Auckland chief economist needs to sound his OCR warning

Auckland chief economist needs to sound his OCR warning

“While many are egging on the Reserve Bank to cut the Official Cash Rate this week and again in late October, Auckland Council’s chief economist needs to make his warning for the Auckland region much better known and quickly,” says Cameron Brewer - Auckland Councillor for Orakei.

“While cutting the ORC might be just what is needed in Horotiu, Hawera, and Hokitika, in Auckland our official advice now is that cheaper mortgage rates will only add fuel to the property fire and possibly overwhelm the promised cooling-off measures.

“In Auckland this could be an even crazier summer of crowded open homes and record-breaking auctions given how busy winter was after the OCR was cut in June and July.”

Mr Brewer says these observations are not his but those found in Auckland Council’s regular but relatively low-profile report titled ‘Auckland Economic Quarterly – August 2015’.

Subtitled “Rampant Housing” the Chief Economist Unit’s latest edition notes: “The low interest environment is also contributing to the strong demand for housing. The RBNZ has cut the Official Cash Rate by 0.5% since early June, and signalled further interest rate cuts were possible over the coming year. These moves will likely intensify demand for housing. This is despite some other measures intended to reduce demand, such as investors being targeted with higher deposit requirements (30%); banks needing to hold reserves for investor mortgages; and a compulsory capital gains tax if reselling in two years. The faster Auckland house prices continue to rise ahead of rents and incomes the more vulnerable the market is to a substantial price correction.”

“We’re lucky to have a very in-tune chief economist at Auckland Council. That’s why I’m alarmed not so much by his observation that further OCR cuts will “likely intensify demand for housing” but most worryingly he predicts even greater market intensity in Auckland despite the much vaunted and imminent LVR and tax changes,” says Mr Brewer.

“As much as the dairy sector needs a shot in the arm, and as exciting as 4.35% interest rates are, this latest report clearly indicates that Auckland probably needs to be careful what it wishes for if we’re to avoid further unsustainable price escalation and a substantial correction with the vexed issue of improving overall housing supply critical.

“Auckland Council’s chief economist has issued some very sage advice, which I encourage him to make more widely and clearly known to the Wellington-based Reserve Bank. This spring the RBNZ needs to keep considering housing affordability in the likes Hillsborough, Hillcrest, and Highland Park,” he says.

Mr Brewer says his comments will come as no surprise to those inside council as he has raised them twice at recent presentations by the chief economist to councillors.

ENDS

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