June 26, 2024 • 19 mins
If you’ve been struggling with the cost of living, some good news is in store.
While Kiwis have to wait a few more weeks to see the Government’s tax cuts come through, from July 1st, parents, investment property owners and Auckland drivers are due for some relief.
It could all be short-lived though, with many councils eyeing major rates increases to tackle their flailing budgets.
Today on The Front Page, Infometrics chief executive Brad Olsen to discuss the ongoing struggle with the cost of living and how these changes might help - and what impact the rates rises will have.
Follow The Front Page on iHeartRadio, Apple Podcasts, Spotify or wherever you get your podcasts.
You can read more about this and other stories in the New Zealand Herald, online at nzherald.co.nz, or tune in to news bulletins across the NZME network.
Host: Chelsea Daniels
Sound Engineer: Paddy Fox
Producer: Ethan Sills
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:05):
Kielda.
Speaker 2 (00:06):
I'm Chelsea Daniels and this is the Front Page, a
daily podcast presented by the New Zealand Herald. If you've
been struggling with the cost of living, some good news
is in store. While kiwis have to wait a few
more weeks to see the government's tax cuts come through.
(00:27):
From July first, parents, investment property owners and auckland drivers
are due for some relief. It could all be short lived, though,
with many counsels eyeing major rates increases to tackle their
flailing budgets. Today on the Front Page will be joined
by Infometrics Chief executive Brad Olsen to discuss the ongoing
(00:47):
struggle with the cost of living and how these changes
might help. But first let's go through what those changes
exactly are new and expect parents are the big winners
with the maximum weekly rate for paid parental leave will
increase from seven hundred and twelve dollars seventeen to seven
(01:09):
hundred and fifty four dollars eighty seven gross per week,
and families will be able to receive early childhood education
tax credits up to seventy five dollars a week. Some
relief is on the way for residents in the country's
biggest city. The Auckland regional fuel tax scheme that has
been in place since the first of July twenty eighteen,
(01:30):
is due to end after five years. From July first,
the extra tax of eleven point five cents per liter
on petro and diesel will be gone. That means the
driver of a Toyota high Lux will save around nine
dollars twenty every time they fill up, while a Toyota
Corolla driver will save around five dollars seventy five. Those
(01:52):
with residential investment properties are also due to benefit. The
government has reduced the bright line test to two years
for all properties after the previous government increased it to
ten years. The change means people who sell residential investment
property within two years of purchasing it will have to
pay tax on any gains received. If you sell it
(02:15):
after three years, though you won't be taxed. The Earthquake
Commission's Disputes Resolution Scheme will also begin on July first.
This is an independent process for people who want to
dispute the outcome of a natural hazard insurance claim. Bad
news for hikers. From July first, great walk, hut and
campsite prices will increase by eighteen percent, except for Paparoa,
(02:40):
which will increase by six percent. July first also marks
the start of the ratings year for many councils, when
homeowners can expect rates increases to come into effect. Many
of these are still to be ratified at the time
of recording, but in Auckland councilors endorsed a six point
eight percent increase this year, while water and wastewater prices
(03:02):
will increase by seven point two percent. In Wellington they're
looking at a sixteen point four percent increase for the
next year, while christ Church City Council is looking at
a nine point nine to five percent increase. So how
will this impact the cost of living? We're joined now
by Infometrics Chief executive and economist Brad Olson. Brad looking
(03:30):
at the changes for ECE and parental leave for instance.
How important is it to provide support for parents at
times like this?
Speaker 3 (03:39):
Oh, I mean, we know that everyone is hurting with
those higher and higher costs that households have been hit
with over time, so every little bit counts. And we
know that increasingly childcare has been increasing in price as well,
particularly early childhood, so that support coming through there is
a bit of admind that, of course households will have
to do they've got to submit, you know, their documents
and similar to make sure they get paid need. But
(04:00):
it does also provide an opportunity for them to get
some of that funding, some of that money so they
can afford some of those higher costs. Increasing the likes
of parental leave and the payment levels for that also
important because life is getting more expensive. We don't want
to be overly or unduly penalizing people who are becoming parents.
We know that it's difficult enough to raise a kid financially,
(04:21):
and we know that fewer and fewer people are doing
it and having fewer kids over time. That creates sort
of a demographic shift, and so we've got to provide
every support we can to those who are adding to
the future population and ensuring that not only are they
adding to society, but they're also adding to the future workforce.
