Posted By Mimenta on December 5, 2016
I just heard the Prime Minister of NZ, John Key, has resigned, citing family matters. Sorry, but when it comes to politicians, if their mouth is moving, they are lying and this is no exception. In politics, you always try to leave on a high, it guarantees a good price for endorsements and speaking engagements later.
Has John Key has done exactly that, especially considering what’s waiting around the corner?
Here’s what’s looming in 2017:
The coffers are empty after the Christchurch earthquake and insurers are screaming because the repairs done by the EQC were substandard and mainly cosmetic. Now property owners are looking at foundation problems and further insurance claims, especially if we have a hot dry summer causing ground shrinkage. There are still claims being argued from 6 years ago.
The insurers will be far tighter when it comes to claims this time. Teflon John has made a big splash with a fast handout, then jumped ship before the proverbial stuff hits the fan. They have to decide whether to quickly rebuild State Highway 1 or develop an alternative route. The alternative route through the middle of the South Island will cut off a lot of tourist sites. Repairing the existing road (what’s left of it) will cost probably more. It’s not as simple as removing rubble to clear the road and leveling it up, it hugs the shoreline beneath towering cliffs that are now unstable and will have to be secured or at least battered back to a safer angle. Then there’s the issue of where to dump the rubble removed.
There’s also the issue of Kaikoura itself. Extensive repairs are required to the township. The anchorage there is now above water in some places. Considering Kaikoura is billed as one of the worlds top places to view whales and seals, the anchorage plays a vital role not only in Kaikoura’s economy but also a slice of New Zealands tourist economy.
If Teflon John’s reign will be remembered for anything, it will probably be the sky rocketing house prices, in particularly Auckland and Wellington but also throughout the country. A decidedly average 3 bedroom home in Auckland is now around the $1,000,000.00 mark. To buy a home now means:
- a huge mortgage or three,
- having wealthy family back in China or India to fund you,
- or using your string of substandard rental homes as collateral.
- or all of the above.
The market has been rising so fast that property investors have been buying homes and leaving them empty, rather than letting them. The appreciation in price, outweighs the hassle of tenants. Rather than limit overseas investors, Teflon John’s lot pretended they didn’t exist by ignoring all the properties purchased by young students on study visas and temporary visas. (Of course they’re not really overseas investors – everybody knows that a Uni student on part time work can afford a 20% house deposit).
During Teflon John’s reign not only did we increase the homeless population in our capital cities, we created a whole new class of homeless; the sort of wealthy homeless who could afford a car to sleep in! In the Homeless section of the community, we now have two classes: Vagrants and Vangrants!
We are seeing a reduction in full time jobs both from technology and outsourcing jobs to countries where wages are lower. There is an increase in personal contract employment (a.k.a. temporary employment where the employee pays all taxes, super etc. out of a reduced weekly wage). A similar trend in Australia has created a new underclass,; the “Underemployed”. Add to this a low basic wage when factored against basic survival costs. This trend is contributing to a rise in personal debt, especially in the case of older workers in the over 40s category.
Haven’t the papers been strangely silent on this one?
Not surprising considering New Zealand’s papers are usually loathe to criticize the incumbent government too much. But Teflon John’s resignation should flash “DANGER!” to anyone in finance. We have the conditions for a perfect storm looming and Teflon John has headed for the hills.
Firstly we have a population carrying a massive amount of personal debt. There are the huge home loans, the high cost of living for basics like petrol and food items on shelves at export prices. Add to this low wages being further eroded by the increase in private contracts, replacing full time employment. Here, we have very high accommodation costs (either large mortgages or high rents), coupled to a high cost basic necessities, further boosted by another 15% for GST, one of the world’s highest.
This means people are drawn towards borrowing rather than saving and as a population, carry an inordinate amount of personal debt. Payday loans, personal loans, car finance, shoppers cards and back cards are commonplace. For finance companies, one of the most common loan types is a debt consolidation loan – essentially where people take out a loan to pay loans with!
This is where it all comes to a focal point:
The failure of the TPP will mean less exports for New Zealand. While it doesn’t actually close our markets, it doesn’t give us any preferential treatment or exemption to import duties, tariffs etc. We have higher transport costs than our competitors, competing for access to those markets. To export, we have to sell for less to allow for the higher transport costs.
The housing market bubble will burst and prices will either drop or sales will slow to the point where sellers will have to take less or wait for ages to sell their properties. As property appreciation slips, investors will want to pull out of the market. Many of these “spec homes” are in a poor state of repair either as a result of being untenanted or let and poorly maintained. Overseas owners will not want to spend to get them repaired and will dump them on the market, further slowing the market.
The banks will increase their lending margins, citing increased costs for overseas credit (because the dollar will drop) and “the cost of doing business” (a higher default rate for loans). This will raise interest rates across the board. With high mortgages, lots of personal debt (car loans, credit cards, personal loans, overdraft etc) and low income, this will boost the credit default rates further.
Add to all this the costs from the Kaikoura Earthquake and a reduction in employment from a slowing economy (with less tax revenue and higher welfare costs).
When you add it up, 2017 is not shaping up to look like a great year. No wonder Teflon John threw in the towel!