Would you prefer to be living in New Zealand or Australia? The New Zealand story on monetary policy and home prices is a million miles away from the RBA’s approach of keeping rates lower, to protect jobs even if inflation remains above target.
Across the ditch the Reserve Bank’s approach of “no regrets”, took interest rates much higher, lifted unemployment and pulled home prices lower, and because of the more aggressive action appears to have left the land of the long white cloud better placed in the months ahead.
The New Zealand Monetary Policy Committee this week agreed to lower the Official Cash Rate by 50 basis points to 3.75 percent.
The RBNZ have been cutting for a while and and house prices haven’t been rising. The 40% run up in prices over the pandemic has been followed by the sharpest price crash in generations. Even so, price-to-income ratios remain elevated relative to historical experience, especially given the current interest rate settings. Whilst median home price to median household disposable income are coming down, we are still around 10 times in Auckland, and over 8 times nationally.
So standing back, the different path between the Central Banks of Australia and New Zealand really stand out. Which begs the question, is a shorter sharper shock, or a slow grind with no clear way out the better path? And should stronger controls on mortgage lending be imposed to keep home prices under control? Oh, yes and the elephant in the room, should migration be dialled back – as in New Zealand, where Stats NZ reported that 72,000 citizens left the country while just 24,900 arrived, and the overall net loss of citizens in 2024 is the largest in a calendar year – or should migration still be pushed hard, despite the rhetoric as in Australia? Frankly to me on so many fronts New Zealand seems in better if imperfect hands than Australia!
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