Mood of the Boardroom: CEOs fear children won’t own homes (NZ Herald)

Tim McCready

We fear our children won’t own homes, say the nation’s business leaders. Housing is one of the biggest issues in New Zealand at the moment — that was the response from CEOs in this year’s Mood of the Boardroom survey.

Cathy Quinn, chair of law firm Minter Ellison Rudd Watts, says “New Zealand is a comparatively good place in the world and our economy is doing well. But like many New Zealanders, I worry about housing affordability in Auckland for our staff and our children.”

When asked whether the Government should be doing more to dampen house price inflation, 70 per cent of CEOs agreed, while 18 per cent think the Government is doing enough, and 12 per cent are unsure.

Chris Gudgeon, chief executive of Kiwi Property, says the Government has been “lazy, naive, and negligent”.

He thinks it has lost sight of the crucial societal role that affordable housing plays.

“The Government has allowed housing to move from becoming a social good (when affordable) to a tax-effective investment that has only served to enrich investors at the expense of the next generation of talent we need to retain and attract,” he says.

The Government’s refusal to use both the demand lever as well as the supply lever has exacerbated the problem, Gudgeon says.

“The continued labelling of the problem as purely a supply issue is disingenuous, and blaming the Reserve Bank and Auckland Council is pure politics.

“Government should be imposing restrictions on non-resident investors until supply issue is resolved, and imposing a stamp duty on domestic investors to raise revenue to fund the infrastructure investment needed to support new supply and to disincentivise speculation,” he says.

The boss of one of New Zealand’s major banks thinks that “the Government has been far too hands-off around Auckland housing and the stresses and strains that the city’s infrastructure is under”.

Deloitte CEO Thomas Pippos says “while it is healthy for asset values like property to increase over time, the rate of recent change is unhelpful on a number of fronts, including exacerbating wealth and income disparity that will continue to raise challenges”.

Independent director Dame Alison Paterson says all the initiatives announced are worthwhile, however they take too long to have an impact. “While the incentives are to invest for capital gain and not in productive industries, the position will not change.”

Another CEO suggested: “Get Nick Smith off the (housing) portfolio. The man is clueless and disinterested.”

Although most CEOs agree the Government must step up and do something to curb housing inflation, there is considerable debate over what that action should be, and an appreciation that perhaps there is no silver bullet.

“This is clearly not an easy issue to fix — otherwise it would have been done,” says Quinn. “Collapsing the housing market and having people lose their equity does not seem right.”

Pippos cautions that “what is unhelpful is that property will become even more of a political football that may result in populous measures rather than those that are effective in the long run.”

The chief executive of an Auckland law firm says “we need to assess what has and hasn’t been effective elsewhere. Australia has massive taxes and stamp duties, but rather than blindly follow we need to assess and tailor make something sensible”.

Many CEOs see housing as a personal issue. Not necessarily because of the effects it will have on them, but because it will affect the ability of their children or grandchildren to own property in Auckland. Just over 70 per cent of those surveyed are concerned that the New Zealand “dream” of owning property is becoming out of reach for younger generations, and 73 per cent are concerned that younger New Zealanders are being priced out of the Auckland residential property market.

“I think it is really sad to see so many young people — many of whom are well-educated and in good jobs — that don’t believe they will ever be able to afford their own home,” says one CEO.

Though only a third of those surveyed worry that the Auckland property market will stall, there is concern that any fall in property prices will most severely impact first-home buyers who are more at risk of falling into negative equity.

“I wouldn’t want to see my house value deliberately dropped by 20 per cent, but it’s not me that would hurt,” says one CEO. “It’s my niece, for example, who just climbed on to the property ladder with an ‘affordable’ first home in Avondale.”

Though CEOs think that the lack of supply is the most significant contributor to the rapid increase in Auckland house prices, the majority of those surveyed agree increased net migration, low interest rates, domestic speculation, foreign investment, and the absence of a full capital gains tax are all important factors.

Finding solutions
NZ Council for Infrastructure Development CEO Stephen Selwood thinks the Government should assist development by aggregating land and providing development opportunities to the market. “This will deliver subdivisions at scale adjacent to transport services,” he says.

