Looking ahead with new government

No policy positions have been announced yet but – based on announcements made during the election campaign - commentators believe there will be major changes in a number of housing market related areas.

These include house building which will see greater government involvement through the Kiwibuild programme; foreign investment which is likely to include a ban on buying existing dwellings; immigration which is set to be reduced and become more targeted; and monetary policy.

Westpac chief economist Dominick Stephens said the new government is likely to be more interventionist in the economy, tougher on foreign investment, and more liberal on social spending than the last government.

“The impact that the new government has on the economy, in both the short run and the long run, will depend on whether it addresses the distortions in New Zealand’s tax system that favour property and have skewed the economy.”

He said that proposed changes to the Reserve Bank Act seem unlikely to have a large effect on the conduct of monetary policy - but other aspects of the coalition’s policy manifesto will impact on monetary policy.

“In particular, the trajectory of the housing market will be crucial, with a weaker housing market leading to a lower OCR forecast.”

ASB economists said the additional uncertainty provided by the modest change in government direction is likely to provide a short-term headwind to growth.

However, news that NZ First leader Winston Peters is not going to be Finance Minister is likely to offer reassurance to markets.

ANZ senior economist Philip Borkin said that, at this stage their economic forecasts are unchanged, although they will be monitoring announcements closely.

“We also shouldn’t underestimate the ability of an economy to navigate periods of change and uncertainty. Just look at how the UK and US have performed of late – their political upheaval is arguably far larger than anything likely to be seen here.”

Speaking at the TMM Better Business conference yesterday, BNZ chief economist Tony Alexander said that he expected interest rates to remain low and benign.

“But it’s welcome back to the 1950s, 1960s, and 1970s in terms of ongoing restrictions on credit availability.”