Oil prices drop to $0 and below

There has been a major drop in demand for oil, with airlines mostly grounded around the world, public and private transport greatly reduced due to lockdowns in many countries, and industrial use also reduced.

This has resulted in a drop of oil prices.

Reuters:  U.S. crude crashes below $0 for the first time in history

U.S. crude oil futures turned negative for the first time ever as billions of people stay home to stop the spread of coronavirus, causing a global supply glut that has led to storage space filling up.

Brent crude, the international benchmark, also slumped, but that contract was nowhere near as weak because more storage is available worldwide.

While U.S. oil prices are trading in negative territory for the first time ever, it is unclear whether that will trickle down to consumers, who typically see lower oil prices translate into cheaper gasoline at the pump.

As billions of people around the globe stay home to slow the spread of the novel coronavirus, physical demand for crude has dried up, creating a global supply glut.

Most prices in Dunedin currently range from $173.9 to $189.9 per litre for 91 and go as low as $100.9 for diesel.

Petrol prices

There has been a big stir up about petrol price variations in the lower North Island.

Free competition between supply companies and their service stations so I’m not sure what the big deal is.

Sure large fuel companies push for as much profit as they can get where they can get it – it’s a bummer if you live in a high price area. And I don’t see a problem putting pressure on companies that jack up prices.

But most of us have choices, about where we buy petrol, and to an extent how much we use. prices seem to vary by 5-10% – it wouldn’t be difficult for most of use to reduce our use of petrol by 5-10% if we put our minds to it.

A lot of companies and industries put whatever price they think they can get on their products.

Can the new government stabilise house prices?

Presumably one of the things on the agenda of parties negotiating to form a new government will be property prices.

Can much be done to control property inflation? It is a world wide problem.

Is it already under control enough?

Property prices escalated early in the century – I bought a house in Dunedin in 2001 for $108,000 and sold it in 2006 for $245,000.

They flattened with the arrival of the New Zealand recession in 2008, followed by the Global Financial Crisis.

After a few years they took off again, especially in Auckland and some regional places like Queenstown. Over the last year they seem to have flattened off in Auckland but continue to surge in some other areas.

From Reddit: What can the new government do to lower or stabilize housing prices?

I used to live in KL back in the mid 2000s and have seen how housing prices there and in singapore skyrocket with the influx of overseas investors. Funny enough same thing happened here too

Let’s not turn this into a racial issue because it’s not. Money flowing overseas did increase housing prices. That’s a fact. Floodgates open and infrastructure could not keep up.

However Singapore and the likes of Canada have done stricter rules to stabilize and even lowered housing prices.

Not pre 2005 prices cause that’s not gonna happen but at least it’s helped wages to at least keep up with the prices bit by bit.

Rules like a first time home buyer has to stay in their property for first 5 years and not being able to rent it out.

Rules like not being able to flip a house within a few years.

Rules like that seem too restrictive. I have several times sold a house within five years due to changing circumstances or upgrading.

Only residents are able to buy land/property etc.

Capital gains tax.

List goes on.

Some of it is really common sense and I can’t help but wonder why national would not implement such measures years ago.

I can only guess that the Government had hoped that property prices would have levelled off without too much intervention, and that measures aimed at increasing land supply would have been quicker and more effective.

The Government may also have been caught flat footed by the downturn in Australia that saw a big turn around in trans-Tasman migration.

One comment:

I like the idea of foreign investors being locked toward building new houses as opposed to purchasing existing homes or something along those lines.

That is Labour policy. A response:

Australia has always had this, its a good idea in theory, butit doesn’t work on its own. There are too many loopholes and various schemes available to make you a non-foreign buyer. Also it wasn’t ever enforced properly.

