All eyes will be on the Reserve Bank this morning as its releases its quarterly Monetary Policy Statement.

MPs who are on the Finance and Expenditure Select Committee will return to Parliament from recess this afternoon to question the Bank on the statement.

It will come against a background this week of a series of statements on the economy the most dramatic of which came from the Finance Minister, Bill English.

He told the Rotorua Chamber of Commerce yesterday that for the dairy industry “the next three months are going to be grim, the worst in four years.” 

Just hours before he spoke, Fonterra CEO Theo Spierings told RNZ’s Kathryn Ryan that as a consequence of the milk price slump the co-operative was going to shed hundreds of support staff “in one go” though over time it would gradually build up its marketing staff selling milk products by the same numbers.

Mr. English though was sanguine about the impact of the milk price slump pointing out that the dairy share of the New Zealand economy was smaller than the health sector and that tourism was now our largest export earner having passed dairying.

But perhaps to underline the current unreality of the dairy price drop, Quotable Value yesterday reported that houses in the dairy-rich Waipa district, centered on Cambridge, were up 8.4% in value on their previous peak in 2007.


And the continuing increase in prices for New Zealand houses, particularly Auckland, was a feature of the OECD’s review of the New Zealand economy which was published yesterday.


It said: “House prices have risen markedly over the past few years and, relative to long-run averages, are high relative to income and rents by OECD standards.”

It said the largest increases had been in Auckland, where prices were high relative to median incomes by

“Moreover, housing affordability in Auckland is poor by historical standards, despite relatively low-interest rates (

“In addition, house price appreciation has boosted household debt to high levels relative to incomes.

“Housing poses some risks to the otherwise sound financial sector.”

 But also yesterday, CoreLogic, whose company QV is the main Council valuation agency in New Zealand, said that house values had risen across the country by nine percent over the past year but in reality that increase was largely experienced in Auckland.

“In the past twelve months values have increased 16.1% and 5.4% over the past three months,” Jonno Ingerson, Director of Research at CoreLogic.

“The annual increase in Auckland is the fastest we have seen for several years, but it’s not the fastest it’s ever been. From 2002 to 2004, values were increasing at an annualised rate of over 15% and indeed peaked at over 21%. 

“When we look back at the previous cycle to that, annual increases peaked at 26% in late 1994 and 22% in early 1996. 

“So this latest rate of increase is actually not that extraordinary.”

Mr Ingerson said the Government move to apply capital gains to properties re-sold within two years also looked to be a smart one that will primarily impact the Auckland market. 

“Our analysis of sales turnover shows that in Auckland the most common ‘hold period’ is 1 year,” he said.

“Compare that to the rest of the country where properties are most commonly held for 7 to 8 years. 

“This rapid turnover of properties is also typical of periods when markets are rapidly increasing, and we saw it across much of the country during the previous boom in 2003 to 2007. 

“At the moment it is really only an Auckland phenomenon.

Overall, I still believe that Auckland values will continue to rise for the next couple of years but at a slightly slower rate. 

“I also don’t expect to see the rest of the country follow Auckland up anytime soon.”

That will be the big issue this morning — is the economy slowing enough to persuade the Bank to lower the Official Cash Rate and if it does, what will that do to Auckland property prices.