Speaker 2 (04:36):
Do you think it's becoming a bit too expensive to
have children now?
Speaker 3 (04:40):
I think there's sort of a number of reasons that
are hitting particularly younger Kiwis and look, younger people across
the world when it comes to having children. Some of
it is expense that's definitely true. Part of it's going
to be around, you know, the likes of housing costs
and similar as well. If it takes you too long
to buy a house because of how expensive they are,
then that sort of delay all of your plans around
(05:01):
having kids. It's also that to afford a house you
might have to have both parents who are working again.
That is and is as conducive to having kids as
it was before. But there's so many other things out there,
you know, the likes of the climate that's changing, the
risk of geopolitical unrest and what have you, and everyone's
increasingly busier over time. So there's a lot of different reasons.
But it also means that although it's difficult and often
(05:22):
not the right thing to do to try and incentivize
people to have kids, you equally don't want to disincentivize
and create a barrier to do it. So those sorts
of policies payp rental, leave, the likes of early childhood support,
they are important to at least provide some support through
the households at a time when costs are high.
Speaker 2 (05:38):
Do we need to find more ways of addressing this
or am I going to be stuck together with a
thousand other millennials in a rest home having robots look
after us.
Speaker 3 (05:46):
Well, if you don't have the robots look after you,
there might not be of a lot of other people
to do that. We know that demographic shifts are coming
through over time. We're seeing that what we usually would
call natural increase, which is where there are more births
and deaths. That is to clim over time as there
are more people that are of course aging over time
and because of that, more deaths that are starting to
come through. But the fertility rate is dropping. People are
(06:09):
having fewer kids per person. Some people aren't having any
kids at all, and so you know, you want a
replacement rate of two point one kids on average, and
you're getting I think it's something like one point six
on the latest figures. Parts of the world are seeing
even lower numbers. So we do have to be I
think conscious about it. And it does suggest that, yeah,
we need to think about innovation over time, the likes
(06:30):
of you know, using AI and technology. It's not going
to place everything. But unless we do something about it,
unless we ensure that we've got you know, the up
and coming generation who are well equipped with skills, we
could find ourselves where people need to work sort of
three jobs to try and go through all the work
that we've got at the moment, because we simply won't
have a growing population of workers, will have a growing
(06:50):
population of retirees.
Speaker 1 (06:55):
New Zealand's population is getting older. By twenty thirty six,
there will be one point two five million people eaged
over sixty five. That demographic time bomb poses policy challenges
for the government with growing healthcare and pension bills. At
the moment, eighteen billion dollars is spent on all people
and health and superannuation costs.
Speaker 2 (07:19):
What about those single and or childless people out there,
And good on the government giving money towards parents with
the paper and to leave ECE allowance, et cetera. But
what about those people in the middle there who are
single and or childless.
Speaker 3 (07:33):
Well, it's one of those saying single, childless and without
a lot of supporter is definitely sort of more normal
now than it seems to have been in the past.
A lot of our sort of social supports are set
up around households and family households with children, that's understandable,
you know, get that wrong, and without enough support for children,
we sort of set up a whole new generation for
failure or for less success than before. But we've got
(07:56):
to sort of support more broadly what's happening out there
the economy. I think, you know, the work that the
government's done around the likes of the independent to earn
a tax credit and ensuring that sort of lowest middle
income group who might not have that wider family or
not have working for families tax credits for example, that
they are supported.
Speaker 2 (08:14):
If we're going to change the subject tobit the bright
line test going down to two years from ten years,
what sort of impact could that have on the housing
market do you think?
Speaker 3 (08:23):
Yeah, the property market is fascinating at the moment in
terms of you know, we've seeing a lot more people
who have put their houses up for sale in recent times.
Even though house prices are broadly tracking sideways, most people
are pulling down their expectations of how much they think
house prices will increase. And so with that shift in
the bright line test, yes, it'll only be two years
(08:44):
that you've got to hold a house now before you
can sell it without definitely having to pay tax. There'll
be a question I think out there for a lot
of people who might want to move houses a bit
quicker over sure I might be able to do it
without incurring a tax fee, Do I still make enough
money and is that still an option for me? We've
seen that property investors haven't been as active in the
market in the last wee while. Alongside the fact that
(09:06):
you're going to have the changes to the brightline test
coming through, you've also, of course already seen some of
the changes through from interested auctibility and the Reserve bankers
introducing debt to income limits. As we go through the
year and into next year, all of that probably suggests
that there's maybe a bit of an upside for house
sales and housing activity, but not a huge amount, just
because there's a bit of a natural cap with those
(09:28):
higher interest rates, with all the other movements in the market,
and the pressure that households are under, and the fact
that look, even with interested auctibility, even if you're not
having to pay tax from brightline, you're still if you're
an investor having to pour a couple hundred dollars a
week into a new investment property, you're not making many
capital gains. So it's not a game changer. It might
shift things at the margin.
