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Boom in house building will lead recovery, says economist

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  • Boom in house building will lead recovery, says economist

    Boom in house building will lead recovery, says economist

    4:00AM Saturday Sep 19, 2009
    By Adam Bennett
    Brendan O'Donovan. Photo / Mark Mitchell

    New Zealand's recovery from recession will be fuelled by a migration-driven housing construction boom, with Auckland leading the way, Westpac chief economist Brendan O'Donovan said yesterday.
    O'Donovan's views, aired at the Mastercard-hosted Transtasman Credit Summit in Wellington, constitute some of the most optimistic economic commentary heard recently but will unlikely be welcomed by the Reserve Bank and Treasury, who are hoping for an export-led recovery complemented by housing market restraint.
    In the international context, O'Donovan noted leading indicators were pointing to a strong recovery in global manufacturing activity.
    "You'd be a brave person to stand in the way of them, they're telling us that growth is going to hit pretty strong momentum for the next six to nine months at least. Beyond that you can have pretty valid doubts."
    However, he was far more positive about New Zealand where the "big story" was the ongoing migration turnaround.
    Last year net inward migration was just 3500 but Westpac expected it would be about 25,000 this year.
    O'Donovan attributed that to a sharp fall in the number of New Zealanders leaving for Australia where a tightening in the job market appeared to be hitting kiwi workers hard.
    The migration turnaround was a key factor in what O'Donovan saw as an impending housing shortage.
    At present the housing build rate was a very sluggish 12,000 per year, "it should be running at about 20,000".
    "Given current build rate and migration, you'd actually need about 30,000 houses built to close the gap, it's just not going to happen.
    "The upside in terms of this construction cycle is huge.
    "This migration and housing shortage story is certainly enough to sustain the New Zealand growth story for a good few years, three years or so."
    O'Donovan said this would likely be unpalatable to the RBNZ which was "agonising about the unsustainability of New Zealand's growth".
    "They want to see it export led like it has been in most other recoveries, but this time around it's completely different."
    In comments pertinent to his audience of consumer credit executives from the local banking industry, O'Donovan said the pickup in housing activity would translate into greater home equity withdrawal, driving consumer spending.
    That was in contrast to the RBNZ's view that "the consumer is going to be dead in the water" for some time.
    However, Westpac is also optimistic about a "permanent sustained lift in export receipts" driven by improved commodity prices.
    O'Donovan also believed Auckland, which fell into recession earlier than the rest of the country last year due to its higher debt levels, was "leading the country out of recession".
    "Super high interest rates last year hurt Auckland more than just about any part of the country, the lower interest rates this year are benefiting Auckland more than most."
    Meanwhile, prospects for the rest of the country, which began to feel the pinch hardest when dairy prices fell, were also looking brighter.
    "Thankfully with the turnaround in dairy prices the worst is going to be averted. We'll probably see all parts of the economy starting to lift by the beginning of next year."
    "There's one way to find out if a man is honest-ask him. If he says 'yes,' you know he is a crook." Groucho Marx

  • #2
    I find it hard to believe that net immigration will rise by just under 22,000 is there any record of that happening before in the history of nz? Correct me if I'm wrong but an increase of that amount has to be seriously questionable.

    What other causes are they suggesting for this cause? Other than people leaving for Australia.


    • #3
      2003 dude, the net increase was 50,000. 2% population increase right there. And that's why houses went up heaps IMHO.

      Just consider how nice NZ looks to a Chinese person working 80 hours a week for a pittance in a polluted city where they can only have one kid, get no free social welfare, no free healthcare, no free education and have no freedom of speech. And there's 1.3 billion of them. Just one country as an example. Others might be India, Africa (the whole continent is desperately poor) and the rest of Asia.

      What most people don't appreciate is that our way of life is vastly superior to almost all other humans on the planet. 4 billion people don't even have electricity.

      It's things like that that drive immigration here.

      Squadly dinky do!


      • #4
        Thanks David. You learn something new everyday