In today's email we find out why October 12 may be a very important date, and we take an in-depth look at infrastructure funding and how the migration tweaks may themselves be tweaked as a result of industry lobbying.
1. October 12 is D-Day for Winston
Newsroom's Sam Sachdeva reports we should all mark down October 12 in our calendars.
The day could be as important as September 23 for determining the next government, if not more so.
New Zealand First leader Winston Peters told Sam that October 12 is when he will announce whether he intends to go with National or Labour in forming the next government - provided his party is in the kingmaker position after Kiwis go to the polls.
The date corresponds with the return of writs for the election, when the final election results are officially returned to the Governor General.
Peters’ decision mirrors a similar pledge he made during the 2005 campaign, and is in part a result of the flak NZ First copped after protracted negotiations following the first MMP election in 1996.
Back then, Peters did not announce NZ First was going into coalition with National until December 10 - nearly two months after the October 12 ballot, and narrowly before Parliament had to resume.
Peters said he did not believe the negotiations had taken too long given the change of electoral system, but accepted it was hard to overturn the public perception.
"Places like Holland and elsewhere, they would take three to four months, but in New Zealand there was a bit of intolerance which I daresay was led by the media demanding that there be an outcome when you were trying to negotiate between two different parties, both at the same time which is quite unique really," Peters said.
“But you have to face the fact that when the media paint a perception, it’s very difficult in terms of the future to dislodge that, no matter how untrue it might be.”
In a 2005 speech to Grey Power in Whangarei, Peters said NZ First had “learned the hard lessons of 1996” and would not repeat the lengthy negotiations.
“I make this guarantee that whatever decision New Zealand First arrives at post-election, it will be made public by the day the writs are returned, which is within three weeks from polling day.”
While the final result in 2005 reduced NZ First’s leverage, Peters confirmed to Newsroom he would take the same approach to this year’s election.
“There’s no reason for it not to be similar thinking at this point - we are dealing with known quantities which we weren’t aware of in 1996. These things will take care of themselves in the fullness of time in the next eight weeks, but seeing as you’re ahead of the eight-ball, I can tell you that looks exactly the sort of the position we’ll be in.”
That means that if NZ First does hold the balance of power after election day, we should be spared a drawn out negotiation process - although with Winston, nothing can ever be taken for granted.
2. Aiming to lower land prices
There is an elephant in the room of the Auckland housing debate: land prices need to fall sharply to make housing affordable, and that's what the Government is quietly working to achieve.
The Government has acknowledged its new Housing Infrastructure Fund and its Crown Infrastructure Partners special purpose vehicles are designed to help free up enough land supply for housing and create enough competition to drive down land prices, possibly substantially.
The new vehicles are designed to work in tandem with targeted rates and extra charges for water for the residents in new suburbs. These extra rates and charges act like body corporate fees for apartments, in that home buyers capitalise the extra cost into the value of the home, effectively reducing its value up front.
Prime Minister Bill English agreed at his post-cabinet news conference that the targeted rates would "quite possibly" reduce land values and house prices.
He pointed to a report published by the Government's Social Policy Evaluation and Research Unit (Superu) that showed that land use regulation could be responsible for 56 percent of the value of Auckland's house prices.
"There was a report that came out from Superu the other day showing that land had a premium of over 50 percent due to regulation. Looking ahead, if the policies are right, then you will tend to see land being less expensive, but there being a bit more paid for marginal infrastructure," English said.
"Overall, whether that means the overall price of housing stays the same or goes down is yet to be seen, but clearly, better regulation of our land market and more competitive land markets tend to take the pressure off the price of land," he said.
"This vehicle, alongside the Housing Infrastructure Fund, are important elements creating more competitive land markets, which will in time, with better regulation, lead to on average lower land prices."
Asked if the new infrastructure funds could only work to reduce housing costs if they reduced land values, he said: "That's what we're going to be testing. These are steps in the right direction. The magnitude of those steps are yet to be seen. We'll get the test that as the market realises there's greater availability of finance and that the usual bottlenecks, such as Council debt ceilings, which have helped to underpin land prices, are gradually being freed up, so we'll see what the magnitude of those effects are."