Speaker 2 (09:48):
All prices have been falling a bit in recent months. Hey,
is that a silver lining for the country or a
bit more of a headache.
Speaker 3 (09:54):
I think it's a silver lining. I think. I mean
one thing, it sort of suggests that thinking of housing
as this you know, golden investment opportunity that can never
fail and is you know, just gold plated, is quite
clearly false and might not continue. That's I think important
for people to look and go, well, actually, where else
might I need to put my money to get a
reasonable return and thinking about the risk profile that they
(10:16):
are taking on board. Over time, it will also mean
in general terms that you're starting to get a bit
more affordability for buyers coming through. Let's be clear, it's
still very expensive out there for people that are still
spending a high proportion of their income in the sort
of probably high forty percent still to service a first
year mortgage if they're buying. But with a lot more
(10:37):
people selling houses at the moment, and still not that
many buyers available just because they can't get a mortgage
given the high interest rates as easily, it means that
the smaller pool of buyers that are out there, they
have a lot more choice, They've got a lot more
ability to bargain and drive those prices down. Like you've
been saying, house prices have been falling because there's more competition.
I think that's a good thing, but it also suggests
(10:58):
that over time we've still just need to build more
houses to increase supply. And I actually pretty heartened that
the Housing Minister christ Bishop has said actually he does
want house prices to fall. Often we don't have politicians
being quite as straight up as they need to be.
He's put a pretty clear line in the sand they
need to go down.
Speaker 2 (11:25):
While the bright line test might be good news for
property investments for other homeowners, though many councils have proposed
significant rates increases this year, do those increases balance out
any relief that might be provided by central government at
the moment?
Speaker 3 (11:41):
They probably do. The rate rises that we're seeing across
the country are significant. Some analysis that Local Government New
Zealand did earlier this year suggested that the average rates
rise this year might be something around fifteen percent. That
would be the largest average rates increase since councils were
amalgamated into their current sort of form ineeen eighty nine
or so, So there are some big numbers coming through
(12:03):
that is causing a lot of pain out there for households.
But it's also because we've underinvested and we've underpaid effectively
over time for our infrastructure. That means that you know,
we've seen some pretty big cost increases in recent years.
We've seen quite clearly the last couple of weeks why
we need to have more money going into infrastructure. That's
what's driving those rates increases. We did some of our
(12:25):
asisidinfmetrics earlier this year showing that the cost of building
a bridge is up thirty eight percent over the last
three years. Putting in water pipes and roads and similar
up about twenty seven thirty percent over the last couple
of years. It's those big increases. It's costing more, we're
needing to do more infrastructure. That's meaning those rates rises
are up. So there is a difficult balance here for
the community. On one hand, it is a struggle to
(12:48):
pay for and it's difficult to figure out how you
get that money. Equally, don't get it and you could
see a number of our critical network infrastructure pieces fall
down around our ears. That's not an outcome anyone wants.
Speaker 2 (13:00):
Looking at inflation, the cost of food, interest rates, etc.
Does it look like things are balancing out now.
Speaker 3 (13:06):
We're certainly getting better numbers coming through. We're still seeing
prices go up on average, and they still increasing it
a faster clipped than anyone would like. We'd be expecting
to see inflation more around two percent. It's still currently
running at four percent on the latest numbers. That's too
high and still causing some big pressure for households. It's
also that that four percent comes on top of of
(13:27):
course bigger increases the last couple of years, So we
might be seeing less intense pressure now, but there is
still that build up effect that households are being hit with.
I think the encouragement that we're seeing at the moment
is that some of those much more volatile cost increases
that had been a lot larger have now settled back.
