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.
With the economy showing signs of overheating, the central bank signalled more increases over the next year.
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
Chris Dixon, a partner who led the charge, says he has a ‘very long-term horizon’
Americans now think they need at least $1.25 million for retirement, a 20% increase from a year ago, according to a survey by Northwestern Mutual
You’ll never guess where they found a little extra room when renovating this west coast house
There was a time, not too long ago, when the most important must-have for would-be renovators was space. It was all about space to be together and space to be apart.
But as house prices increase across the country, the conversation has started to shift from size for the sake of it towards more flexible, well-designed spaces better suited to contemporary living.
For the owners of this 1920s weatherboard workers’ cottage in Fremantle, the emphasis was less on having an abundance of room and more about creating cohesive environments that could still maintain their own distinct moods. Key to achieving this was manipulating the floorplan in such a way that it could draw in light, giving the impression at least of a larger footprint.
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Positioned on a site that fell three metres from street level, the humble four-room residence had been added to over the years. First order of business for local architect Philip Stejskal was to strip the house back to its original state.
“In this case, they were not quality additions,” Stejskal says. “Sometimes it is important to make sure later additions are not lean-tos.”
The decision to demolish was not taken lightly.
“Sometimes they can be as historically significant as the original building and need to be considered — I wouldn’t want people to demolish our addition in 50 years’ time.”
Northern light hits the site diagonally, so the design solution was to open up the side of the house via a spacious courtyard to maximise opportunities to draw natural light in. However, this had a knock-on effect.
“We had to make space in the middle of the site to get light in,” Stejskal says. “That was one of the first moves, but that created another issue because we would be looking onto the back of the neighbouring building at less appealing things, like their aircon unit.”
To draw attention away from the undesirable view, Stejskal designed a modern-day ‘folly’.
“It’s a chimney and lookout and it was created to give us something nice to look at in the living space and in the kitchen,” Stejskal says.
“With a growing family, the idea was to create a space where people could find a bit of solitude. It does have views to the wider locality but you can also see the port and you can connect to the street as well.”
A garden tap has also been installed to allow for a herb garden at the top of the steps.
“That’s the plan anyway,” he says.
Conjuring up space has been at the core of this project, from the basement-style garaging to the use of the central courtyard to create a pavilion-like addition.
The original cottage now consists of two bedrooms, with a central hallway leading onto a spacious reception and living area. Here, the large kitchen and dining spaces wrap around the courtyard, offering easy access to outdoor spaces via large sliding doors.
Moments of solitude and privacy have been secreted throughout the floorplan, with clever placement of built-in window seats and the crow’s nest lookout on the roof, ideal for morning coffee and sunset drinks.
The house has three bedrooms, including a spacious master suite with walk-in robe and ensuite overlooking the back garden. Adjustable blades on the bedroom windows allow for the control of light, as well as privacy. Although the house was designed pre COVID, it offers the sensibility so many sought through that time — sanctuary, comfort and retreat.
“When the clients came to us, they wanted a house that was flexible enough to cater for the unknown and changes in the family into the future,” Stejskal says. “We gave the owners a series of spaces and a certain variety or moods, regardless of the occasion. We wanted it to be a space that would support that.”
Mood has also been manipulated through the choice of materials. Stejskal has used common materials such as timber and brick, but in unexpected ways to create spaces that are at once sumptuous but also in keeping with the origins of the existing building.
Externally, the brickwork has been finished in beaded pointing, a style of bricklaying that has a softening effect on the varied colours of bricks. For the flooring, crazy paving in the courtyard contrasts with the controlled lines of tiles laid in a stack bond pattern. Close attention has also been paid to the use of veneer on select joinery in the house, championing the beauty of Australian timbers with a lustrous finish.
“The joinery is finished in spotted gum veneer that has been rotary cut,” says Stejskal. “It is peeled off the log like you peel an apple to give you this different grain.”
Even the laundry has been carefully considered.
“The laundry is like a zen space with bare stone,” he says. “We wanted these different moods and the landscape of rooms. We wanted to create a rich tapestry in this house.”
The owners now each experience the house differently, highlighting separate aspects of the building as their favourite parts. It’s quite an achievement when the site is not enormous. Maybe it’s not size that matters so much after all.
Chris Dixon, a partner who led the charge, says he has a ‘very long-term horizon’