ITEM ONE: ANZ CEO WARNS OF RESIDENTIAL HOUSING BUBBLE CRISIS The CEO of the ANZ – the biggest bank operating in New Zealand – issued a public caution yesterday (Wednesday) that economic indicators suggest the country’s overheated housing market could collapse and that when it does so, it will be “a messy end”. ANZ chief executive David Hisco is the latest in a line of respected people to speak publicly over concerns the National-led Government is not doing enough to arrest a rapid acceleration in median residential house prices in Auckland. In an article for the New Zealand Herald, Hisco wrote: “New Zealand is a great country and we’ve come out of the Global Financial Crisis well compared with many. But logic tells me things cannot continue to run this hot.” (ref. http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11678081 ) Significantly, the ANZ boss laid out what is really concerning the banking sector. He wrote: “There are storm clouds on the horizon for sure and when they break who knows what will happen. One thing is certain, if employers start laying off staff because exports to an uncertain world are dropping, those people won’t be able to afford their mortgages and when that happens they will sell their houses. If unemployment rises and the dollar drops, overseas investors will cash in their chips and sell, most probably in a stampede.” The comments came a day after the Reserve Bank of New Zealand hiked up the loan-to-value-ratio (LVR) to 40% for investors. Hisco said the Reserve Bank hasn’t gone far enough. He said the LVR rate for investors should be set at 60% minimum deposit. The LVR for first home buyers remains at 30%. Prior to this, former Reserve Bank governor, and former leader of the National Party, Don Brash, said house prices in Auckland should be at least 40% lower than the are currently. Recent statistics indicate the median house price sits at 10-1 when compared to the median income. Brash said this is a recipe for economic disaster. The ANZ boss criticised the National-led Government for not creating a policy response to the crisis. He said the Reserve Bank can’t resolve the dangers of economic collapse on its own. As the public mood has become critical of Prime Minister John Key and his Finance Minister Bill English’s non-performance over the housing crisis – the National politicians have become publicly critical of the Reserve Bank Governor and his deputy. The result is a political shambles while the banking sector, Reserve Bank officials, economic analysts and the wider public, are all demanding the government intervene immediately with solutions designed to avert an economic collapse. Hisco’s suggested solutions include:
- Heavily increase LVR limits for property investors
- Weaken the New Zealand dollar
- Voluntary tightening of lending criteria by banks
- Review immigration policies
- Have a strong focus on infrastructure build, particularly in the growth regions.