BusinessDesk report by Pattrick Smellie
Household incomes have increased by a third in the last four years, while average house prices have risen nationally by only 1.3 percent in the same period, making recent real estate market buoyancy unsurprising, says Finance Minister Bill English.
Appearing before Parliament’s finance and expenditure select committee this morning, English appeared to have prepared the figures in advance for questions on the apparent heat in the Auckland housing market, which has seen average house prices rise above the levels at the time of the global financial crisis in 2008.
“House prices on average have moved up one percent in nominal terms. Disposable income is up a lot over that period,” he said. “We wouldn’t be surprised to see a bit more interest going back into the housing market”, especially with the lowest interest rates in 40 years.
English tried to bat away Opposition politicians who pressed him on forecasts from the Treasury, Reserve Bank of New Zealand and the International Monetary Fund of an unsustainably high current account deficit with the rest of the world over coming years.
He cited the Christchurch earthquake as adding around one percentage point to the forecasts, while expressing a personal opinion that the outlook for New Zealand was better than forecasters believe.
“I’m just a bit more optimistic,” he said, since he doubted New Zealand would return to historic levels of debt accumulation. “The fact is we are in a world that’s pretty different because everyone’s reducing debt.”
Households were saving more, which forecasters had originally doubted would happen, and New Zealand corporate balance sheets were stable. While public debt was growing in part because of borrowing to cover quake rebuild costs and to lean against the impact of the global recession, the government remained committed to a Budget surplus by in the 2014/15 financial year.
If the current account deficit persisted at very high levels, New Zealand would also suffer a “textbook” sharp correction, with a much lower exchange rate among the outcomes.
Green Party leader Russel Norman challenged English on this, asking why the government didn’t seek to manage the current account deficit down rather than wait for global financial markets to “punish” New Zealand.
English said he was “unpersuaded” by the range of alternative policy options being put up by Opposition parties, saying all had been debated over the last 30 years and there was no substitute for continuing with economic reforms in areas such as land and water use, and the Resource Management Act, to foster faster economic growth.
“If we thought we could manage it, we would go and manage the damn thing,” he said. The high New Zealand dollar was a “signal from the world” that New Zealand had “sound prospects of producing stable yields compared to other countries.”
“Our problem is one of success.”
The New Zealand economy would remain “patchy” and unpredictable. Growth in the first half of this year had been stronger than forecast, while the second half was turning out to be weaker than anticipated.
“We think doing 2 to 3 percent annual growth we will continue to get job growth and continue to get household incomes into reasonable shape,” English said.