The likes of food price inflation at its lowest in
(13:47):
five years on the most recent numbers. That's encouraging because
it suggests that again you're not sort of getting both
barrels from every single direction when it comes to household
cost pressures. But there are still a number of thorny,
sticky arts of inflation, the likes of rents, the likes
of energy costs, the likes of insurance, and also local
government rates are still at a much higher clip. They're
(14:09):
still keeping that pressure on and so for households they
might not be seeing as fast as an increase, but
in general prices are still going up and that makes
life increasingly difficult. Inflation is still too high. It's four percent,
but the bands meant to be one to three percent,
and once inflation gets into the artery of the economy, it's,
(14:29):
as we're discovering, very hard to get out. The one
silver lining is that wages are also continuing to remain
at a growing pace. That means that a lot of
households are probably able to match things up. But then
you bring in on top of that the interest rate increases.
That's the challenge for a lot of households is how
they pay for all of those high costs across the board.
(14:50):
It is challenging for a lot of people.
Speaker 2 (14:52):
And it also suggests that I can now buy cheese again.
It was at an astronomical level the last couple of years.
Things cheese, milk, bread, et cetera. Do you think that's
what people focus on because they can see the docket,
can't they.
Speaker 3 (15:06):
Absolutely and this is why we sort of look so
much at the likes of food costs, at petrol costs
and similar I mean, petrol costs actually aren't a particularly
large part of people's household spending. But the number that
you notice so often because you drive past the fuel
pump and you look at what you know you'll have
to be paying for. What we do see is that food.
You know, it is absolutely critical. It's the thing that
(15:28):
households have most shifted their spending on over the last
couple of years now because it is so important. So yeah,
it's definitely something we notice. It is interesting though, that
some studies do show and this is one of the
reasons that we have a two percent inflation target rather
than a zero percent inflation target. Humans we notice price
increases a lot more than we notice decreases. You know,
(15:48):
you'll talk to people out the increasing price of cheese
in that when you know you're over at someone's house.
You don't often say, oh, geez, I noticed all these
things going down in price, because we take them and
we lock them in as a wind. But we mow
and then winge a lot about the increases totally fairly.
But we notice them a lot more because of that.
Speaker 2 (16:05):
Cucumbers as well, I can buy cucumbers again. Is there
anything that you couldn't buy, Brad that you are now
buying again from the supermarket?
Speaker 3 (16:11):
Well, I mean a lot of that depends on seasonality.
I'm a huge fan of tomatoes at the moment, of course,
out of season, but if you go back a couple
of months, you were getting a punner of cherry tomatoes
for two three dollars. That was a great time compared
to when they were sort of six seven dollars. Even
in season periods. I think people are looking out at,
you know, what they can buy. What is interesting is
(16:33):
that we've still seen that sort of shift where households
are increasingly looking for how they make their dollar go
as far as possible. Are they still buying more expensive
cuts of steak or are they going to that sort
of cheaper mince option. There does seem to be a
bit of a shift towards that cheaper option. Quite understandably,
I think for a lot of households, though, they're also
thinking about, you know, the nutrition that they're trying to
(16:54):
get in, but trying to balance that out against the cost.
So increasingly we are seeing produce that is coming back
into line with more normal seasonal prices rather than some
of the really insane higher prices you saw in recent years.
That's a good news story a balance though for our
primary sector, you've seen some cheaper cuts of meat coming
through in recent times. You go back a couple of months,
lamb was quite a bit cheaper. Great if you're trying
(17:16):
to put together some lamb chops for the family, But
of course the person on the farm who's selling the
lamb not making quite as much money, and so that's
a bit of pressure on the other side of the
economic equation.
Speaker 2 (17:27):
If we look towards the end of July, Brad, the
much hyped tax cuts are coming through. Finally, what impact
do you think that'll have on the economy.
Speaker 3 (17:35):
Probably not a huge deal over all, because effectively, households
will already be looking at that money and going, look,
I've basically reallocated that to my higher and higher bills
over time, automate interestry payments that I don't struggle as
much as I might be at the moment. There will
also be some households, though, who you know, are not
necessarily being hit with high interest rates or high rental costs,
(17:58):
have paid off their home loan before, are in a
pretty good position. They might save some of that money,
particularly if they're sort of worried about the future or
they already have done it. A fair bit of spending overall.
We're expecting that, of course, compared to any other time
or normal times, the likes of those tax cuts will
be increasing spending relatively speaking, it's just because those higher
interest rates. Overall spending is still going to be dragged
(18:20):
down because of how much that hit households in So
it'll provide a little bit of extra relief at a
time when the pressure is still on and so that
pain is still going to be felt.
