New Zealand Raises Interest Rates as Inflation, Housing Pressures Build
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New Zealand Raises Interest Rates as Inflation, Housing Pressures Build

With the economy showing signs of overheating, the central bank signalled more increases over the next year.

By Stephen Wright
Thu, Oct 7, 2021 3:01pmGrey Clock 3 min

New Zealand largely kept out Covid-19 by closing to the outside world, a policy accompanied by stimulus to keep the economy moving. Now the resulting labour shortages and surging demand, notably for housing, have led it to become one of the first developed economies to raise interest rates since the pandemic began.

The Reserve Bank of New Zealand lifted its benchmark rate to 0.5% from a record-low 0.25% and signalled more increases over the next year, as it seeks to tame inflation stoked by higher oil prices, rising transport costs and supply-chain disruptions. It said the increase would also drive up mortgage rates and so help cool house prices, up about 30% over the past year.

The policy challenges are different than when the pandemic began, the central bank said.

“Demand shortfalls are less of an issue than the economy hitting capacity constraints given the effectiveness of government support and resilience of household and business balance sheets,” the RBNZ said. It also highlighted a risk that some capacity bottlenecks might persist now that the South Pacific nation is ending its effort to eliminate the coronavirus locally.

New Zealand offers a preview of the challenges that countries may face as they emerge from the pandemic. Rising household debt and inflation have become a bigger threat to some economies than any resurgence of Covid-19 driven by the Delta variant. South Korea and Norway have already tightened monetary policy, while interest rates in more-volatile emerging economies from Brazil to Turkey have also gone up.

At the east coast Port of Tauranga, a hub for container traffic, a lack of workers constrains capacity as demand recovers from the pandemic. Global shipping congestion has thrown schedules into disarray, adding to demands on port staff, spokeswoman Rochelle Lockley said.

The Bay of Plenty region, where the port is located, is known for its kiwifruit industry, which relies on a seasonal workforce from overseas. The closed border means competition for workers is fierce. In many cases, the port is duelling with its own customers for workers such as stevedores, cargo marshallers and drivers of the giant machines that move containers, Ms. Lockley said.

New Zealand’s unemployment rate fell to 4.0% in the three months through June.

Closing the border has also worsened a shortage of health workers. New Zealand has about 1,000 vacancies for trained nurses—a 20% shortfall.

Carolyn Cooper, managing director at Bupa New Zealand, which runs nursing homes and retirement villages, said that to retain staff it has raised pay at a faster rate than its funding has grown.

“It’s unviable to keep going in that way,” she said—but “otherwise we’d have no staff.”

Rising wages are adding to price pressures within New Zealand’s economy that include higher prices of gasoline and farm produce such as tomatoes and cucumbers.

Expectations for inflation are now above the top end of the Reserve Bank of New Zealand’s target range of 1.0% to 3.0%. On Tuesday, the benchmark price of Brent crude oil hit its highest level since October 2018, which for a country that relies on oil imports foreshadow further inflationary pressure ahead.

The RBNZ’s primary objectives are full employment and 2% annual inflation over the medium term. However, the country’s government earlier this year directed it to consider housing prices in monetary-policy decisions.

New Zealand’s response to the pandemic ignited a local housing boom. The cost of building a new home was the biggest contributor to inflation in the three months through June, with companies reporting shortages of construction materials and rising labour costs.

In March last year, the central bank lowered its cash rate by 0.75 percentage point to 0.25% to prop up activity. That made new home loans more attractive to owner-occupiers and speculators. New Zealand’s rise in median home prices over the past year is one of the fastest among the 38 member countries of the Organization for Economic Cooperation and Development.

The central bank has sought to cool the property market with lending curbs, while the government has reduced tax advantages for landlords, but home prices have continued to rise. Around the world, a rise in home values during the pandemic is triggering fresh debates about housing affordability. On Wednesday, Australia’s financial regulator raised the minimum interest-rate buffer it expects lenders to use when assessing the ability of new borrowers to meet home-loan repayments.

The Reserve Bank of New Zealand’s rhetoric typically plays down the role of housing in its monetary-policy decisions, though with inflation, employment and house prices are all heading in the same direction it may be expedient to include it now, said Gareth Kiernan, chief forecaster at Infometrics, an economics consulting firm.

That would “help deflect any political criticism that might otherwise come their way for not doing enough to slow the housing market,” he said.

The central bank in August projected the cash rate would reach 1.6% by the end of 2022 and 2.0% in the second half of 2023, though some economists doubt it will exceed 1.5%. New projections aren’t due until late November.

Reprinted by permission of The Wall Street Journal, Copyright 2021 Dow Jones & Company. Inc. All Rights Reserved Worldwide. Original date of publication: October 6, 2021


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Dream property not on the market? You can still find it here

A new digital real estate site promises a full view of the housing sector, even those places not on the market

Thu, Sep 28, 2023 2 min

Hot on the heels of the launch of View Media Group last year, Australia’s newest proptech digital media company has gone live with its consumer-facing real estate site,

The new site offers a ‘freemium’ model allowing vendors to list their properties for free while having the option of further upgrades for agents looking to enhance their listings.

VGM executive chairman Anthony Catalano said the model was a ‘game changer’ in the digital real estate space.

“While VMG is much more than a portal play, it’s critical that we have a consumer-facing brand that will act as the front door to attract consumers and in turn allow us to offer products and services in a range of verticals across the property ecosystem,” Mr Catalano said. “Our plan is to create a digital real estate superstore under the new View brand that will play in the $300 billion adjacency categories rather than solely focus on the $1

billion of digital property advertising.”

“We’ve listened to the industry and the time is right for an offer to come to market with an alternative model that addresses the real estate industry’s concern at the continually

escalating price of advertising.”

The View portal is available through app stores and will include properties across the country, not just those on the market right now.

“That means will showcase more than 11 million properties in Australia compared to some of the portals which feature around 140,000 properties for sale,” Mr Catalano said. “From Day 1 we will provide consumers with a complete view of the market.’’ 

View has worked with mapping partner Nearmap to create the ability to have a comprehensive overview of all properties.

“We’ve had a look globally at best practice search for property and we’ve consumer tested a range of options and without doubt the preferred experience is map-based search,” View CEO Toby Blazs said. “So unlike others in the market who default consumers to a list view, we’ll default our search results via a map.”

Mr Catalano said the innovative site was designed to be a true disruptor in the proptech sector.

“VMG continues to grow and tick off the key parts of its strategic plan,” he said. “We are well on the way to forming a global-first conglomerate of proptech assets including portals, ad tech, lead generation, lead management solutions, media planning and buying, AI services, data and connections all under the one roof.”


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