The head of a real estate company thinks the supply of homes is the fundamental issue, and is not convinced that any new bans, taxes, or regulation will provide a solution. “The biggest issue is a lack of supply. All other issues add to the situation, but not as significantly as supply.

“We need to encourage developers and investors (both local and foreign) to acquire land and redevelopment projects and get on with building homes and apartments,” he says.

“Taxing residential investors and imposing LVR restrictions just discourages them from increasing supply to the rental market — this simply diminishes supply further and pushes rents upwards,” says the real estate boss. “Fix the supply issue and the value equation will begin to balance out.”

Beca chief executive Greg Lowe, says “empty houses owned by people who don’t want to either live in them or provide rental homes, or are being held by short-term speculators (if the reports are correct), creates an unhelpful distortion of demand”.

Although house price inflation is a supply issue, Mazda NZ’s Andrew Clearwater says the real issue is a lack of skilled tradespeople. “There needs to be a curb on foreign investment where it is at the expense of first time buyers.”

Lowe agrees, believing more skilled labour is needed in New Zealand — skilled migration will help meet this need, and also add to growth in domestic demand.”

The boss of an agricultural company says until supply catches up with demand, the Government needs to implement fairly drastic action in terms of immigration. “It needs to be Government-led, as immigration is a national choice, but Auckland is wearing most of the consequences.”

Other CEOs agree New Zealand needs much lower and far more targeted immigration — “we need a smaller number of highly skilled migrants.”

Auckland Chamber of Commerce chief executive Michael Barnett says: “We need to address the foreign buyer advantage.”

The chairman of an investment management firm says there should be no sales of existing homes to foreigners, and an energy company chief executive says the Government must contemplate new building rules for overseas buyers.

“I support a Government housing programme, but only for permanent residents who take up occupation and do not use the property for investment purposes,” says a real estate boss.

Are taxes the answer?
The Government has notably avoided an effective capital gains tax, instead implementing the two-year “bright line” test. Whether capital gains and other taxes should be implemented remains a contentious issue, with CEOs unsure whether it will make a difference.

The boss of a real estate company says “if we look overseas to countries that have capital gains tax, house prices have continued to increase”.

On the other hand, a manufacturing chief executive thinks “a capital gains tax is needed now on property other than the family home. Shifting speculative property investment into investment in productive capital markets would be a better economic outcome.”

Don Brash, chairman of ICBC (NZ), says if metropolitan urban limits were scrapped, and infrastructure on the fringe of major cities appropriately funded, local authorities wouldn’t have to do much else. “Bill English understands this, and so does Phil Twyford”.

Yet most chief executives believe the solution to the housing crisis shouldn’t be the sole responsibility of the Government, and that local authorities need to step up and take action. Just over 80 per cent of those surveyed think local authorities should establish satellite towns or cities to service major metropolitan areas, and 57 per cent think local authorities should apply a substantial differential rate to “banked land”‘ to incentivise owners to make it available for housing.

Port of Tauranga CEO Mark Cairns says “unoccupied land tax seems to be a no-brainer”.

Lowe says that there is plenty of land already in Auckland, but housing density is too low for the current and expected population.

“We waste the land we have on inefficient and unnecessary section sizes. Urban intensification, particularly around transport and retail hubs, has been a common solution overseas and provides for more efficient use of land that still allows a good urban lifestyle,” he says.

The head of a government agency agrees: “We must embrace intensification, and tackle the Nimbys in the leafy suburbs of Auckland.”

Another CEO suggests: “Build along the Auckland rail corridor. This will allow at least part of the growth to not impact on the roading network if rail continues to improve.”

Yet most CEOs agree that any intensification should not be at the expense of Auckland’s green space.

“I agree with selling off golf courses, but would not like to see all green areas gone,” says a real estate chief executive.

“We must not compromise the desired quality of life that Aucklanders are after, including parks and golf courses.”

