Building consents sink to record low – emergency reduction needed in OCR

The residential construction sector and the housing market remain in very poor shape. The building consents for December plunged to new depths, falling below 1,000 for a December month for the first time since records began in 1965.

Why is it that the Reserve Bank gets it so wrong when it comes to movements in the official cash rate? And why is it so slow to react when corrective action is so obvious?

Jennian Homes is once again calling on the Reserve Bank and the government to take a much stronger leadership role to restore consumer confidence in new home building and the housing market. House prices and new housing activity remain significantly below 2008 levels, while builders are facing the toughest times in living memory. Those who have struggled to keep their heads above water throughout recent years will find 2011 even tougher to survive.

The Reserve Bank’s previous assumptions on GDP and housing growth were flawed. Its premature increase in the OCR last July and failure to acknowledge this mistake in the remainder of the year have further damaged the residential construction industry and other productive sectors of the economy.

Jennian Homes is again calling for an emergency reduction in the OCR of up to 0.5%. This will assist the housing and productive sector, restore consumer confidence and lower the New Zealand dollar, particularly against the weakening US dollar.

“We need to protect the domestic (confidence) and export sectors (currency) of the economy,” says Jennian Homes director Richard Carver. However, he warns: “It may be too late as the latest figures show that we are now back in recession.

“Consumers are still holding back. They need more confidence to get them over the line. Increasing the OCR last July did little to improve weak consumer confidence. Remaining bullish in October only fuelled the problem. The economy is now in reverse. September saw negative GDP growth and the December quarter may well be negative as well.

“The government’s 2010 attack on residential property investors further undermined consumer confidence and further damaged residential construction activity. On top of that the early introduction of the Emissions Trading Scheme increased petrol and electricity prices for all New Zealanders, at a time when we are all being told that we must save more.”

Mr Carver says we are well into a perfect economic storm with rising costs, rising dollar, rising interest rates, falling net migration and falling consumer and business confidence. The December consent figures should now be sounding alarms that swift action must be taken before a national state of emergency is declared.

The average Kiwi, in a non-essential job, is still hurting from the recession and the motivated ones are eyeing up the lucky country across the ditch. This will help improve New Zealand’s unemployment statistics and drain our talent pool, which no doubt the government will claim as a great policy. Australia continues to widen the economic and wage gap between the two countries, despite ongoing reassurances from the government. New Zealand’s net migration for the year ended November 2010 was down 42.5% on the previous year. Employment remains fragile with little wage increase pressure evident in the economy.

Any predicted housing shortage appears to be just a myth at this stage, as every departing Kiwi, mostly heading for Australia, will tell you, along with the 20-plus-year-olds who are more than happy staying at home with their overburdened parents. Most people in non-essential jobs still lack confidence in job retention.

The 2010 increase in the OCR was, as predicted, premature and unwarranted. The associated appreciation in the NZ dollar, which continues to float just below 80 US cents, is making the recovery longer and harder for all Kiwis – especially primary exporters, the backbone of our country.

Globally, things still remain uncertain. New Zealand’s GDP declined by 0.2% in the September quarter (Statistics NZ 23.12.10) negating the 0.1% increase in the June figures. This puts New Zealand back in the recessionary zone – hardly the environment where the Reserve Bank should be sitting on its hands. The Reserve Bank’s previous (now revised) annual GDP growth predictions of 3.7% were grossly optimistic (wrong) as was its underlying assumption on inflation – proving, yet again, that there was no need to increase the OCR in 2010.

“The government needs to step up to restore consumer confidence in new home building and renovations, and to restore industry viability. In short, the 2010 OCR increases and lack of corrective action were unwarranted and have hurt the housing sector and the economy. This was clearly flawed. Maybe they should spend more time at the coalface, listening to what is really going on, rather than talking about what they think might happen.

“I believe the next move in the OCR needs to be a reduction. Let’s see what happens.”

ENDS

© Scoop Media