The Resource Management Act just got a whole lot worse, Wellington’s earthquake strengthening woes and 10 other insights in property news this week…
Here’s the reading list for our property news this week…
- The Resource Management Act just got a whole lot worse
- Our biggest bank adopts our lowest home loan rates
- Term deposit rates plumb new depths
- Investors have confidence in NZ economy
- Centuria ups ante to full takeover offer for Augusta
- Economic activity and business confidence bouncing back
- Business confidence stabilises but outlook is gloomy
- Tony Alexander puts business confidence into context
- Deflation risks linger
- Returning New Zealanders may hold key to house prices
- Closing Tiwai is game-changing for Invercargill
- Wellington’s earthquake strengthening woes
The Resource Management Act just got a whole lot worse
The Resource Management Act (RMA) is one of New Zealand’s worst performing pieces of legislation.
It has become a major barrier to progress by adding costs and delays to the local authority consenting process.
It has also been identified as a significant contributor to the country’s housing crisis.
Almost everyone, except radical environmentalists, accept the RMA needs to be reined in – and every Government in recent history has campaigned on promises to ‘fix’ the RMA.
In 2017, the Labour Party also campaigned on fixing the RMA, and last week passed their Resource Management Act Amendment Bill into law.
Environment Minister David Parker claimed it was a significant step forward in improving resource management and consenting in New Zealand.
The truth is quite the opposite.
The Minister failed to mention that the passing of his Bill fails to help the climate and represents a serious abuse of democracy and the Parliamentary process.
Last July during Parliament’s Question Time, Green MP Gareth Hughes asked Minister Parker whether he supported removing the ban that prevents local authorities from taking climate change into account when considering resource consent applications from the RMA during this term of Parliament.
The Minister replied with a categorical “No”.
The ban had been introduced by Helen Clark’s Labour Government in 2004 on the basis that the consideration of greenhouse gas emissions was best addressed at a national level through a carbon-pricing mechanism such as an Emissions Trading Scheme.
Accordingly, sections 70A and 104E were inserted into the RMA. These sections relating to the discharge of greenhouse gases were to ensure that “a consent authority must not have regard to the effects of such a discharge on climate change”.
These provisions prevented local authorities from declining a consent to, say, build a petrol station or expand a coal mine on the basis that they would be promoting the use of fossil fuels.
After the bill went out for consultation, the Environment Select Committee received hundreds of submissions ‘from the public’ calling for the repeal of sections 70A and 104E. There was nothing drawing the public’s attention to these sections because there were no changes proposed to them.
It is implausible to suggest the submissions were anything but orchestrated by the Green Party mobilising their support base.
These engineered submissions had a big influence on the Ministry and the Select Committee, which accepted the submissions at face value and claimed to have been so influenced by them that sections 70A and 104E were repealed – with no opportunity for this major law change to be considered by submitters.
The opposition spokesman on the RMA expressed it in this way…
“A recently-released report by the Environment Select Committee recommends several changes to the Resource Management Amendment Bill, including provisions for climate change considerations in RMA decisions.
“These late changes are an abuse of the select committee process because they were made after public feedback was called for, meaning submitters have not had the opportunity to properly consider the new bill.
“The climate change considerations were not in the original bill, and it appears only some of the people who submitted were aware of them.”
While the Environment Minister David Parker claimed he was working on ways to improve the speed and certainty of consenting, now that councils are able to consider climate change in their consenting decisions, “This bill will have the opposite effect”.
Green Party co-leader James Shaw claimed the repeal of sections 70A and 104E was a major policy victory. “This is one of the most significant policy changes to address climate change that we have done this term.”
But Dr Eric Crampton, chief economist at the New Zealand Initiative, explains that since the Emissions Trading Scheme (ETS) now has a binding emissions cap for the whole country, the RMA law change will do nothing to reduce carbon emissions but will impact on costs.
“Now that the ETS comes with a binding cap, council consideration of carbon emissions in consenting cannot really affect New Zealand’s net emissions.”
What he means is that an increase in carbon emissions somewhere must be offset by a reduction somewhere else, facilitated through the sale and purchase of a limited number of carbon credits.
If a council imposes significant extra costs on developers to meet expensive standards for greater energy efficiency, net emissions will not change. “The household’s lower demand for carbon credits just frees up credits to be used elsewhere.”
And if a council rejects a proposal to build a service station or expand a coal mine on the grounds it would be promoting the use of fossil fuels, it will in fact have no impact on the country’s total emissions. All it would do is deny local communities the convenience and employment opportunities that such a business would bring.
