We’re in the depths of winter, and the temps in the morning are starting to reflect that! Still, I think we’ve had a pretty mild run of things so far in Wellington—lack of wind is always a good thing!
I’m going to go a little off-piste in this update, so bear with me. But first up, Wellington property by the numbers (as at June, from REINZ):
- Compared to last year, property sales are up 12.8%—while month-on-month, in June, sales numbers were down 19.7%. This is typical of the winter period, so not unexpected.
- Median price compared to last year is down by 4.4%—now at $760,000 (compared to last month at $795,000 for an additional reference point).
- Median days to sell is sitting at 54.
So the figures paint a subdued picture for Wellington if you’re hoping for an increase in property values. For those looking to purchase though, it’s good news, still reflecting a buyers’ market.
OCR & interest rates
In other news, the Official Cash Rate (OCR) was held on 9 July, and whilst interest rate reductions are generally welcomed, I do wonder if any further drops are going to have a material impact, or even any impact at all.
I think it’d take an interest rate war amongst the banks, in an effort to ‘buy market share’, for us to see any further meaningful impact.
The latest on inflation
Our latest inflation numbers also came out earlier this month, showing annual inflation has tracked upwards to 2.7%, its highest level in a year. Again, that wasn’t unexpected.
The shift was largely down to rent and council rate increases I’m told, although anecdotally I’m hearing of challenges to fill rental properties in Wellington—so, go figure.
The primary mandate for the Reserve Bank of New Zealand is to maintain price stability, which means keeping inflating low and stable, and within the target range of 1-3%.
The main tool it uses to achieve this is the OCR, which in turn indirectly impacts bank lending rates.
The issue I (and many others) have with this system is that it takes a long time for OCR changes to flow through, given that the majority of our mortgage lending in New Zealand is on fixed rates. Borrowers only feel the effects—good or bad—as their loans mature.
Think of the housing market as a bit like a massive cargo ship. If you need to change course, it takes a long time to swing that ship around to get it on the correct path. That’s the impact of having a majority of lending on fixed interest rates.
(As an aside, in Australia, it’s the complete opposite story. The majority of their mortgage lending is done on a floating rate basis, meaning any change in their OCR equivalent is felt much more immediately.)
The increase in interest rates is designed to reduce disposable income—and lessen people’s spending—which in turn reduces inflation. Hence the RBNZ mandate.
But what if there was another way?
Here is where I’m going to go off-piste.
If the goal is to reduce levels of disposable income in the market, rather than lining the banks’ pockets (i.e. via higher interest rates), wouldn’t increasing enforced KiwiSaver contributions do the trick just as well? Better, even.
It may be a little more complicated—and it could apply only to those earning over, say, $100,000, to ensure lower-income families aren’t impacted—but at least the funds would stay with the people instead. The impact would also be a lot more immediate and direct.
The banks would still earn from managing those KiwiSaver contributions, too, of course.
Food for thought, and I’m sure there’ll be reasons why this wouldn’t work, but are they that insurmountable?
I just think the system as it is, is a little flawed, and we should always be looking to innovate and improve. I’d be more than happy to discuss with someone a lot more knowledgeable then me—always keen to learn and grow.
Anyway, tune in next time, and (as always) feel free to reach out for a chat.