CEO solutions:

  • 81 per cent want to see satellite cities/towns established to service major metropolitan areas
  • 39 per cent find it more difficult to attract staff to relocate to Auckland
  • 70 per cent believe Govt should do more to dampen house price inflation in NZ
  • 70 per cent are concerned the NZ dream of owning your own house is becoming out of reach for younger generations
  • 62 per cent are not concerned the Auckland housing market will stall

Mood of the Boardroom: Will this be Winston’s finest hour? (NZ Herald)

Perhaps the real winner of the opposition in the current climate is NZ First Leader Winston Peters, writes Tim McCready

There are striking similarities in the motivations behind the United Kingdom’s vote to leave the European Union, the incredible rise of Donald Trump (and Bernie Sanders) against all odds, and what have consistently been Winston Peters’ policies.

At the heart of the Brexit campaign — passionately supported by Nigel Farage’s UKIP — the closest comparable UK political party to New Zealand First, was strong rhetoric around the “deterioration” of the United Kingdom and the unrecognisable, rapid change resulting from globalisation (and the mass migration that has come with it). Notably it was the lack of control felt by ordinary people over the direction of their country that most resonated.

The UK’s financial markets rose sharply in the final stages of the referendum campaign, reflecting the confidence that “Remain” would prevail. But when the quiet majority rose against the prevailing voice, Donald Trump himself used the victory as his own platform, tweeting: “Just arrived in Scotland. Place is going wild over the vote. They took their country back, just like we will take America back. No games.”

Trump ignored (or missed) the fact that the majority of Scotland backed a continued membership of the European Union.

Farage consistently and successfully directed his anger towards the “establishment”, including politicians in Brussels and Westminster who had long ignored resentment toward closer political integration and immigration, particularly in traditionally working class areas.

Sound familiar? Earlier this year, marking 23 years of New Zealand First, Peters used both Trump and Brexit to boost his own platform.

“The rise of Donald Trump in the United States against all predictions and the chord Bernie Sanders struck with many Americans can be attributed to ordinary citizens stepping up to the mark and saying — we’ve had enough.

“Others around the world think as New Zealand First does,” he said. “The people of Britain decided they had put up with enough of being ignored or talked down to from Brussels. They were tired of being fobbed off about issues like immigration.”

In stark contrast last week, Prime Minister John Key addressed the UN General Assembly, speaking out against creeping protectionism — “borders are closing to people and products, to investment, to ideas. Many states are turning inwards.

“The politics of fear and extremism are gaining ground. We cannot turn inwards.”

Though we cannot yet speak for the United States, the early signs are at least that the Brexit vote may well turn out to be a force for global free trade rather than protectionist interests.

There is a great opportunity for New Zealand and the UK to ally closely on this, but no outcome is guaranteed for either nation — particularly with Winston Peters on the march.

In this year’s survey, 40 per cent of CEO respondents thought New Zealand First would hold the balance of power following the next election; 14 per cent think he won’t and 46 per cent aren’t sure.

None of the respondents seem particularly thrilled with the prospect:

  • “Winston seems to be the obvious winner of the disenfranchised voter. I never thought I would say it but I am glad we have MMP — it may prove to be a good moderator in this new political environment.” — A manufacturing chief executive.
  • “Watch out: Winston’s coming!” — A chief executive of a government agency.
  • “I would like to see Winston Peters prosecuted for treason.” — A FMCG boss.

Peters aims to mobilise those one million “forgotten New Zealanders”, and those that have become disillusioned with politicians.

He has positioned New Zealand First to be anti-political, anti-immigration, and anti-capitalism.

He has had his own successes this term at the expense of the Government: the failure of Key’s flag referendum, and a landslide victory in last year’s Northland by-election.

Farage has said that the British people conclusively fired a stone at their Goliath earlier this year. Perhaps, in 2017, Winston Peters will strike his.

Mood of the Boardroom: Goff rated best for mayoralty by CEOs (NZ Herald)

When chief executives consider the candidates vying to lead Auckland, political experience seems to win out, as Tim McCready explains

Experienced national politician Phil Goff is rated by 43 per cent of respondents to the Herald’s survey as having the best attributes to be the next Mayor of Auckland.

Survey responses indicate there is a sense of inevitability in the senior business community that Goff will take the title of mayor come the October 8 election.

Goff has, by far, more name recognition than any other candidate, and has been in the public eye since he entered Parliament 35 years ago as a Labour MP, rising to be party leader before being trounced by John Key at the 2011 election.

His campaign has focused on using his experience in central Government to solve Auckland’s housing affordability problems and public transport.