Some suggestions:

…assuming that the new government is not as blinkered as the outgoing one, here are some reasonable ideas:

  • Only citizens can purchase freehold property (residential, commercial, and rural). If foreigners want to invest here, allow leases up to 99 years.
  • Universal land tax (e.g. 0.5%), with the revenue raised to reduce income taxes by the same absolute value. The outcome would be that the average family, with an average income, owning an average number of properties, won’t pay any more in tax. It would be a massive help to the economy, as workers would be rewarded significantly more for their labour.
  • Punitive rates (e.g. 3%) on land bankers, i.e. undeveloped land within urban boundaries. This has been used successfully overseas to encourage development and discourage land banking.
  • Stabilise immigration at a rate which corresponds to the country’s ability to build new homes, after accounting for natural population growth and making up the existing shortfall.

A land tax is worth considering, as long as it is offset by a reduction in income tax. It would be simple to implement if it is not complicated by exceptions. We already pay a form of land tax via our local body rates.

Stabilising immigration is not easy. We can control the number of new immigrants – and I think that has been fairly consistent. Winston Peters (and others) have claimed we have ‘mass immigration’, that’s either populist nonsense or ignorant.

But what has caused the biggest change in net migration is a sudden change in fewer New Zealand citizens leaving, especially for Australia, and a surge in New Zealanders returning. The Government cannot control this, and it makes planning stable nett immigration numbers difficult.

Do we need to do much?

Auckland house prices have stabilized already. We are waiting on evidence of falling, but time to sell has increased and inventory is decreasing. These are good signs.

It’s plateaued high, but at least it’s not increasing further.

We may be stuck with the current price levels, unless there is a major international influence. No Government will be keen on a significant slide in property prices.

A detailed comment from FrameworkisDigimon:

OP your solutions are way too authoritarian. And that’s me saying that. I am perfectly comfortable with states spying on me and CCTV cameras on every corner.

Investors are the problem: regardless of where they live. Owner-occupied or even just occupied housing is a crucial feature of doing things the right way. Getting investment money to go towards shares and other opportunities likely to improve productivity is important too. Long term housing availability requires breaking boom bust feature of housing construction because, shockingly, people keep having babies in recessions. To that end…

Land tax. This will encourage developing real estate rather than sitting on the land. There are lots of other benefits. Cut GST along with instituting this. Unless you own buckets of land and spend little, you’ll be better off.

Capital Gains Tax. Ghost properties which are just sitting there maybe being pointlessly renovated or maybe just completely empty are a consequence of being able to flip properties for easy money. Tax those gains. Basically, by Capital Gains Tax I mean adjust the tax system to favour (a) investing in shares and (b) investing in the construction of denser housing forms.

Harder urban boundaries (esp. in Auckland) and end subsidisation of greenfields development. This sound contradictory but if you keep building on fertile land you are literally killing this country. Sprawl is environmentally evil and contra-social sustainability.

Force places which are overloaded with “pull up the drawbridge, I’ve got mine NIMBYs” to accept (a) transit developments and (b) a variety of housing forms. Basically, the idea is that if you have a plot of land and could develop it into 7 units, you should be (i) able to do so and (ii) incentivised by the tax system to do so. The harder urban boundary is accompanied by fewer restrictions on the types of development that are able to occur within those limits… but with definite state oversight in order to avoid, e.g., leaky buildings (turns out, if you don’t regulate the cowboys out of the market, everyone is a cowboy).

Develop a large state owned building programme firm. I don’t care how this is done (the army advertises itself as a tradie’s paradise so maybe we should use it as one, nationalising some suitably large existing firm, starting from scratch) but it needs to happen. This entity would exist to build when private developers don’t want to build, and otherwise to build/oversee particularly large projects. For instance, planners might decide an areas could be more intensely developed. At that point figure out a heavy duty public transport scheme and start building it. Then get our entity to come along and build/fund some tower blocks, terraced houses and other types of property close to the route.

Key ideas: if land is expensive (it is), then you can make the dwellings cheaper by having more of them on the same amount of land, but our entire system is not designed to do this. Even worse, our system is designed to basically stop building anything in recessions. We have to adjust the incentives of all possible sources of money and bring the state in on the construction side, whilst also dramatically altering what kinds of infrastructure we build.

Whatever the incoming Government does to address housing and land availability it is unlikely to have a quick or dramatic effect.

Another Auckland housing poll

Polling on house prices seems to be in fashion. Following the release of UMR poll details on housing – see Poll on house prices (no party poll release this time) – The Spinoff has also asked some housing questions via SSI.

