The good, the bad and the ugly – NBR's plays of the week

No double dip, say economists
Economists have assured us, to paraphrase South Park’s incompetent policeman Officer Barbrady, “move along, no double dip recession to see here!”

The country’s top economists were surveyed for today’s NBR story and their consensus is that New Zealand won’t fall back into recession.

Fears that New Zealand might double dip have been stoked recently with a collection of morbid economic surveys.

Economic growth in the June quarter was a miserable 0.2%, compared to market forecasts of 0.7% and 0.8%.

A gloomy NZIER survey added to the pall of despair hanging over the economy and data released this week showed incomes are down with more people getting money from the taxpayer and fewer getting it from employment or self-employment.

Some bright spots
Although some people joke that the purpose of economists is to make weather forecasters look good, the overwhelming sentiment towards at least a tepid recovery in the New Zealand economy is a good sign.

There are certainly some positives, such as high milk prices and the “deleveraging” of New Zealanders, who are borrowing less and saving more while reducing debt.

But there are plenty of risks, one of which being that the Reserve Bank gets sucked into the currency war that is emerging as mercantilist governments try to subsidise exporters by increasing the money supply and making individual dollars worth less.

When money is created out of thin air the people who get first access to the money (usually governments and banks) benefit by getting a claim on goods without having to actually produce anything first.

Meanwhile, those who are last to touch the freshly printed money – salary and wage earners – are made worse off because prices have already risen by the time their pay finally goes up.

They are effectively working harder to produce things the recipients of the new money get for free.

If New Zealand’s central bank decides to go on a money-printing spree to devalue the currency Kiwis need to ask some hard questions about who is getting that money and becoming wealthier while the rest of us become poorer.

Arrowtown tries to freeze time
Arrowtown’s council has made a decision that could transform it from a popular and thriving tourist destination into a ghost town at worst or a glorified retirement village at best.

The former gold mining town, 20 minutes from Queenstown, has a population of 2400 people, so it could hardly be considered a sprawling metropolis.

Yet its leaders (if you could truly call them that) have decided to ban any further development in and around the town because it’s apparently big enough already.

Apart from being a horrendous breach of the property rights of landowners on the edge of town, who will likely see their land values plummet, this is also a potentially suicidal move for Arrowtown.

One resident told the TV news it had only become so successful because it had been allowed to grow.

Arrowtown’s decision to put itself in stasis wasn’t front-page news and most people who saw the story on TV will probably forget about it within a week.

But it is important because it highlights an issue that is causing serious damage to New Zealand’s economy and society: stifling land use regulations and town planning laws that obstruct development and hamper economic growth.

Wider problem
According to the annual Demographia survey, New Zealand’s houses are seriously or severely unaffordable in every region, with median house prices at least five times median household incomes and edging towards seven times in Auckland.

In contrast, US cities Houston and Dallas-Fort Worth, both in Texas, have maintained house prices at below three times household incomes despite more than a million people moving into each city in the last ten years.

Demographia points to New Zealand’s highly regulated land markets as the culprit.

A study by Motu researchers Arthur Grimes and Yun Liang backed this theory, finding that land just inside Auckland’s Metropolitan Urban Limit was valued at about 10 times land just outside the boundary.

New Zealanders are a strange bunch: we jump up and down opposing housing developments then complain about houses being too expensive, protest every form of electricity generation then complain about high power prices, and march in the streets against mining then complain about low incomes and move across the Tasman to a country that digs up uranium.

Hanover investors asked to lighten their pockets
As if they haven’t been through enough already, former Hanover and United Finance investors are now being asked to dip into their own pockets to fund an investigation into last year’s debt for equity swap with Allied Farmers.

Since Allied Farmers took over the assets and loans of Eric Watson and Mark Hotchin’s Hanover finance companies, the company has written down the value of the loan books from $396.2 million to $94.3 million. 



As reported by NBR today, the Hanover Action Group has called on investors to support plans to review last December’s transaction and build a case for potential Securities Commission enquiry and/or legal action.

Donations range from $50 to $1000, with the money to be deposited into a trust account to be used to fund expenses such as recruiting experts to go back over the deal.

For investors who have seen their investments rendered almost worthless by the collapse of Allied’s share price, finding the money to donate may be more difficult than it used to be but this is a cause they will find hard to say no to, regardless of their circumstances.

Plenty to look at
Auckland barrister Tim Rainey is acting on behalf of the group and has put together a number of concerns for an investigation to look at with a view to possible legal action.

Mr Rainey said there were two prongs to the potential action.


The first involved looking back at the representations made in the prospectus for the deal and during the investor roadshows leading up to the vote.

The second area of concern relates to the governance of Allied Farmers since the takeover, including the directors’ independence. All the current directors are old shareholders in Allied Farmers.

But the fact investors are even being asked to dip into their own pockets could be seen as a reflection of the relatively narrow scope and power of the Securities Commission compared to many of its overseas counterparts.

This issue is being addressed with the new “super regulator”, the Financial Markets Authority, which will move the responsibilities of a number of market regulators under one roof.

However, the history of failure by government regulators suggests market-led legal action against alleged finance rip-offs may offer the best avenue for disgruntled investors to try and get some of their money back.