16 November 2016

The Trump Effect

Will the Trump presidency spell the end of the good times for Auckland property? Economists Zoe Wallis and Sharon Zollner consider the future.


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Trump’s radical trade and geo-political policies will have a considerable impact on New Zealand’s economy and in turn our monetary position which affects the housing market.

Nowhere is that effect felt more strongly than in Auckland. But just how much impact will ‘the Don’ have and and when can we expect change to happen.

“First of all, it’s pretty hard to tell just what will happen yet. There’s been a lot of rhetoric on policy in the campaign but not much detail,” says Zoe. “Aside from the volatility [in currency markets], which has abated quite quickly, the biggest risk looks to be our trade relationship.”

ANZ's Sharon Zollner agrees. 'Any retreat from global trade is bad for New Zealand"

The new president will assuredly kill the Obama-backed Trans Pacific Partnership (TPP) or at least seek to renegotiate the 12-nation free-trade agreement, delaying the process by years.

John Key has put any hope of the Trans Pacific Partnership Agreement (TPPA) passing in the near future on the back burner, following Donald Trump's election as president.

John Key has put any hope of the Trans Pacific Partnership Agreement (TPPA) passing in the near future on the back burner, following Donald Trump's election as president.

Trump has also been critical of China during the campaign, and any increase in tension between the two superpowers would be felt in the Pacific, where China is in dispute with countries over islands in the South China Sea. That would increase pressure on New Zealand.

“Slower growth outlook for China could negatively impact demand for our imports to China as well. That’s probably the biggest immediate impact.”

New Zealand sends 12 to 13 percent of our exports to the US. China, one of our largest trading partners, sends about 18% of their exports to the US. Trump is aggressively anti-trade with China and he’s talking about imposing 45 percent tariffs on their goods. So if we do see Trump put in high import tariffs, it’s likely to have a negative impact on demand for our goods too.” says Zoe.

Sharon Zollner, ANZ Economist.

Sharon Zollner, ANZ Economist.

Sharon says, we're exposed from China and Australia. "This is where most of the impact will happen. Anything that slows trade will hurt us. However, if China and America get into a trade war and we manage to get out of the way, there could be opportunities for us."

From a global inflation point of view, Zoe says Trump is seen as quite positive with his anticipated spend-up on infrastructure. “Interest rates have already pushed higher, for example 10 year Government bonds, over the last few days have traded at 1.70 and they’ve moved above 2 percent.

Already interest rates on longer term debt have shot up. “Central banks have been trying to do this for ages,” says Sharon. “But Trump has done it in a week. If interest rates go up, it will feed through to borrowing costs. This will be an issue for housing and equity markets – and all markets that have benefited from lower interest rates.”

Zoe Wallis, Kiwibank Economist.

Zoe Wallis, Kiwibank Economist.

“From the New Zealand housing market point of view, we’re seeing pressure on mortgage rates, which have been going the other way."  “In terms of Auckland, we’re specifically seeing tighter credit controls in combination with more restrictive LVR regulations from the Reserve Bank. As to prices, Zoe thinks they may level in certain areas. But she doesn’t think they’ll go down. “There’s a risk in the next couple of years if we see the cost of borrowing increase, prices in some of the outer regions could decline slightly.”

On the other side of the coin, net migration remains the big question mark, particularly with the increase in nationalist sentiment overseas. There seems to be a deep unease opening up which is challenging the open, tolerant demographic system to which New Zealand belongs. “But I’d expect migration to hold up for at least six to 12 months,” says Zoe.”

British ethologist, Richard Dawkins has suggested that New Zealand could be the "Athens of the modern world" urging our country to gobble up the globe's brightest minds amid fallout from the US election and Brexit.

British ethologist, Richard Dawkins has suggested that New Zealand could be the "Athens of the modern world" urging our country to gobble up the globe's brightest minds amid fallout from the US election and Brexit.

Realestate.co.nz reported US-based traffic up 432 per cent after the U.S. Election result was revealed, compared to the same time last year. Of those visits, 78 per cent of people had never visited the site before with California generating the most traffic.

Some US residents may look to come to New Zealand but they have to qualify for a work visa or be highly skilled. "It’s a bit early to say what will actually happen until we see concrete policy statements from Trump. We are seeing an initial surge in interest from Americans looking to potentially relocate, but it will probably die down as people wait to see what happens. The number of positive google searches on migrating to New Zealand underscores that even if people don’t come here, the country remains a hugely attractive place to live and work, says Sharon.

With the advent of Brexit and Trump, it’s clear nationalistic policies that are anti-trade and anti-immigration are gaining momentum globally. Migration is unlikely to fall dramatically any time soon. With European elections coming up and the trend towards a more insular economic approach, trading opportunities will likely be reduced. Both economists say this general trend is concerning for the global economy. And with Trump’s desire for political partners to take a greater involvement in military armament, it raises concerns about global stability.”

Then there’s the latest round of earthquakes, which have caused a  phenomenal path of destruction to roading and rail from Christchurch - and they won’t be open for a long time. “It will be unbelievably expensive to fix. The construction sector is already flat out. It might produce more inflation in that sector as there is even more pressure to find the resources,” says Sharon.

But it’s not like the last earthquakes, which had a positive side effect creating huge demand for infrastructure, launching the economy back into black.

South Island freight lines are expected to be out of action for months after severe damage from the 7.5 earthquake.

South Island freight lines are expected to be out of action for months after severe damage from the 7.5 earthquake.

“We can’t just switch between residential and commercial construction. A lot of special equipment and skills are needed and this is more likely to come from Australia. We need to rethink our domestic transport systems. Coastal shipping must be a part of that. Freight deliveries will be affected. Getting to Auckland has just become a lot more complicated."

Both economists say it is too early to tell the impact of these major events. We won’t have a clear idea on how the Trump presidency will impact New Zealand’s economy and Auckland’s housing market until early next year, says Zoe.

Sharon believes the earthquakes are more of an issue for Wellington and the Upper South Island rather than Auckland. So far, their impact on financial markets remains limited.

Fortunately, government debt is low, so we have the ability to ride through a tumultuous period. At this stage nobody is panicking. Against a rocky backdrop, Auckland’s strong housing market looks set to continue over the summer months and into the foreseeable future at least.

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