Auckland councillors advised OCR cuts will only add fuel to the fire

“While cutting the Official Cash Rate today might be just what is needed in Horotiu, Hawera, and Hokitika, our official advice in Auckland has been that cheaper mortgage rates will only add fuel to the property fire and possibly overwhelm the promised cooling-off measures,” says Cameron Brewer - Auckland Councillor for Orakei..

“In Auckland this could be an even crazier summer of crowded open homes and record-breaking auctions given how busy winter was after the OCR was cut in June and July.”

Mr Brewer says these observations are not his but those found in Auckland Council’s regular but relatively low-profile report titled ‘Auckland Economic Quarterly – August 2015’.

Subtitled “Rampant Housing” the Chief Economist Unit’s latest edition notes: “The low interest environment is also contributing to the strong demand for housing. The RBNZ has cut the Official Cash Rate by 0.5% since early June, and signalled further interest rate cuts were possible over the coming year. These moves will likely intensify demand for housing. This is despite some other measures intended to reduce demand, such as investors being targeted with higher deposit requirements (30%); banks needing to hold reserves for investor mortgages; and a compulsory capital gains tax if reselling in two years. The faster Auckland house prices continue to rise ahead of rents and incomes the more vulnerable the market is to a substantial price correction.”

“We’re lucky to have a very in-tune chief economist at Auckland Council. That’s why I’m alarmed not so much by his observation that further OCR cuts will “likely intensify demand for housing” but most worryingly he predicts even greater market intensity in Auckland despite the much vaunted and imminent LVR and tax changes,” says Mr Brewer.

“As much as the dairy sector needs a shot in the arm, and as exciting as 4.35% interest rates are, this latest report clearly indicates that Auckland probably needs to be careful what it wishes for if we’re to avoid further unsustainable price escalation and a substantial correction with the vexed issue of improving overall housing supply critical.

“Auckland Council’s chief economist issued some very sage advice about the likely impacts on home buyers in Hillsborough, Hillcrest, and Highland Park. However this latest OCR cut is aimed more at Horotiu, Hawera, and Hokitika. Here’s hoping the right balance has been stuck,” he says.

ENDS

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