Speaker 2 (18:30):
Thanks for joining us, Brad. That said, for this episode
of The Front Page. You can read more about today's
stories and extensive news coverage at enzadherld dot co dot z.
The Front Page is produced by Ethan Sales with sound
engineer Patty Fox. I'm Chelsea Daniels. Subscribe to The Front
(18:53):
Page on iHeartRadio or wherever you get your podcasts, and
tune in tomorrow for another look behind the headline. Funds
Kielda.
Speaker 2 (00:06):
I'm Chelsea Daniels and this is the Front Page, a
daily podcast presented by the New Zealand Herald. If you've
been struggling with the cost of living, some good news
is in store. While kiwis have to wait a few
more weeks to see the government's tax cuts come through.
(00:27):
From July first, parents, investment property owners and auckland drivers
are due for some relief. It could all be short lived, though,
with many counsels eyeing major rates increases to tackle their
flailing budgets. Today on the Front Page will be joined
by Infometrics Chief executive Brad Olsen to discuss the ongoing
(00:47):
struggle with the cost of living and how these changes
might help. But first let's go through what those changes
exactly are new and expect parents are the big winners
with the maximum weekly rate for paid parental leave will
increase from seven hundred and twelve dollars seventeen to seven
(01:09):
hundred and fifty four dollars eighty seven gross per week,
and families will be able to receive early childhood education
tax credits up to seventy five dollars a week. Some
relief is on the way for residents in the country's
biggest city. The Auckland regional fuel tax scheme that has
been in place since the first of July twenty eighteen,
(01:30):
is due to end after five years. From July first,
the extra tax of eleven point five cents per liter
on petro and diesel will be gone. That means the
driver of a Toyota high Lux will save around nine
dollars twenty every time they fill up, while a Toyota
Corolla driver will save around five dollars seventy five. Those
(01:52):
with residential investment properties are also due to benefit. The
government has reduced the bright line test to two years
for all properties after the previous government increased it to
ten years. The change means people who sell residential investment
property within two years of purchasing it will have to
pay tax on any gains received. If you sell it
(02:15):
after three years, though you won't be taxed. The Earthquake
Commission's Disputes Resolution Scheme will also begin on July first.
This is an independent process for people who want to
dispute the outcome of a natural hazard insurance claim. Bad
news for hikers. From July first, great walk, hut and
campsite prices will increase by eighteen percent, except for Paparoa,
(02:40):
which will increase by six percent. July first also marks
the start of the ratings year for many councils, when
homeowners can expect rates increases to come into effect. Many
of these are still to be ratified at the time
of recording, but in Auckland councilors endorsed a six point
eight percent increase this year, while water and wastewater prices
(03:02):
will increase by seven point two percent. In Wellington they're
looking at a sixteen point four percent increase for the
next year, while christ Church City Council is looking at
a nine point nine to five percent increase. So how
will this impact the cost of living? We're joined now
by Infometrics Chief executive and economist Brad Olson. Brad looking
(03:30):
at the changes for ECE and parental leave for instance.
How important is it to provide support for parents at
times like this?
Speaker 3 (03:39):
Oh, I mean, we know that everyone is hurting with
those higher and higher costs that households have been hit
with over time, so every little bit counts. And we
know that increasingly childcare has been increasing in price as well,
particularly early childhood, so that support coming through there is
a bit of admind that, of course households will have
to do they've got to submit, you know, their documents
and similar to make sure they get paid need. But
(04:00):
it does also provide an opportunity for them to get
some of that funding, some of that money so they
can afford some of those higher costs. Increasing the likes
of parental leave and the payment levels for that also
important because life is getting more expensive. We don't want
to be overly or unduly penalizing people who are becoming parents.
We know that it's difficult enough to raise a kid financially,
(04:21):
and we know that fewer and fewer people are doing
it and having fewer kids over time. That creates sort
of a demographic shift, and so we've got to provide
every support we can to those who are adding to
the future population and ensuring that not only are they
adding to society, but they're also adding to the future workforce.
Speaker 2 (04:36):
Do you think it's becoming a bit too expensive to
have children now?
Speaker 3 (04:40):
I think there's sort of a number of reasons that
are hitting particularly younger Kiwis and look, younger people across
the world when it comes to having children. Some of
it is expense that's definitely true. Part of it's going
to be around, you know, the likes of housing costs
and similar as well. If it takes you too long
to buy a house because of how expensive they are,
then that sort of delay all of your plans around
(05:01):
having kids. It's also that to afford a house you
might have to have both parents who are working again.
