CORIN DANN INTERVIEWS BILL ENGLISH
Good morning to you, minister. If we could start with housing affordability. How will what you’ve done in the Budget help the couple that goes out today, the first-home buyer, to look for a house, goes to an open home? In what way will this bring down prices and make their task easier to find a house?
BILL ENGLISH - Minister of Finance
It sends a clear signal that the supply of housing into the market, particularly those high-growth markets, is going to grow. If you’ve got more houses being built, there’s less pressure on the price. At the moment, Auckland in particular is building, historically, quite low levels of new housing, almost nothing that’s available to middle-income families. And over the next two or three years, we’re going to be working intensively with the council and others who want to to change that.
CORIN But that’s the point, isn’t it? ‘Over the next two to three years.’ There’s nothing that’s going to stop house prices rising another 10, 15 per cent compound for the next two years. That couple are going to find it still very, very difficult to find a house.
BILL Well, we’re trying to turn around a big ship here. I think the one thing that may have an impact, and we’ve yet to see, is the pretty clear signal. So developers out there who are sitting on their land assisted by planning rules that almost guarantee they’re going to get large appreciation in the value of that land if they just sit and wait. They’re getting a clear signal from the legislation passed, the legislation put into the house on Friday, that the council and the government are willing to act to significantly expand the supply of houses. So in Auckland, for instance, in the last three years, there’s 12,000 or 15,000 units built. In the next three years, we’re looking at 39,000.
CORIN But you’re asking the market to do that. If it doesn’t work, what happens in the next two years? Because you’ve said yourself with big increases in house prices, it’s very damaging to the economy. What happens in the next two years if you can’t bring it under control?
BILL We’re focussing on the supply on the houses-
CORIN In two years’ time, but what do you do other than that if these don’t come right?
BILL Well, alongside that, in the Budget we outlined the agreement we’ve got with the Reserve Bank, where they have some tools that are available to help them ensure that banks don’t get carried away with the lending. And then, of course, the Reserve Bank Governor has the tool of interest rates, and these households heading into quite high debt to buy these highly priced houses need to be aware that at some stage the Reserve Bank will increase interest rates, particularly if the housing market keeps growing at quite rapid rates.
CORIN So just to pick up on that, on interest rates, are you warning first-home buyers to think twice about buying at the moment?
BILL No, I’m just stating the fact that interest rates are likely to rise at some stage. I mean, at the moment, they’re at 50-year lows. That’s giving people a bit of a- They don’t want to believe that that’s permanent. The Reserve Bank has the tool of interest rates. They use it through a cycle. The governor has expressed reluctance to use it at the moment. He hasn’t been increasing interest rates. So we will just have to see where that goes over the next couple of years.
CORIN But everything you’ve got, everything you’ve outlined here is stacked against that first-home buyer. The loan to value, ratios, for example, cutting down the ability for people to have big mortgages - you know, 80 per cent-plus loans - that just hammers the first-home buyers. And then, as you say, the rising interest rates is also going to put them out of the market. There’s nothing for that younger generation of Kiwis in what you’ve announced.
BILL Well, there is. What’s stacked against first-home buyers are planning laws that are explicitly designed to drive up housing values, and that is the case in a number of our faster-growth markets. They’re explicitly designed to ensure that house prices go up so that they can afford the intensification and the very high-value, high-cost urban design that goes with that. So what’s in here is legislation that allows us to give the councils the tools that they need and makes it clear that if that doesn’t have some- if that doesn’t work well, then the government has the ability as a reserve power to issue consents itself. Now, this is the most significant step that a government’s taken around working with councils in a long time.
CORIN On the issue of interest rates too, if interest rates go up, of course that’s going to put pressure on the dollar. That is the problem you’ve got with this economy, isn’t it? You can’t afford for interest rates to go up. You’ve got a hot domestic economy raging away over the next couple of years, and it’s going to cripple our export sector.
BILL You’re right. It is quite a challenge right now, and that is why rather than relying on the interest rate tool which was what was used last time round, and we ended up with 8 per cent OCR and 10 per cent first mortgages. This time round, we’ve spent the last two or three years working out what the tool kit is that we need to beat this housing cycle. We are implementing that tool kit.
CORIN You said yourself a couple of minutes ago that the Reserve Bank is going to have to raise interest rates. It’s inevitable.
BILL The market tells us it will be sometime late this year or next year. Who knows? For quite a while, people thought interest rates were going to go up, and it’s been pushed back and back because of the state of the global economy. All I’m saying to the home owners and to the developers is that the steps the government has taken over the last week with the Reserve Bank tool kit and the accords with councils are going to change the market over the next two or three years, and it’s going to bring more houses to the market.
