What Oz housing tumble means for NZ
Analysts warn property downturn will have impact on wider economy
Sydney real estate agent Peter McGuinn has witnessed first-hand the recent dramatic shift in the local property market. “Fifteen months, two years ago, selling was easy. You could sell a dog kennel for a fortune,” he says. But offloading a property in Australia is now hard work following a steep decline in house prices. Take, for instance, the three-bedroom house in Sydney’s beachside suburb of Maroubra — 10km from the centre of the city — that McGuinn put to auction recently. A year ago, it would have been quickly snapped up for about A$1.8 million ($1.90m), says McGuinn, a co-director of South Eastern Reality, but when it went to auction in late November it failed to attract a single bid.
As of late December, it remained on the market for less than A$1.6m.
Sydney house prices have suffered their steepest decline in three decades and are down 10.1 per cent from their July 2017 peak. Falls in Melbourne are similar.
McGuinn says in reality the falls are around 15 per cent and up to 20 per cent in some suburbs. That will be confirmed when updated figures are published in February.
It’s not just real estate agents and homeowners who are nervously watching the house price decline. The Government, investors and economists are also keeping a close eye on the property market. AMP Capital chief economist Shane Oliver says the housing downturn is now the biggest threat to the economy.
“That weakness in the housing market is slowly starting to show up in a downturn in the housing construction cycle which, on its own, is not necessarily a major problem because there’s other parts of the economy that will keep things going,” says Oliver. “More importantly, the weakness in the housing and house prices is and will act as a dampener on consumer spending.”
Household spending is already soft, growing just 0.3 per cent in the third quarter of last year, and a major factor behind quarterly GDP growth to just 0.3 per cent.
Australia goes into the new year, after the economy grew around 3 per cent in 2018, on the back of infrastructure spending, improving business investment and strong exports.
Despite the risk from falling house prices, Oliver expects growth to continue and for Australia to enter its 28th year without a recession.
“My feeling is that it turns out to be a relatively soft landing although I think, if you’re in Sydney or in Melbourne and you borrowed recently and bought into a house in the last year or so, you probably may not regard it as a soft landing,” he says.
Oliver expects the economy to
grow 2.5-3 per cent in 2019, underpinned by strong exports of commodities, business investment and ongoing infrastructure investment. However, global economic weakness could hit export volumes and prices, as could US President Donald Trump’s game of brinksmanship with China over trade tariffs. There is a risk weaker consumer spending could flow over to a
slowdown in business investment.
House prices have surged in Australia for the past decade, putting a home beyond the reach of many in the capital cities, but making those who already own a home feel increasingly affluent. This so-called wealth effect has underpinned consumer spending, as homeowners have felt more relaxed about dipping into their savings or their mortgages
as they watched the value of their homes rise by literally thousands of dollars a week.
But with headlines now telling homeowners how much money they have lost, economists are concerned consumers will keep more money in the bank.
The Reserve Bank of Australia is also concerned. “The outlook for household consumption continued to
be a source of uncertainty because growth in household income remained low, debt levels were high and housing prices had declined,” minutes from the RBA’s final board meeting of the year revealed.
Anna Carrabs, chief executive of premium furniture maker and retailer King Living, says she expects consumers will be more cautious in their spending as home values fall.
However, she is hoping this translates into a focus on quality and better spending decisions at the company’s 16 stores around Australia (it also has a store in Auckland’s Parnell).
“I think there will be more caution, but I think usually caution means, if we’re going to make the investment, let’s make it last. People think a lot more like that rather than, ‘Hey, let’s just buy it and then we can always get rid of that if we don’t like it next year and just change it again’,” she says.
“That’s the message that we’re putting out there.”
Adding to the risk from the house price fall is that Australian consumers already have high debt levels and banks are making it harder for people to get loans.
Banks are tightening up their loan requirements in response to tougher new regulations but also after the Banking Royal Commission, which has put a spotlight on the sale of unsuitable products to customers and on unsustainable lending.
According to news reports, a bank recently went so far as to look through a potential borrower’s bank statements and asked why he was spending so much on kebabs.