That is and is as conducive to having kids as
it was before. But there's so many other things out there,
you know, the likes of the climate that's changing, the
risk of geopolitical unrest and what have you, and everyone's
increasingly busier over time. So there's a lot of different reasons.
But it also means that although it's difficult and often
(05:22):
not the right thing to do to try and incentivize
people to have kids, you equally don't want to disincentivize
and create a barrier to do it. So those sorts
of policies payp rental, leave, the likes of early childhood support,
they are important to at least provide some support through
the households at a time when costs are high.
Speaker 2 (05:38):
Do we need to find more ways of addressing this
or am I going to be stuck together with a
thousand other millennials in a rest home having robots look
after us.
Speaker 3 (05:46):
Well, if you don't have the robots look after you,
there might not be of a lot of other people
to do that. We know that demographic shifts are coming
through over time. We're seeing that what we usually would
call natural increase, which is where there are more births
and deaths. That is to clim over time as there
are more people that are of course aging over time
and because of that, more deaths that are starting to
come through. But the fertility rate is dropping. People are
(06:09):
having fewer kids per person. Some people aren't having any
kids at all, and so you know, you want a
replacement rate of two point one kids on average, and
you're getting I think it's something like one point six
on the latest figures. Parts of the world are seeing
even lower numbers. So we do have to be I
think conscious about it. And it does suggest that, yeah,
we need to think about innovation over time, the likes
(06:30):
of you know, using AI and technology. It's not going
to place everything. But unless we do something about it,
unless we ensure that we've got you know, the up
and coming generation who are well equipped with skills, we
could find ourselves where people need to work sort of
three jobs to try and go through all the work
that we've got at the moment, because we simply won't
have a growing population of workers, will have a growing
(06:50):
population of retirees.
Speaker 1 (06:55):
New Zealand's population is getting older. By twenty thirty six,
there will be one point two five million people eaged
over sixty five. That demographic time bomb poses policy challenges
for the government with growing healthcare and pension bills. At
the moment, eighteen billion dollars is spent on all people
and health and superannuation costs.
Speaker 2 (07:19):
What about those single and or childless people out there,
And good on the government giving money towards parents with
the paper and to leave ECE allowance, et cetera. But
what about those people in the middle there who are
single and or childless.
Speaker 3 (07:33):
Well, it's one of those saying single, childless and without
a lot of supporter is definitely sort of more normal
now than it seems to have been in the past.
A lot of our sort of social supports are set
up around households and family households with children, that's understandable,
you know, get that wrong, and without enough support for children,
we sort of set up a whole new generation for
failure or for less success than before. But we've got
(07:56):
to sort of support more broadly what's happening out there
the economy. I think, you know, the work that the
government's done around the likes of the independent to earn
a tax credit and ensuring that sort of lowest middle
income group who might not have that wider family or
not have working for families tax credits for example, that
they are supported.
Speaker 2 (08:14):
If we're going to change the subject tobit the bright
line test going down to two years from ten years,
what sort of impact could that have on the housing
market do you think?
Speaker 3 (08:23):
Yeah, the property market is fascinating at the moment in
terms of you know, we've seeing a lot more people
who have put their houses up for sale in recent times.
Even though house prices are broadly tracking sideways, most people
are pulling down their expectations of how much they think
house prices will increase. And so with that shift in
the bright line test, yes, it'll only be two years
(08:44):
that you've got to hold a house now before you
can sell it without definitely having to pay tax. There'll
be a question I think out there for a lot
of people who might want to move houses a bit
quicker over sure I might be able to do it
without incurring a tax fee, Do I still make enough
money and is that still an option for me? We've
seen that property investors haven't been as active in the
market in the last wee while. Alongside the fact that
(09:06):
you're going to have the changes to the brightline test
coming through, you've also, of course already seen some of
the changes through from interested auctibility and the Reserve bankers
introducing debt to income limits. As we go through the
year and into next year, all of that probably suggests
that there's maybe a bit of an upside for house
sales and housing activity, but not a huge amount, just
because there's a bit of a natural cap with those
(09:28):
higher interest rates, with all the other movements in the market,
and the pressure that households are under, and the fact
that look, even with interested auctibility, even if you're not
having to pay tax from brightline, you're still if you're
an investor having to pour a couple hundred dollars a
week into a new investment property, you're not making many
capital gains. So it's not a game changer. It might
shift things at the margin.
