Q+A: HSBC Chief Economist for Australia and NZ Paul Bloxham interviewed by Jessica Mutch

New Zealand housing market a ‘domestic story’ not a foreign buyer made problem – Economist
HSBC Chief Economist for Australia and New Zealand Paul Bloxham told Jessica Mutch on TVNZ 1’s Q+A programme that ‘there’s still quite a bit of uncertainty’ as to what the impact of the Government’s plan to ban foreigners buying established residential homes will be. But he says, ‘what we know is that the foreign purchases have not been the major driver of what’s been going on in the New Zealand housing market in recent times anyway. And what we also know is that the New Zealand housing market has already cooled to a degree.

‘I don’t think the bulk of the national housing market story in New Zealand has been dominated by foreign purchases anyway; it’s been mostly a domestic story.’

When asked about the impact of a potential capital gains tax on the New Zealand market Paul Bloxham said, ‘although in the initial stage, you might expect to see some sort of effect on the housing market, some sort of a slower activity, over time, I suspect it won’t make it necessarily a less attractive asset, if you take Australia as the illustration.’

Paul Bloxham also told Q+A with signs that the Australian economy is picking up and the labour market tightening, ‘one of the things that we’ll probably do is take a little bit of the labour supply out of New Zealand. That combined with any sort of cutback in migration will see labour supply potentially constrained. And that might start to mean that, actually, you get a bit of upward pressure on wages growth in New Zealand, which you haven’t seen for a while.’

Please find the full transcript and attached and you can watch the interview here.

Q + A
Episode 35
PAUL BLOXHAM
Interviewed by Jessica Mutch

JESSICA The Government's promised a ban on foreigners buying established residential homes which it plans to have in place by early next year. it's moving to classify houses as "sensitive" under the Overseas Investment Act. After years of booming prices our housing market is cooling. Especially in Auckland so what kind of impact could these restrictions have now? I asked Paul Bloxham, HSBC chief economist for Australia and New Zealand:

PAUL The starting point is there’s still quite a bit of uncertainty as to exactly what the impact will be. What we know is that the foreign purchases have not been the major driver of what’s been going on in the New Zealand housing market in recent times anyway. And what we also know is that the New Zealand housing market has already cooled to a degree. We’ve seen house-price growth slow down quite significantly. We think a lot of that reflects that interest rates have started to rise, but also prudential settings have been very tight. And so we think that that domestic story is much more at work in terms of having driven the slowdown we’ve seen in the New Zealand market already. And the foreign purchaser story has been a smaller part of the overall story anyway.

JESSICA Is this a bit too little too late, do you think?

PAUL Well, it depends on what the objective is. I think what’s happened here in terms of policy, it reflects a bit more of what’s happened over in Australia, where there’s been a bit more of a focus on the foreign purchaser. I think, to a degree, actually, we’ve seen already, in Australia in particular, in the numbers, a pullback in terms of foreign interest in the domestic market. And I think that partly reflects the restrictions we saw on Chinese capital outflows earlier in the year, as well as some of the measures that have been taken by the local Australian states in terms of lifting stamp duty on foreign purchases. So you might expect something similar to happen in New Zealand, but as I said, I don’t think the bulk of the national housing market story in New Zealand has been dominated by foreign purchases anyway; it’s been mostly a domestic story.

JESSICA Do you think foreigners are even that interested in housing in New Zealand at the moment? Do you think we’ve reached our peak? Has that moment passed, if it was there at all?

PAUL I think what we saw is some very strong interest from foreign purchasers in both the Australian and New Zealand housing markets over recent years, partly because global interest rates have been extraordinarily low, so there’s been a search for yield across the world in terms of capital flowing in and partly because our cities are very attractive. I think the other aspect of the story is on the other side, we have seen a tightening-up in terms of capital outflows out of China, which I think has started to impinge upon that capital flow anyway. And the main thing, I think, to keep in mind is the dominant force is the domestic market; the dominant force is domestic borrowers from domestic banks and the way that that’s been impacting on the market and the tighter prudential settings we’ve seen in recent times have been a big part of the story.

