ANZ Chief warns of housing bubble

A strong op ed by David Hisco, the CEO of ANZ. He warns of the problems the housing bubble may cause.

He proposes a number of actions:

• Heavily increase LVR limits for property investors. The Reserve Bank wants most property investors around the country to have 40 percent deposits in future. We think they should go harder and ask for 60 percent. Almost half of house sales in Auckland are to property investors. Taking them out of the market will be unpopular amongst investors but it may end up doing them a favour. Of course this would mean less business for us banks but right now the solution calls for everyone to adjust.

He could well be right that more than 40% is needed. But I think see the impact of the 40% requirement before deciding if it needs to increase to 50% or 60%.

Weaken the New Zealand dollar. The Reserve Bank should look to weaken the dollar, making our export industries more competitive. That’s good for employment and our balance of trade in the long run. The Reserve Bank in Australia are already examining unconventional measures to do this. The longer our dollar is out of step with the rest of the world we will slowly drift towards being uncompetitive. Rising unemployment and rising house prices can’t co-exist.

Here I disagree. The role of the Reserve Bank is not to set the currency rate, but to keep inflation low. Plus the level of our currency is set mainly be external factors such as Brexit, Australian economy etc.

And as it happens the real TWI is currently at 72, down from a peak of 82 in 2014. It hasn’t been below 70 consistently since the 2009 recession so I don’t think it is a major issue.

• Voluntary tightening of lending criteria by banks. Since the GFC banks have been more conservative than ever on lending. But the current situation will see ANZ implement even tougher criteria for investment loans as house price inflation spreads from Auckland to other regions.

Great.

• Review immigration policies. Immigration has been great for New Zealand. We are a harmonious, diverse and inclusive society. But Auckland’s housing, roads, public transport and schools are struggling to cope. Let’s have an honest and sensible debate about immigration using facts rather than prejudice to see if we should push the pause button.

I agree and have been saying this for some time. However we need to be aware that the level of residency visas has remained constant, so the Government doesn’t have a lot of latitude to impact net migration. However I do agree it should look to do so until the infrastructure has caught up.

• Have a strong focus on infrastructure build, particularly in the growth regions.We always seem to play catch up in this country relying on bureaucratic formula to work out demand. There are smart ways to fund infrastructure that can spread cost across the generations if we choose to go that way.

Again I agree but would say this Government has done more infrastructure investment than any other. But definitely more to be done.