New Zealand continues to leverage-up into property

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By Leith van Onselen

Data released late last week from the Reserve Bank of New Zealand (RBNZ) confirmed that New Zealanders are continuing to leverage-up into housing, with total outstanding mortgage credit increasing by 4.3% in the year to February 2013 – the fastest pace of growth since December 2008 (see next chart).

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The ratio of New Zealand housing debt-to-GDP also continues to rise, increasing for the second consecutive quarter to 85% of GDP as at December 2012, with further increases likely when the March quarter GDP figures are released over coming months (see next chart).

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The increase in New Zealand mortgage debt is being driven by mortgage rates that have been near record lows since early-2011 (see next chart).

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In addition, mortgage competition has reached fever pitch in New Zealand, with government-owned KiwiBank in February announcing that it would drop its six month fixed mortgage rate to just 4.79%, which reportedly was the lowest mortgage rate offered by a New Zealand bank for “many decades”, with mortgages being increasingly funded through offshore borrowings. And last month, ASB (owned by the CBA) announced that it would give borrowers a free 42-inch Sony Bravia LED TV as well as up to $NZ1,000 cash-back for anyone that takes out a mortgage in excess of $NZ100,000 (including refinancings from another lender).

In turn, the increasing in mortgage debt is driving strong house price appreciation, particularly in the heavily supply-restricted markets of Auckland and Christchurch, where values each rose by 12% in the year to February 2013 (see next chart).

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The growing appetite for mortgage borrowing, as well as recent strong house price growth, highlights the need for the RBNZ to expedite the implementation of macroprudential controls on mortgage lending. It also provides an ominous warning for Australia of what could happen if interest rates are cut too low and held there for too long without commensurate reforms to the supply-side and the implementation of macro-prudential controls on lending.

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Unconventional Economist


  1. Sigh. There are not going to be any macroprudential rules enacted. New Zealand is broke. If the Leaky homes didn’t dent our economy or the finance company collapses or the earthquake or rising unemployment, then the current rural drought will. What’s left to keep the country afloat? Not our production base. Only our property market. The only way New Zealand is ‘afloat’ is because it is revaluing its property market ‘assets’ up against a relatively small quantum of new debt. All boats rising etc. So don’t expect any changes, certainly not a change of rules…. because there isn’t another economic support system available.

    • It’s not an “economic support system” at all, it is a trap.

      For “investment” of a particular kind to be an “economic support system”, it needs to be “debt self-liquidating”; that it, is produces an ingoing income stream that can pay the debt off.

      “Bubble price inflation” in urban land does not fill that criteria AT ALL.

      Basically it is as valid as any “Ponzi” or pyramid scheme.

      • Too right, it’s a trap! But that’s why traps work….the prey doesn’t see it for what it is…it just sees the yummy cheese or the capital gains…and then “Snap!” .. you’re dead….

  2. it will be the same here in 1 year time, as the mining boom deflate, Abbot will do whatever it takes to reinflate the bubble to “save the economy”.

    • Dam…For the purposes of making money I reckon that is a pretty fair assumption on which to base one’s decisions.
      My worry is that debt for a house is a very long term prospect. Events may overtake and destroy our assumptions. Time frame is the issue.

  3. “It also provides an ominous warning for Australia of what could happen if interest rates are cut too low and held there for too long without commensurate reforms to the supply-side and the implementation of macro-prudential controls on lending.”

    Interest rates here are already too low and have been for 40 years.

  4. Arthur Schopenhauer

    Is New Zealand is the Australian banking system’s Iceland?

    As Janet has pointed out before, all the major New Zealand banks are 100% subsidiaries of the Big Four Australian banks. If a credit crunch happened in NZ there would be a substantial knock on effect to the financial system in Oz.

    As NZ’s economy is primarily agriculture (milk solids, wool and lamb) and tourism (largely Australians) and it’s corporate governance is lax by first world standards*, my guess is a credit crunch is pretty likely.

    Fortunately, the following little know factoid could make an Australian based bail-out quite a cosy affair. Since it’s inception, the Australian Constitution has allowed for New Zealand to become a State of Australia. So maybe, just maybe, NZ would get a bailout at the cost of its sovereignty.

    Oh the horror! (For both sides of the Tasman.)

    * For more info on NZ Corporations Law and NZ as a money laundering site, search for NZ in

    * The collapse of a large number Financial Firms in NZ 2007/08 was a complete fiasco attributable to lax NZ law and governance. Some where loose lenders, while other where simply ponzu schemes.

    • There was quite a nexus between the collapse of the NZ finance company sector, and “property Ponzi”. The whole business model was usually based on capital gains on raw land values continuing forever.

      What pisses me off the most is noisy investors getting a massive bailout at the expense of the NZ taxpayer eg South Canterbury Finance. Why should people who don’t even have the ability to save money to invest, have to pay more tax for the next 30 years because these people were fools about property Ponzi and could not see through it with a modicum of due diligence? As far as I am concerned they deserve to lose their money, it is all the worse because their willing participation in property Ponzi made it harder for the very people who will be paying taxes for the next 30 years, to buy their first home.