COMMENT: The new law will do nothing to address climate change – it will not reduce overall emissions within New Zealand one jot. But it will profoundly delay projects and increase development costs. The RMA nightmare just turned into a [Green] horror movie.
Our biggest bank adopts our lowest home loan rates
ANZ cuts all its ‘special’ home loan rates, with two of them down to market-leading levels and probably sparking a renewed round of rate slicing. It is also cutting almost all its term deposit rate.
ANZ have restarted the mortgage skirmishes, and in earnest. The country’s largest mortgage bank has cut its 1-year fixed rate to 2.55% and their new 18-month rate is now down to 2.65%. Both of these new rates are market leading.
Further, they have trimmed their 6-month, 2-year and 3-year fixed rates although none of those are market-leading.
Both Westpac and BNZ have followed ANZ down to 2.55% for a fixed 1-year ‘special’ offer.
Term deposit rates plumb new depths
At the same time as dropping its home loan rates, ANZ has cut almost all its term deposit rates.
After following ANZ’s lead on the home loan front, Westpac also cut most of its term deposit rates at the same time.
The interest rate offered on 1-year term deposits at ANZ, ASB and Westpac are all 1.6%, BNZ is 1.65%, while TSB and Kiwibank are both 1.7%.
COMMENT: A retiree whose only source of income is the pension and interest on a $1 million term deposit at the current highest 1-year rate of 1.7% p.a. would receive a pitiful $14,025 after-tax income from that whopping $1 million term deposit.
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Investors have confidence in NZ economy
The vast majority of investors have confidence in the New Zealand economy and its capital markets according to the Chartered Accountants Australia and New Zealand’s (CAANZ) latest investor confidence survey.
CAANZ’s reporting and assurance leader, Amir Ghandar, said the level of investor confidence was surprising given what the OECD had described as the most severe economic recession in nearly a century.
“A sense of optimism has clearly been growing as the nation weathered the pandemic, but uncertainty remains as to the speed and depth of an economic recovery,” Ghandar said.
Centuria ups ante to full takeover offer for Augusta
Sydney funds manager Centuria Group lifted its buy-up of Augusta Capital shares to a full takeover offer yesterday.
At that point it held or controlled 66% of Augusta.
Centuria’s original takeover bid was at $2 per share, before the Covid-19 pandemic intervened with ‘life as usual’.
Its replacement offer was $0.20 cash plus 0.392 of a Centuria stapled security – equating initially to an implied $1 per share. Last week Centuria lifted the cash component to $0.22.
Economic activity and business confidence bouncing back
Two surveys from ANZ show business confidence and economic activity have rebounded, but uncertainty about the future remains extreme.
ANZ senior economist Miles Workman said the country enjoyed a sharp bounce out of lockdown, with all forward-looking indicators lifting. However, he warned the brunt of the brunt of the recession is still yet to hit.
Meanwhile, ANZ’s tracking of freight movement showed economic activity was back nearly back to levels seen a year ago.
The bank’s monthly Truckometer index uses transport movement as a guide to the economy.
Heavy traffic rose 14.5% in June, compared to May, and light traffic was up 28%. ANZ economist Liz Kendall said the figures reflect confirmation of a post-lockdown bounce but it is likely traffic volumes will settle down in the coming months.
Business confidence stabilises but outlook is gloomy
The New Zealand Institute of Economic Research’s latest quarterly survey of business opinion shows that business confidence has improved slightly in the June quarter after declining sharply in the March quarter.
“That’s pretty encouraging, it does suggest some stabilisation in terms of confidence,” says the institute’s principal economist, Christina Leung.
But companies are bracing for the economic situation to get worse over the coming months, as a quarter expected to cut staff, with weaker trade activity. More than a third of businesses said they would reduce investment over the next quarter.
Tony Alexander puts business confidence into context
This week NZIER released the results of their latest Quarterly Survey of Business Opinion (QSBO), which sits alongside the ANZ’s Business Outlook Survey as providing the best long-run set of business opinion data available in New Zealand. You’ll probably have seen the headline results – which are unwaveringly bad.
A net 59% of non-farm business respondents feel negative about the economy’s outlook. A net 28% expect to lay off staff, a net 36% plan cutting spending on buildings, and a net 36% plan reducing investment in plant and machinery.
A net 37% say that their levels of domestic activity have fallen, and there is a good correlation between this measure and the eventual year on year change in the pace of GDP growth.
So, is it time to panic? No, and here’s why.
Of eight different indicators, every single indicator is better now than it was during the worst of the GFC.
So, what happened after those bad GFC readings? The economy shrank just 0.2% in the year to March 2010 and grew 1.6% the year after (no lockdown distortions).
