Loyalty schemes ‘push fuel cost up’
New Zealand could get a billiondollar boost from the next America’s Cup, but homeowners are being warned that they shouldn’t expect a regatta on local shores to mean a big house price increase.
Boat-building, tourism and waterfront development are all expected to benefit when the tournament is defended in New Zealand.
Pundits have estimated it could mean an injection of more than $1b for New Zealand’s economy. An America’s Cup economic impact study estimated Auckland’s regatta in 2003 meant an extra $529 million for the country, about the same as the event in 2000.
But ASB chief economist Nick Tuffley said New Zealanders – and Aucklanders in particular – expecting an equity boost from soaring house prices could be disappointed.
‘‘At the margin it will mean more pressure on house prices through the added accommodation needs for the various teams that will need to base themselves in commuting distance of the team base locations,’’ he said.
‘‘There may be other very modest spillover impacts from the added economic activity generated by cup-related activities and preparation.
‘‘But the environment is very different from the 1986-1987 euphoria as KZ7 headed towards the challenger series final, when there was a surge in buying of Auckland coastal properties that boosted prices for a period,’’ Tuffley said.
At research firm CoreLogic, Nick Goodall said there were too many other factors influencing the housing market to say that a local America’s Cup challenge would drive prices.
‘‘Yes, it has a significant influence on the economy, with all the people who come here and spending it creates. It improves the economy and job situation for people in New Zealand and that in turn means more money is likely to be spent here by people who live here, some of that on the housing market.
‘‘First-home buyers might be able to save a deposit more quickly. But it’s a few years away and where house prices are at then is another question.’’
He said it was to be expected that sporting events that did well would boost consumer confidence and people’s willingness to spend.
But Trade Me Property’s Alistair Helm said the America’s Cup would create property investment opportunities, particularly around Viaduct Harbour, if that was where the teams, journalists and support staff were based.
‘‘It’s also going to market Auckland and New Zealand to the world which will no doubt create interest from overseas investors,’’ he said.
‘‘Back in 2003 there were a number of rental listings that offered views of the America’s Cup race course so we’d expect to see some opportunistic landlords try the same this time around.’’
Infometrics forecaster Mieke Welvaert said QV figures showed house price growth had been stronger in central Auckland in 2003, in the year after the last New Zealand America’s Cup, than in the rest of the city.
The same happened to a lesser extent in 2000, although house prices in the city were falling at the time, she said.
‘‘But there were larger, more fundamental drivers that were also at play at the time of each America’s Cup event.
‘‘For example, we know that in 2003 New Zealand was experiencing a boom in migration, with a large proportion of foreign arrivals ending up in Auckland.
‘‘We also know that house price growth in Auckland City was already accelerating ahead of that for the Auckland region in the year prior to the 2003 event.’’
She said it was possible the event could push up house prices because there would be more local investment in infrastructure, making property more appealing.
‘‘Following this logic, there may also be additional investment in accommodation spaces. This investment could involve converting residential buildings into hotels and thus limit supply of residential space and push up apartment prices in the central city or, if new accommodation stock is built, we could see the reverse effect,’’ she said.
Property Institute chief executive Ashley Church said other international events had not brought widespread economic benefit.
About 133,000 people visited New Zealand to follow the Rugby World Cup and spent an estimated $387 million, yet there was almost no economic impact on the hospitality and accommodation sectors outside central Auckland, he said.
But Church said there were longer-term benefits to justify government expenditure on the event.
They included development of infrastructure as happened at the Auckland Viaduct.
The event would also showcase innovation and business nous of Kiwis, in technology.
It would attract wealthy people that the cup would provide access to, and the ‘‘feel-good’’ factor could improve productivity and confidence. Fuel vouchers and loyalty schemes may be helping turbo-drive petrol companies’ profit margins and working against the interests of consumers, a government report says.
Labour economic development spokesman Stuart Nash said consumers would be better off overall if such schemes were done away with completely.
A report produced for the Ministry of Business, Innovation and Employment found gross profit margins on fuel at the pump had doubled in Wellington and the South Island over four years.
The study’s authors argued discount vouchers offered by the likes of supermarkets and loyalty schemes could be part of the problem, as they allowed petrol companies to ‘‘price discriminate’’.
‘‘In imperfectly competitive industries, charging different types of customers different prices for the same product can increase profits. However, it does not improve outcomes for consumers,’’ the report said.
The effect of vouchers and loyalty schemes was to push up the regular ‘‘board’’ price of fuel, as advertised on petrol stations’ sign boards, while reducing some of the forces of competition.
The report was written for the ministry by economists and consultants at NZIER, Grant Thornton and Cognitus Economic Insight.
Petrol companies had been increasing their use of discount and loyalty schemes, they said.
‘‘On the data available to us it has not been possible to evaluate whether the increasing use of price discrimination is net positive or net negative for consumers.’’
Nash said consumers would be better off overall if such schemes were scrapped, as it would increase the pressure on petrol companies to offer ‘‘everyday low prices’’.
An aggravating factor was that some discount schemes could involve ‘‘the poor subsidising the wealthy’’, he said.
‘‘At my local supermarket they have a deal once a month if you spend over $200, you get 10c or 20c off. There are a whole lot of families that simply cannot afford to spend $200 a week on groceries.’’
The debate has put the AA in the seemingly somewhat unusual position of siding with petrol companies over pricing tactics.
The AA runs its own petrol discounting scheme in conjunction with BP and Caltex.
Spokesman Mark Stockdale argued the ‘‘popularity’’ of such schemes showed they were in motorists’ best interests.
‘‘In some of those schemes the discount is not all funded by the fuel companies,’’ he said.
But he agreed more research might be useful.
‘‘If it were possible to identify to what extent price discounting and loyalty discounting was contributing to margins that would be an interesting exercise – but we simply can’t answer that.’’
"It's a few years away and where house prices are at then is another question." Nick Goodall of CoreLogic