Westpac NZ boss David McLean had qualms about Goff’s plans to bring back trams saying that was genius for Melbourne — but Melbourne was designed for it. He questioned whether Auckland streets were wide enough: “It would take a huge change to put them back.”

Goff’s connectivity to Wellington — he is a former Foreign Affairs and Defence Minister — was consistently noted among CEOs as a capability that will help things get done. “Collaboration with government agencies will be critical to ensure government support”, says Hawkins Group CEO Geoff Hunt.

But with support at just 43 per cent of survey respondents he still has to build broad credibility with senior business.

The chief executive of a major bank says although Goff is far from perfect, he’s “the best of the lot”.

“He’s got plenty of substance but little flair — he’ll do a great and competent job and Auckland will progress.”

Vic Crone is ranked second by CEOs, with 19 per cent support. Crone is the centre-right front-runner; she has the backing of senior National Party MPs, and her corporate experience, including senior leadership roles with Telecom, Chorus, and Xero, provides a clear point of difference from Goff. Former National candidate Mark Thomas comes in third with just over 2 per cent.

Not one of the more than 100 survey respondents thinks businessman John Palino has the best attributes to become mayor. Palino was a mayoral candidate in the 2013 election coming second to Len Brown.

Cooper and Company chief executive Matthew Cockram says Crone and Thomas have robust and thought-through policy platforms that deserve a better airing.

But Cockram says Goff is “by default” the best politician of them all: “hopefully some of what they have suggested and pushed for will be picked up and developed by Goff.”

An energy company boss expressed dismay that the mayor and councillors hold such a vital role in creating and sustaining a successful economy, and yet on the whole fail to attract quality leadership.

Perhaps most surprisingly at this late stage of the campaign, 22 per cent of CEOs have indicated they don’t yet know who they will vote for — though some of this can be explained by respondents feeling uninspired by the candidates, and concern that no one has the depth of skill required.

The boss of an energy company expressed dismay that the mayor and councillors hold such a vital role in creating and sustaining a successful economy, and yet on the whole fail to attract quality leadership.

A further 16 per cent suggested other candidates should have emerged with one nominating Auckland Chamber of Commerce CEO Michael Barnett, who has previously been flagged as a potential mayoral candidate. Another business respondent nominated former New York mayor Michael Bloomberg — who earlier shied away from contesting the US presidential election as an independent candidate this year.

Top 5 priorities for next mayor
Chief executives overwhelmingly want the next Mayor of Auckland to improve public transport in the increasingly congested city,

Among their other top priorities for the mayoral agenda are getting large infrastructure projects funded; bringing Auckland Council spending under control; improving how council works alongside the government and implementing the Unitary Plan.

The New Zealand Council for Infrastructure Development says Auckland’s transport system is at a tipping point. Significant progress has been made since the mid-2000s, with record levels of investment. The completed western ring route, rail electrification, City Rail Link and other projects will make a difference, but in order to meet the needs of a further one million people by 2050, Auckland must accelerate progress.

NZCID chief executive Stephen Selwood says that Auckland’s current transport problems will be much worse unless we make a step change in investment into transport infrastructure. “Density must be strongly targeted around rail and bus way corridors, and future urban areas will need to be concentrated where new transport capacity can be provided with urgency. Additional funding through road user charging will be fundamental to achieving the level of investment required.”

“Are we spending enough? How can we finance the infrastructure we need?” questioned a company chair. “I would support the sale of local assets on the basis that money was used for infrastructure — the spend needed in Auckland is massive.”

Mayoral candidate Phil Goff’s own policy planks — city infrastructure bonds, expanding the Government’s $1 billion infrastructure fund, and public private partnerships to fund growth — obviously resonated with chief executives’ belief that rates and debt cannot be the only funding source for transport and infrastructure. There are also clear concerns that morning and afternoon gridlock in Auckland on main arterials are increasing to the point where it is significantly impacting on productivity.

ICBC (NZ) chairman Don Brash says there isn’t a problem with the adequacy of electricity or water infrastructure, but “roading in Auckland is seriously deficient — or, perhaps more accurately, is being inefficiently used because it is not being appropriately priced.

“There is also a huge need to improve our transport infrastructure and selling, for example, shares in the port would both provide funds for that purpose and improve the efficiency of the port (witness the Port of Tauranga).