Job numbers fell 0.5% in the year after March quarter 2009 then grew 1.6% the year after that.
Within five quarters businesses were once again saying skilled labour was hard to find, and confidence was about +20%.
The recovery from recession was not rapid or strong, but it happened from worse readings than we have just received – readings mainly taken four or so weeks back.
We can’t look at the latest sentiment gauges and say everything is fine. Big challenges lie ahead. But 11 years ago, businesses felt that the challenges and their required responses to them were greater than they are now. Hopefully, that can help people get some better perspective on the current situation.
Deflation risks linger
ASB Bank economists expect a 0.4% quarter-on-quarter CPI decline in Q2, bringing annual CPI inflation down to 1.5%.
In their economic note published yesterday they predict annual CPI inflation to dip toward zero in early 2021 before recovering gradually.
They do not expect 2%+ annual CPI inflation anytime soon.
Low inflation means that monetary policy settings will likely remain highly expansionary for a long time. “Our baseline forecasts have the OCR on hold at 0.25% until 2024.”
Returning New Zealanders may hold key to house prices
New Zealand’s quicker than expected move down the Covid-19 alert levels has seen house prices hold steady, despite overall growth slowing during the June quarter.
The CoreLogic QV House Price Index rose 1.3% in the three months to June.
QV’s general manager David Nagel said open homes and auctions continued to be well attended and the market was experiencing good competition, particularly from first home buyers.
“It’s looking better than a lot of us thought… the real estate sector’s recorded strong interest from vendors with listings close to normal levels for this time of the year. Banks are recording good levels of enquiry.”
He said the market’s resilience would partly depend on returning New Zealanders feeding buyer and tenant demand.
“That’s a lot of people that have to find somewhere to live… and makes up significantly for what will be a significant reduction in normal migration numbers… certainly they’re filling the void at the moment.”
Keeping interest rates low, reducing unemployment and keeping Covid-19 out of the country would also play a part.
Closing Tiwai is game-changing for Invercargill
After years of speculation, threats and negotiations, Anglo-Australian mining giant Rio Tinto said on Thursday it was going to close the Tiwai Point smelter next year.
1000 people will lose their jobs and another 1600 jobs indirectly connected to the smelter are also under threat.
The closure of Tiwai Point will be most keenly felt in Invercargill. Independent economist Benje Patterson said that while geographically the smelter was nearer to Bluff, it was closer by road to Invercargill where most of its workers lived. “Closing Tiwai is game-changing,” he said.
Since opening in the 1970s, the smelter has become one of Southland’s biggest earners, accounting for about 6.5% of the local economy.
One of the largest companies based in Bluff is South Port, with over 100 employees. It will lose a third of its cargo volume without the Tiwai Point aluminium smelter, and over 20% of its net profit.
Port chairman Rex Chapman said the closure of the smelter would be a significant loss to the regional economy. Tiwai was one of the biggest employers of Invercargill people without doubt, according to Patterson.
“The wages are much higher than in other industries around – they’re high-volume, lucrative jobs.”
“The fantastic job opportunities Tiwai offered and the affordable lifestyle has been quite compelling for people to put down roots.”
Many of the people employed at the smelter would have to retrain as they had a very particular set of skills, and many would decide to leave the region if there were no immediate opportunities.
“Previous discussions [about closing the smelter] were during times of high growth; this is the worst possible time.”
COMMENT: Many real estate investors were lured to Invercargill by low prices and high yields. Perhaps they overlooked the risks of investing into a small city of only 50,000 people? They’ll be rueing that decision now.
Wellington’s earthquake strengthening woes
Time is running out for hundreds of Wellington property owners who face big bills to fix their earthquake-risk buildings.
About 1,000 buildings in the capital have been “yellow stickered” with 600 of them still to be fixed.
If they don’t fix them by 2027 they risk losing them. The cost to make the buildings quake proof is roughly $1.5 billion.
Wellington City Council’s chief resilience officer Mike Mendonca says, “New Zealand is divided into high, medium and low risk zones for the purposes of this legislation. Wellington is high risk and mother nature gives us a brutal reminder of that from time to time. So we know we can expect a moderate to large earthquake at some point in Wellington.”
COMMENT: The Wellington Town Hall budget blowout is a warning to other earthquake-risk building owners that getting a final cost in the detail design phase doesn’t mean that’s the final cost. It could be much more once work starts and engineers are better able to assess the structure and remedial work required.
After seeing the hardship many Christchurch property investors went through, only the brave or very savvy would invest in Wellington commercial real estate.
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That’s it for Property News This Week. Have a great weekend and we’ll meet here again next week.
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