It will put further downward pressure on house prices, particularly in
Lisa Daniell is at the spearhead of Air New Zealand’s war on plastic.
The airline’s sustainability head has the ambitious goal of eliminating 24 million separate items of single-use plastic over this current year.
During the past year the airline has removed single-use plastic straws, stir sticks, eye mask wrappers and plastic toothbrushes from lounges and onboard aircraft.
Over a 12-month period this will see the airline reduce its plastic footprint by 260,000 plastic toothbrushes, 3000 straws, 7.1 million stirrers and 260,000 eye mask wrappers.
She says one of the biggest challenges is finding alternatives to plastic that are genuinely biodegradable or recyclable. And they have to be lightweight.
“Biodegradable depends on the time frame,” says Daniell.
“And we need to be able to better define what compostable is. We need certification and rules.”
Since China had stopped taking recycling and waste from New Zealand companies here were finding it more difficult, she said.
The International Air Transport Association estimated the airline industry generated 5.2 million tonnes of inflight waste in 2016 and Air New Zealand last year launched Project Green, a programme to stop so much being dumped.
It was set up with the airline’s catering partner LSG Sky Chefs and the Ministry for Primary Industries (MPI) to tackle waste from international services arriving in Auckland, with a goal to divert 150 tonnes of waste from landfill annually.
In October the project saw 40 inflight products, which had previously been sent to landfill due to biosecurity controls, being reclassified so these can be reused on flights in future if they are removed from the aircraft sealed and untouched.
Products approved include sealed beverages and snacks (such as cans of soft drink, packets of cookies, boxes of tea, packets of coffee and sugar sachets).
To date the airline had repurposed more than one million of each of the following — plastic cups, sugar sticks, paper cups and paper cup lids.
Daniell says it was highly inefficient to fly a bottle of water around the world and then throw it out because of the rules.
Project Green was saving money by not biosecurity treating the products and then paying landfill charges. “That is something that hasn’t cost us money. It is saving us
Lisa Daniell
and there’s uplift in terms of staff engagement.”
Daniell spent a decade practicing environmental law before starting at Air New Zealand nearly four years ago. Her interest in the environment was developed growing up on the shores of Tauranga Harbour and hiking on Department of Conservation land with her family while on holiday.
She did a mid-career masters in environment law in the United States at the University of Vermont.
The airline acknowledged it was a big polluter. It emits more than 3.5 million tonnes of carbon dioxide into the atmosphere every year and this increased in the past year by three per cent, due mainly to a five per cent increase in network capacity.
“We are one of the biggest fuel users in the country — we are part of the problem, we need to be part of the solution,” Daniell says.
Across the industry, airlines are responsible for between 2 per cent and 3 per cent of global emissions.
During the past decade, Air New Zealand had made fuel efficiency gains of 21 per cent across its fleet, mainly because of new aircraft but also due to new ways of reducing weight.
Using dehumidifiers and regularly replacing insulation material in planes cuts moisture build-up which over the life of a plane can add up to half a tonne.
Saving fuel was part of the “daily diet” of staff in different parts of the airline. Like other airlines, Air New Zealand has dabbled in biofuels but is yet to find a sustainable, long-term option that could be safely used with traditional fuel throughout airport and airline infrastructure.
She said the airline’s working with a consortium on what it would take to build a biomass plant using wood waste to generate fuel.
“The commercial case is extremely challenging,” she says.
Electric aircraft could offer a better option, especially in the regions where smaller aircraft are used.
Right now big aircraft manufacturers were all involved in what is like a “race to the moon” to make a plane that can carry enough people far enough to make them economic. These would initially be hybrid planes.
“We think its a big opportunity for us with our regional network and a big opportunity for New Zealand given our high proportion of renewable energy. We have to plan infrastructure to smaller places,” she says.
Sustainability also extends to procurement. The airline spends about $206m a year on food and beverages and last year extended an existing partnership with Taira¯whiti, Gisborne and Nga¯ti Porou.
Nga¯ti Porou Seafood will now supply sustainablysourced
We are one of the biggest fuel users in the country — we are part of the problem, we need to be part of the solution.
Ahia Blue Moki on transtasman and Pacific flights.