The Government announced on Sunday it would stump up $600 million to turn its Crown Fibre Holdings entity (originally set up for funding the broadband rollout) into Crown Infrastructure Partners. It would create special purpose vehicles that would invest in tandem with the private sector in the roads, pipes and other infrastructure needed to open up new housing developments in cities where councils have hit their debt limits, which includes Auckland. Tauranga and Hamilton are also interested in using the vehicles.
But a key element in the creation of the special purpose vehicles is the use of targeted rates. They achieve both a funding aim and a political aim, particularly for the Auckland Council. One if the biggest constraints on new house building has been the reluctance of the Council to open up large swathes of greenfields developments because it has been hard up against its debt limits to retain its AA credit rating.
Existing ratepayers in established suburbs such as Epsom, Remuera, Point Chevalier and the North Shore don't want their rates to go up to pay for the pipes and roads in new parts of the city such as Drury South or Wainui that they are unlikely ever to visit, let alone live in.
The other restraint is a wider financial restraint on councils. The Auckland Council is the largest Council borrower and the cornerstone of the relatively new Local Government Funding Agency (LGFA), which borrows on behalf of other councils around the country and is able to lower their borrowing costs. But it can only do that if Auckland retains its AA credit rating.
If Auckland were to go above its limits for a AA credit rating, it would increase Auckland ratepayers' borrowing costs. Every notch downgrade would increase Auckland rates by one percent. But any downgrade for Auckland would also increase the borrowing costs of every council in the country that uses the LGFA. Currently, there are 49 councils who have borrowed $7.5 billion.
So the creation of the Crown Infrastructure Partners vehicles has the potential to remove two massive roadblocks to housing supply: the political roadblock of other ratepayers and taxpayers having to pay for new developments and the removal of the council debt limit constraints.
Until now, land bankers could be confident that Councils would only eke out new supply of zoned land, which effectively kept land prices high at the fringes as very fast population growth put immense pressure on limited supply.
The Government and the Council are hoping that a significant increase in land supply will change the expectations of land bankers, forcing them to sell their land for housing development now rather than wait for prices to fall.
The price of new house and land packages is crucial for house prices generally, given the prices of new homes effectively sets expectations for prices generally as they are often the marginal house sold. A fall in new house and land packages would put downward pressure on prices throughout the city.
3. Tweaking the tweaks
Newsroom's National Affairs Editor Shane Cowlishaw has taken a closer look at exactly how the Government could row back on its migration 'tweaks' announced in April.
Shane reports the dairy, aged care, and hospitality industries have all been lobbying against those changes intensively, while the region’s mayors have also been voicing their displeasure.
Bill English was cautious yesterday at his post-cabinet news conference about signalling wholesale changes, but clearly the Government is responding to the lobbying and is set to annnounce new 'tweaks' within a couple of weeks.
Some have speculated that the Government could carve the regions out of the changes, but English's comments suggested any changes would be nation-wide.
“There’s been a response to that, which we’re listening to, and it’s come from across the board from employers and business…and migrants so we’ll be taking that into account but you wouldn’t be looking at wholesale change, we’d just look at changing some of the parameters,” English said.
English appeared to ease up on the rowing back, however, stressing the changes would not be wholesale and seeming to dismiss targeting measures at the regions, giving Auckland as an example of an area that also required workers.
“In an economy that’s producing 10,000 new jobs a month that demand for skills applies right across the country, Auckland and in the regions, and I think the extent of it in the regions, the strength of that demand in the regions is surprising some people.”
See Shane's full piece here on Newsroom Pro, where it was published yesterday.
4. Better treatment on British OEs?
Newsroom's Foreign Affairs Editor Sam Sachdeva covered Boris Johnson's opening of a new war memorial in Wellington yesterday.
Johnson's initial comments on protecting and enhancing the work rights of New Zealanders in Britain were positive, but there are plenty of caveats and headwinds for both New Zealanders and Johnson.