Background:

The median house price in Auckland has jumped by 85% over the last four years, with the average home now costing roughly 10 times the average household income. The corresponding figure before 1990 was around four times median income.

“Have you in the last two years considered moving away from Auckland because of house prices?”

  • Yes 32.2%
  • No, but it’s a good idea 36.3%
  • No 31.5%

Some of those will be thinking of looking for somewhere with more affordable housing so they can buy their first home, while others who already have homes will be wanting to take advantage of their surge in value with a view to buying a cheaper and perhaps better house elsewhere.

Obviously employment will be a major factor – many won’t be able to move away from their jobs.

“Do you think we have a housing crisis in Auckland?”

  • Yes 84%
  • No 10.3%
  • Don’t know 5.7%

I find the obsession with media and opposition parties to dramatically label things is a bit pointless.

A crisis “is any event that is, or is expected to lead to, an unstable and dangerous situation affecting an individual, group, community, or whole society”.

If the media and opposition had chosen to promote a different label then it would probably have rated highly when they polled on it.

“Why do you think we have a housing crisis?”

  • Foreign investors 55.7%
  • Government inaction 39.6%
  • Developers + speculators 38.5%
  • Incompetent Auckland council 28.8%
  • Selfish NIMBY baby boomers 9.1%
  • Over cautious Reserve Bank 7.8%
  • Ungrateful spendthrift Millenials 3.9%
  • Too much immigration 3.3%

Multiple responses were allowed. There is no ‘Other’.

This probably reflects more on media coverage over the past few months than anything. Is there any way of telling how close to reality it is?

It’s interesting that immigration barely rates.

Poll details:

Survey Sampling International (SSI) conducted an online survey among a representative sample of 760 Auckland residents aged 18 and over with quota applied to gender, age and region within Auckland. All respondents were screened to ensure they were New Zealand residents and eligible to vote. The polling period was 17-19 August and the margin of error is +/- 3.6%.

More polling and commentary at The Spinoff – One in three Aucklanders has recently considered quitting Auckland because of house prices – poll

 

Broadband prices rising

The Commerce Commision has decided to raise the price of wholesale copper charges. This will mean landline and broadband prices will go up. Spark have announced increases from February.

NZ Herald: Spark hikes prices after ComCom copper ruling

Spark will lift prices for some broadband and landline plans from February as a result of the Commerce Commission’s decision to increase wholesale copper line charges.

Home landline customers in Auckland, Wellington and Christchurch will pay $3.50 per month more, while ADSL/VDSL broadband customers are facing a $5 monthly increase.

On Tuesday, the commission announced that the wholesale price for access to Chorus’ copper network would be raised to $41.69 per month.

The regulator came to the final figure, $3 higher than expected, after it conducted a more rigorous process to find the price than the initial pricing principle review, which relied on international benchmarks.

Spark said the new Chorus charges, which took effect yesterday, were almost $8 per month higher for broadband services and $7 higher for landline voice services.

Bummer. Might be time to ditch the landline.

More gloomy export news – dairy dive continues

The dive in dairy prices continues, with prices in the overnight global auction falling a further 9.3%.

Radio New Zealand reports: New price shock for dairy products

The benchmark price of whole milk powder took a dive of 10.3 percent to $US1590 per tonne.

The biggest drop in the Global Dairy Trade (GDT) auction was a 14.4 percent tumble in the price of skimmed milk powder.

AgriHQ analyst Susan Kilsby yesterday said increased volumes of whole milk powder being offered for auction were likely to keep prices low.

“Volumes for whole milk powder are up by 75 percent, compared with the last auction, so there’s a lot more product to move through, and certainly a lot of the product didn’t even move off its starting price at the last auction,” said Ms Kilsby.

Strong growth in milk production in all dairy export regions – the EU, US, New Zealand and Australia – was also depressing prices.

That’s a huge increase in volumes, so coupled with softening demand it’s no wonder prices are falling.

The boom will have encouraged more dairying, but large increases in production are happening after the market has crashed, making the problems worse.