“Why Auckland Council continues to own a minority stake in the airport also defies understanding — it is a purely commercial business, and the council should sell out now while the price is very high.”

Auckland Council is also seen by some as severely bloated with too many staff — and as a consequence those staff find myriad ways of obstructing development with pointless regulations and endless delays.

For her part, mayoral candidate Vic Crone sees public private partnerships and other investment tools as the way forward for Auckland’s infrastructure. She also wants to see the port moved to make better use of waterfront land.

Several of those surveyed — including Precinct Properties chairman, Craig Stobo — agree the best use of Port of Auckland’s land is for residential and commercial use, and not for shipping. “The next Mayor needs to lead the shift of the harbour port to an inland port serviced by other harbour ports,” says Stobo.

A consensus is unlikely in the short-term. Port of Tauranga chief executive Mark Cairns says it is simply unrealistic to move the port in the medium term.

“If ports simply priced and invested to achieve a cost of capital return, then a natural hierarchy of ports (international container hub, regional feeder, regional bulk) will emerge quite quickly.

“Ports are multi-million (often billion) dollar long-run infrastructure assets, not regional Economic Development Agency playthings.”

There is mounting concern among CEOs that without significant improvement in Auckland’s infrastructure — along with improving housing affordability — the city will lose staff to other centres around New Zealand where the cost of living and lifestyle are becoming more attractive.

  • 4 per cent of CEOs indicated they have had to increase salaries and offset the higher cost of living in Auckland in order to attract and retain talent;
  • 39 per cent have found it difficult to find staff willing to relocate to Auckland, and 17 per cent have already considered relocating some of their operations away from Auckland.

A media boss noted it has been difficult to attract staff even at the senior management level because of reduced quality of lifestyle that would be offered.

“While ‘quality of lifestyle’ can reflect access to amenities and communities, the biggest factor is ability to afford to provide a comparable property to live in for their family.”

But Beca’s Greg Lowe said Auckland tended to provide good career opportunities and the scale of the market seemed to attract people to work there. “Those who place higher value on lifestyle than career opportunity, that is, considerations such as lower housing/living costs, easier transport, perhaps phase of life such as young children) may choose other locations.”

An exporter says salaries need to be higher and there are definite skill shortages in accounting and finance. “Perks like car parks are now gold.”

Another suggested Auckland had potentially become too dominant in New Zealand and would encourage some businesses to move out of Auckland — “some form of government programme?”

Mood of the Boardroom: Praise for Len’s Legacy (NZ Herald)

Tim McCready

Outgoing major Len Brown has been largely praised by CEOs for bringing together an amalgamated Auckland, passing the Auckland Unitary Plan, pushing rail to the forefront of a solution for Auckland’s transport, and persevering with the City Rail Link in the face of central government opposition.

  • The CEO of an Auckland Central law firm says “a big tick to Brown for persevering with the Rail Loop project in the face of central government opposition and playing a big role in getting it under way. That will be his legacy.”
  • “Despite his shortcomings he has been a force in helping to bring together Auckland,” says Joanna Perry, non-executive director for several large New Zealand businesses. “We are way better off with the amalgamated Auckland than we were before.”
  • The CEO of a telecommunications company says “to give him credit, he targeted the trains and he got the commitment needed to get going.”

Despite these accolades, more than 57 per cent of CEOs surveyed think Len Brown has performed below average for Auckland, and 63 per cent feel he has performed below average for business.

  • “Len has presided over a council which has helped drive the price of housing well below the reach of most New Zealanders who don’t already own property,” says ICBC NZ’s Don Brash.
  • “He has committed the city to an exorbitantly expensive piece of underground railway which does almost nothing to ease serious traffic congestion.”
  • “Len Brown lost all credibility when it was revealed that he was not as he had portrayed himself. He should have stepped down immediately,” says a chair of several major New Zealand companies. “It has been self-interest which has kept him in the role for the past three years.”
  • A real estate firm CEO summed up the general consensus that it is time for a change: “Aside from Len’s publicised incident, he has been a good mayor who took over the Super City concept and brought it together. But now is the time for a new mayor to start, and to deliver major changes required for Auckland.”