Speaker 2 (09:48):
All prices have been falling a bit in recent months. Hey,
is that a silver lining for the country or a
bit more of a headache.
Speaker 3 (09:54):
I think it's a silver lining. I think. I mean
one thing, it sort of suggests that thinking of housing
as this you know, golden investment opportunity that can never
fail and is you know, just gold plated, is quite
clearly false and might not continue. That's I think important
for people to look and go, well, actually, where else
might I need to put my money to get a
reasonable return and thinking about the risk profile that they
(10:16):
are taking on board. Over time, it will also mean
in general terms that you're starting to get a bit
more affordability for buyers coming through. Let's be clear, it's
still very expensive out there for people that are still
spending a high proportion of their income in the sort
of probably high forty percent still to service a first
year mortgage if they're buying. But with a lot more
(10:37):
people selling houses at the moment, and still not that
many buyers available just because they can't get a mortgage
given the high interest rates as easily, it means that
the smaller pool of buyers that are out there, they
have a lot more choice, They've got a lot more
ability to bargain and drive those prices down. Like you've
been saying, house prices have been falling because there's more competition.
I think that's a good thing, but it also suggests
(10:58):
that over time we've still just need to build more
houses to increase supply. And I actually pretty heartened that
the Housing Minister christ Bishop has said actually he does
want house prices to fall. Often we don't have politicians
being quite as straight up as they need to be.
He's put a pretty clear line in the sand they
need to go down.
Speaker 2 (11:25):
While the bright line test might be good news for
property investments for other homeowners, though many councils have proposed
significant rates increases this year, do those increases balance out
any relief that might be provided by central government at
the moment?
Speaker 3 (11:41):
They probably do. The rate rises that we're seeing across
the country are significant. Some analysis that Local Government New
Zealand did earlier this year suggested that the average rates
rise this year might be something around fifteen percent. That
would be the largest average rates increase since councils were
amalgamated into their current sort of form ineeen eighty nine
or so, So there are some big numbers coming through
(12:03):
that is causing a lot of pain out there for households.
But it's also because we've underinvested and we've underpaid effectively
over time for our infrastructure. That means that you know,
we've seen some pretty big cost increases in recent years.
We've seen quite clearly the last couple of weeks why
we need to have more money going into infrastructure. That's
what's driving those rates increases. We did some of our
(12:25):
asisidinfmetrics earlier this year showing that the cost of building
a bridge is up thirty eight percent over the last
three years. Putting in water pipes and roads and similar
up about twenty seven thirty percent over the last couple
of years. It's those big increases. It's costing more, we're
needing to do more infrastructure. That's meaning those rates rises
are up. So there is a difficult balance here for
the community. On one hand, it is a struggle to
(12:48):
pay for and it's difficult to figure out how you
get that money. Equally, don't get it and you could
see a number of our critical network infrastructure pieces fall
down around our ears. That's not an outcome anyone wants.
Speaker 2 (13:00):
Looking at inflation, the cost of food, interest rates, etc.
Does it look like things are balancing out now.
Speaker 3 (13:06):
We're certainly getting better numbers coming through. We're still seeing
prices go up on average, and they still increasing it
a faster clipped than anyone would like. We'd be expecting
to see inflation more around two percent. It's still currently
running at four percent on the latest numbers. That's too
high and still causing some big pressure for households. It's
also that that four percent comes on top of of
(13:27):
course bigger increases the last couple of years, So we
might be seeing less intense pressure now, but there is
still that build up effect that households are being hit with.
I think the encouragement that we're seeing at the moment
is that some of those much more volatile cost increases
that had been a lot larger have now settled back.
The likes of food price inflation at its lowest in
(13:47):
five years on the most recent numbers. That's encouraging because
it suggests that again you're not sort of getting both
barrels from every single direction when it comes to household
cost pressures. But there are still a number of thorny,
sticky arts of inflation, the likes of rents, the likes
of energy costs, the likes of insurance, and also local
government rates are still at a much higher clip. They're
(14:09):
still keeping that pressure on and so for households they
might not be seeing as fast as an increase, but
in general prices are still going up and that makes
life increasingly difficult. Inflation is still too high. It's four percent,
but the bands meant to be one to three percent,
and once inflation gets into the artery of the economy, it's,
(14:29):
as we're discovering, very hard to get out. The one
silver lining is that wages are also continuing to remain
at a growing pace. That means that a lot of
households are probably able to match things up. But then
you bring in on top of that the interest rate increases.