CORIN But coming back to the issues of the wider economy, isn’t the problem here you’ve got a very strong- you’re going to have a very strong domestic economy. No one disputes that. 2 to 3 per cent growth. You’ve got Auckland houses being built, and you’ve got the Christchurch earthquake. Net exports, according to Treasury, are going to be a drag on the economy. There’s nothing in your Budget that’s going to make sure that when all that domestic heat goes, we take off with exports. Where is that vision? Where is the goal?
BILL Corin, I completely disagree with you there. We’ve set out earlier this year in six documents the Business Growth Agenda which sets out dozens, in fact hundreds, of policy initiatives which we’re working on to focus on lifting our long-term potential for earning from the rest of the world. And I think everyone now understands that potential’s better than it’s been for a couple of generations because of the growing Asian markets. There isn’t one big thing that helps us realise that. There’s a whole shift in culture ranging from the increased number of companies who now want to come to the public stock market to raise money, through to new rules for how we use our water resources so we don’t degrade the environment - and water is at the heart of our dairy industry - through to a lot of investment in infrastructure and in skills. So we’ve laid- That has all got a long-term focus to lift our export capacity.
CORIN Could I ask you something that my predecessor in this job has asked you after just about every Budget, I think, that you’ve done? What does this Budget do to address inequality in NZ? Does it close the gap between the poor and the rich?
BILL It takes us in that direction.
BILL Closing that gap is a pretty big challenge. How it does it is first the thing the people with the lowest incomes need is a growing economy so there’s opportunities. And the best news in this Budget is the forecast for more job growth and that fact that we’re looking a bit closer to things like the nationwide impact of the Christchurch earthquake.
CORIN But we need to see businesses pass on those benefits of that growth. 2 to 3 per cent growth: sure, great. But are businesses going to pass that on in wages to the average Kiwi? Are they going to get 3 per cent wage increases? 4 per cent wage increases?
BILL Well, look, some certainly will. Because it won’t be long before we’re-
CORIN Some will? Why not all of them?
BILL Well, you want to talk to the businesses. That’s who decides. The government doesn’t set the wages. The point is this: in a growing economy where there’s stronger demand for labour, and in a few- before long we’ll be in a discussion about how to find the people to fit in the jobs that are available, particularly in construction and manufacturing. That’s the discussion we’ll be having. There’s also a whole range of measures in the Budget focused on the most disadvantaged who are a long way from being able to step into a job, whose lives are complicated, who are dealing with all sorts of problems and whom the government has served very poorly in the past - governments - through poor housing policy. So we’re fixing that up, insulating their homes, getting the children immunised. There’s been a lot of discussion about who should feed the kids so that they can learn at school, and there will be more announcements on that.
CORIN See, the thing is, if we have a very strong domestic economy and we have a booming property industry, so much of the benefits of that are going to go to people at the top, aren’t they? The property investors, the landlords, the people who own capital. It’s not going to be evenly distributed, is it?
BILL In that context, the measures we put in the Budget around housing will make a difference to the usual cycle, which is as you described. But the current way that we write rules to restrict the supply of houses into places like Auckland are exactly the things that push the benefits to the developers and the financiers and make it very difficult for low and middle-income families. And I think that housing package is the biggest single step in the Budget to help income inequality.
CORIN Sure. Can I ask you a couple of quick questions on the issue of Meridian Energy? How are you going to get enough New Zealand investors to invest in this company when you struggled with Mighty River Power? You’re going to need a lot more to get 85 per cent. Can you guarantee you’ll get 85 per cent New Zealand ownership of that company?
BILL Well, look, we didn’t struggle with Mighty River Power. It’s got by far the largest share register on the NZ Stock Exchange, and 115,000 individual New Zealanders put their names in for shares. But Meridian is quite a bit bigger. We’ll be working hard to excite the interest of individual investors. I think a lot of them were put off with the long political discussion around Mighty River Power, but we’ve found more and more New Zealanders have got interested in investment partly because of the high profile of the Mighty River discussion. But also they want to- As interest rates on their deposits keep dropping, they’re looking for other opportunities for putting their savings.
CORIN Sorry, minister, I have to go, but just very quickly, is that a yes or a no you can get 85 per cent guaranteed?
BILL Uh, as we’ve always said, it’s not a guarantee. It’s our target, and with Mighty River Power we achieved it, and with Meridian,we are going to go really hard to get 85 per cent.
CORIN Ok, I will take that as a maybe. Finance Minister Bill English, thank you very much for your time.
BILL Thank you.