit insurance and tougher regulation of banks by the Reserve Bank has heated up in recent days after the IMF recommended change and Australia announced a crackdown on bank executive behaviour and a big new tax on bank liabilities.

Now former BNZ and NAB director Kerry McDonald has called for a tougher Reserve Bank approach to the way the big four banks are governed here. He wrote in an opinion piece for Newsroom that the system for protecting savers here is fundamentally flawed because of weak governance by local directors and weak regulation by the Reserve Bank.

It's a very strong piece from a long-time and close observer of how New Zealand's big four banks are governed, and also revives attention on the Open Bank Resolution system, which the Opposition wants to see changed and which savers don't know about or understand.

In my view, Open Bank Resolution is simply a fig leaf for a Government Guarantee that is not paid for by banks or term depositors. No Prime Minister would allow a bank to be reconstructed through a haircut on term depositors, in my view.

The Reserve Bank's failure to inform savers about the implications of OBR is also worthy of attention. It has a responsibility to inform the public about changes in currency, but has not actively sought to inform savers about the potential for haircuts.

6. 'Subsidise for in-demand skills'

Newsroom's National Affairs Editor Shane Cowlishaw covered the Productivity Commission's appearance before the Education & Science Select Committee yesterday.

He reported for Newsroom Pro from Dr Graham Scott's comments to the Committee on the need to direct tertiary education funding towards in-demand skills, rather than popular subjects.

Here's Shane's full report, including Scott's comments in response to Maurice Williamson's comments about whether the country should really be funding 10,000 art history students at Auckland University.

7. Coming up...

The Reserve Bank is widely expected to hold the Official Cash Rate at 1.75 percent when it releases its May Monetary Policy Statement shortly after 9 am today.

The key focus will be on whether it adopts a tightening bias and whether it brings forward its forecast tightening from the late 2019 point it saw in February.

I'll be covering the release of the report for Newsroom Pro and will attend both the news conference later this morning and the Governors' comments at the Finance and Expenditure select committee later in the day.

8. Trucking along

One useful real-time indicator of economic activity is the ANZ's monthly Truckometer series, which uses NZTA data on heavy and light truck movements to understand how the economy is travelling.

ANZ published its measures for April yesterday. They showed a slight cooling in April and some early indications of patchier growth through 2017.

"We expect growth to ease as 2017 rolls on," ANZ's Sharon Zollner wrote.

"Capacity constraints are biting; getting skilled or unskilled employees is difficult. Credit is a bit harder to get. It’s not a bad thing – overheating can lead to engine problems," she wrote.