JESSICA Because Australia, of course, has had restrictions in place. What impact has that had on your market?

PAUL Well, what we know is that the Treasury Secretary has talked about the fact that the Foreign Investment Review Board has seen quite a sharp slowing in terms of applications from foreigners. If you’re a foreigner and you want to buy a property in Australia, then you need to make an application to the Foreign Investment Review Board. And those numbers come out with quite a lag. But we have had information from the Treasury showing that those numbers have slowed down, those approvals, those applications have slowed down quite sharply over the last little while. Now, there are a collection of factors that might have slowed it down, but we think one of the major factors has been tighter restrictions on capital flows out of China.

JESSICA I want to ask you about capital gains tax as well. Some of our bank economists here have got more on board with this idea. What impact do you think a capital gains tax would have on the New Zealand market?

PAUL Well, in the first instance, you would think that it might have some effect of slowing the market to a degree, making it a bit less attractive to invest in that particular asset. And I think on the introduction, that’s what it’s likely to have – the effect it’s likely to have. I think Australia obviously has a capital gains tax, and the housing market has still proven to be a very popular area to invest in. So although in the initial stage, you might expect to see some sort of effect on the housing market, some sort of a slower activity, over time, I suspect it won’t make it necessarily a less attractive asset, if you take Australia as the illustration.

JESSICA Big picture now. What do you think is the outlook for our economy? I know in the past, you’ve called New Zealand a rock-star economy. What do you see big picture now?

PAUL Well, New Zealand has been an outperformer. It’s done very well in the post-global financial crisis period, as has Australia. And New Zealand has been a rock-star economy, in my view, because of that outperformance. A part of that outperformance has been that growth has been strong, and a lot of those factors that have been supporting growth are still very much at work – things like the stronger ties to Asia, the export of high-quality food products, the tourism numbers being very strong. Those things have been quite supportive of the New Zealand growth story, and we think that that’s going to continue to be there in terms of supporting New Zealand’s growth. I think the other thing we’ve pointed to over the years in terms of what’s made New Zealand an outperformer – and an outperformer relative to Australia as well – has been the pristine fiscal position – the fact that the government had managed to get back to budget surpluses – a number of years of budget surpluses. So that’s one of the things that we’ll be watching very carefully to see how that plays out over the coming years. But the fundamental thing that’s been underpinning New Zealand’s growth, and Australia’s as well, and that’s made these two economies strong performers relative to the rest of the developed world, has been its strong ties to the Asian economies. And I think those forces are still at work.

JESSICA Over the last few years, we have had a bit of an evening out of New Zealanders leaving and going to live in Australia. Do you think we could see another big surge again in the future if the Australian economy takes off again?

PAUL What we’ve seen, rather unusually, in recent times, actually, is an inflow into New Zealand – a net flow across the Tasman back to New Zealand. Normally, the flow is the other way round, and that’s what it’s been like over the last 40 years of history. And instead, we’ve seen people moving from Australia to New Zealand and Kiwis coming home. And that’s partly reflective that the New Zealand economy’s been doing well, the labour market’s been tight and that Australia’s economy hasn’t been doing as well. At the end of the mining boom, the employment situation wasn’t as strong in Australia. Now, that is starting to show signs of turning. The Australian labour market is tightening up quite quickly. There’s been a lot of jobs created in Australia in the past year. The mining story, which was in decline, is now starting to lift again, and so we’re starting to see that flow reverse back again, with more people starting to move back the other way. And I suspect that’s what we’re going to see as we look further forward. One of the things that we’ll probably do is take a little bit of the labour supply out of New Zealand. That combined with any sort of cutback in migration will see labour supply potentially constrained. And that might start to mean that, actually, you get a bit of upward pressure on wages growth in New Zealand, which you haven’t seen for a while.

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