Here's Sam's detailed piece on Johnson's visit on Newsroom Pro, where it was first published yesterday.
5. Quotes of the day:
Boris Johnson after being welcomed New Zealand in the usual way:
"Thank you for teaching me the hongi, which I think is a beautiful form of introduction, though it might be misinterpreted in a pub in Glasgow if you were to try it."
Bill English was asked if he thought yesterday's NBR rich list indicated New Zealand's wealth inequality had worsened. He suggested lower interest rates were mostly to blame.
"Much lower interest rates drive up capital values. It wouldn't be surprising that people who hold assets are going to find those assets are more valuable. If interest rates rise, then on that measure of inequality, inequality will drop and they'll still have the same assets. It's a tricky area. But there isn't any doubt that those people who bought a house in 2009, who owned a bunch of shares on Wall St, those values have gone up and one of the big drivers is interest rates."
Dylan Firth, Hospitality NZ's advocacy and policy manager, on the lobbying against the Government's migration changes:
“We were very, very vocal in what we had to say and I think we made a lot of strongly worded points.”
6. Numbers of the day:
Up 4.7 percent - The median weekly rent in June on Trade Me was $450 nationwide, which was up 4.3 percent from June 2016 and was unchanged from January. Auckland's median weekly rent of $530 was up 3.9 percent from a year ago.
100 students - In another sign of a crackdown on Private Training Establishments offering poor quality courses to international students hoping for permanent residency, the New Zealand Qualifications Authority (NZQA) yesterday withdrew accreditation for three business programmes at the International College of New Zealand (ICNZ). This means that ICNZ can no longer deliver these programmes to its 100 students. NZQA found most of the assessments of these courses were marked as 'pass' when they should have failed.
64 percent - A Newshub Reid Research poll published last night found 64 percent of voters supported a $50 tourist tax, including 64 percent of National voters and 69 percent of NZ First Voters. The Government doesn't support such a tax and worries the cost will discourage tourists.
94 percent - A survey by the primary teachers union, the NZEI, found 94 percent of male teachers under 35 percent planned, were thinking about, or were definitely leaving Auckland because of housing costs. The survey of 450 primary and intermediate teachers with two years of experience found two thirds were thinking about leaving Auckland or actively planning to leave Auckland. The survey found 64 percent had given up hope of ever owning their own home.
7. Coming up...
UK Foreign Secretary Boris Johnson is scheduled to hold a formal news conference in Wellington this morning after meetings with Bill English and Foreign Minister Gerry Brownlee.
Reserve Bank Assistant Governor and Head of Economics John McDermott will give a speech on economic trends and the bank's flexible inflation targeting framework at Heartland Bank in Auckland on Wednesday. The speech will be released at 8.15 am on Wednesday.
Tertiary Education Minister Paul Goldsmith will launch the Government’s response to the Productivity Commission report on new models of tertiary education in Wellington at midday on Wednesday.
US Supreme Court Chief Justice John Roberts is in Wellington this week teaching four-day executive development course, The United States Supreme Court in Historical Perspective, alongside Professor Richard J. Lazarus of Harvard University, at Victoria’s Law School. He is scheduled to appear at an event on Wednesday evening "in conversation with Victoria University’s Pro Vice-Chancellor and Dean of Law, Professor Mark Hickford." Details are here.
The Reserve Bank will publish its new residential lending figures for June on Wednesday afternoon.
Statistics New Zealand will release its June Quarter Household Living-cost Price Index (HLPI) measures on Thursday.
8. Two fun things
Noticed the rash of signs for candidates in the September 23 election that popped up over the weekend? Jeremy, a voter in Wellington, noticed them too and tweeted this last night:
"Someone who has lost their cat in Belmont has put up at least 30 signs with its picture. I'm scared they'll vote it into parliament."
Further to the Boris Johnson quote above above about 'Glasgow kisses', this totally made up picture, courtesy of GCSB Intercepts, captures the mood.