That's the challenge for a lot of households is how
they pay for all of those high costs across the board.
(14:50):
It is challenging for a lot of people.
Speaker 2 (14:52):
And it also suggests that I can now buy cheese again.
It was at an astronomical level the last couple of years.
Things cheese, milk, bread, et cetera. Do you think that's
what people focus on because they can see the docket,
can't they.
Speaker 3 (15:06):
Absolutely and this is why we sort of look so
much at the likes of food costs, at petrol costs
and similar I mean, petrol costs actually aren't a particularly
large part of people's household spending. But the number that
you notice so often because you drive past the fuel
pump and you look at what you know you'll have
to be paying for. What we do see is that food.
You know, it is absolutely critical. It's the thing that
(15:28):
households have most shifted their spending on over the last
couple of years now because it is so important. So yeah,
it's definitely something we notice. It is interesting though, that
some studies do show and this is one of the
reasons that we have a two percent inflation target rather
than a zero percent inflation target. Humans we notice price
increases a lot more than we notice decreases. You know,
(15:48):
you'll talk to people out the increasing price of cheese
in that when you know you're over at someone's house.
You don't often say, oh, geez, I noticed all these
things going down in price, because we take them and
we lock them in as a wind. But we mow
and then winge a lot about the increases totally fairly.
But we notice them a lot more because of that.
Speaker 2 (16:05):
Cucumbers as well, I can buy cucumbers again. Is there
anything that you couldn't buy, Brad that you are now
buying again from the supermarket?
Speaker 3 (16:11):
Well, I mean a lot of that depends on seasonality.
I'm a huge fan of tomatoes at the moment, of course,
out of season, but if you go back a couple
of months, you were getting a punner of cherry tomatoes
for two three dollars. That was a great time compared
to when they were sort of six seven dollars. Even
in season periods. I think people are looking out at,
you know, what they can buy. What is interesting is
(16:33):
that we've still seen that sort of shift where households
are increasingly looking for how they make their dollar go
as far as possible. Are they still buying more expensive
cuts of steak or are they going to that sort
of cheaper mince option. There does seem to be a
bit of a shift towards that cheaper option. Quite understandably,
I think for a lot of households, though, they're also
thinking about, you know, the nutrition that they're trying to
(16:54):
get in, but trying to balance that out against the cost.
So increasingly we are seeing produce that is coming back
into line with more normal seasonal prices rather than some
of the really insane higher prices you saw in recent years.
That's a good news story a balance though for our
primary sector, you've seen some cheaper cuts of meat coming
through in recent times. You go back a couple of months,
lamb was quite a bit cheaper. Great if you're trying
(17:16):
to put together some lamb chops for the family, But
of course the person on the farm who's selling the
lamb not making quite as much money, and so that's
a bit of pressure on the other side of the
economic equation.
Speaker 2 (17:27):
If we look towards the end of July, Brad, the
much hyped tax cuts are coming through. Finally, what impact
do you think that'll have on the economy.
Speaker 3 (17:35):
Probably not a huge deal over all, because effectively, households
will already be looking at that money and going, look,
I've basically reallocated that to my higher and higher bills
over time, automate interestry payments that I don't struggle as
much as I might be at the moment. There will
also be some households, though, who you know, are not
necessarily being hit with high interest rates or high rental costs,
(17:58):
have paid off their home loan before, are in a
pretty good position. They might save some of that money,
particularly if they're sort of worried about the future or
they already have done it. A fair bit of spending overall.
We're expecting that, of course, compared to any other time
or normal times, the likes of those tax cuts will
be increasing spending relatively speaking, it's just because those higher
interest rates. Overall spending is still going to be dragged
(18:20):
down because of how much that hit households in So
it'll provide a little bit of extra relief at a
time when the pressure is still on and so that
pain is still going to be felt.
Speaker 2 (18:30):
Thanks for joining us, Brad. That said, for this episode
of The Front Page. You can read more about today's
stories and extensive news coverage at enzadherld dot co dot z.
The Front Page is produced by Ethan Sales with sound
engineer Patty Fox. I'm Chelsea Daniels. Subscribe to The Front
(18:53):
Page on iHeartRadio or wherever you get your podcasts, and
tune in tomorrow for another look behind the headline. Funds
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