The more things change …

News and views from New Zealand – Dennis Dorney

After a long period in which the upsurge of NZ house prices has dominated the local Business pages, the troubles of the Dairy industry have pushed housing to one side. Since then the price of milk has stabilised somewhat – at the latest auction the price of whole milk powder rose 1.5%, giving farmers a little relief.

This was helped by the Reserve Bank lowering its OCR to 2.25%, a record low. Predictions are that further cuts, to 1.75%, could follow. Typically, banks have not passed on all of that cut to its borrowers, but to farmers any such help is welcome. In the meantime, house prices in Auckland have stabilised, indicating that would-be first-home buyers have abandoned the market to the speculators, who cannot see any further profits to be squeezed from that source.

The natural outcome is that buyers have moved their focus to the out-lying areas, where housing is cheaper, forc- ing up those prices too. Ultimately the rising tide reaches outposts as remote from Auckland as Dunedin, which is “enjoying” house prices, which are hard to justify in terms of its local economy. It is true that tourism, which is New Zealand’s next get-rich-scheme (and currently our best income earner follow- ing our dairy mishap) is helping Otago Province, particularly in Queenstown, where the housing boom and the tourist dollar collide.

The influx of tourists to this town has placed immense pressure on accommodation, not just for the tourists but for the locals, who work in the town and make its economic miracle happen.

The government has been trying to solve Auckland’s housing dilemma by encouraging its residents to move into “special housing areas”, which it has designated elsewhere in New Zealand. Bridesdale Farm, an “entry level” (and supposedly cheap) subdivision located in Queenstown is one and is aimed at addressing “the resort’s housing affordability”. The median price of a NZ house these days is about $450,000 and it was expected that an “affordable” house and land package on this sub- division would cost approximately that, so “affordable” is clearly a relative word. Times have changed. Over the last year the median price of houses located in Queenstown has risen by 37.6% to $782,000. The first house/land package in the subdivision to get to market was advertised this week at $755,000.

Cheap at the price.

Even though the housing crisis doesn’t change, some things do. In the last couple of months a few bright ideas have been explored. They might not be new, but simply talking about them in New Zealand is a novelty. They include local currencies (below) and the Universal Basic Income (which I will leave for another day).

Local currency for Christchurch?

I am not aware that this topic has been aired by ERA for a very long time. Yet, properly done, it is one of the best ways of reducing our dependency on debt and is a topic on which ERA would have a clear understanding and a positive position.

On March 30th the Christchurch City Council put out a press release saying that “A city council working group is developing a community currency which could be used to pay for goods and services in Canterbury. The new currency would run alongside the New Zealand dollar (NZD)”.

Raf Manji (a councillor), said the local currency would be used for payments such as rates…”which is important because having a system backed by rates would create sustainability and stability”. If the City Council decides to emulate other local currency systems from around the world, then the new currency could be exchanged for an equal amount of New Zealand dollars and vice versa. Raf Manji said the new currency could be called ‘Cantabs’ or ‘Civics’.

The working group is using the local currency scheme of the city of Bristol, UK, as a model to develop Canterbury – NZ’s own system. Wikipedia has an in- depth explanation of how the Bristol Pound works and at a superficial reading it looks to be very well thought out.

However I am bothered about the insistence of the local council on parity of the Cantab with the New Zealand dollar. I can see the attraction of the idea; it is simpler and possibly less open to manipulation but I don’t think the arguments stack up. When I was last in England, groceries could be

bought in either the £UK or the Euro. There was no parity of value because each was traded freely on the Forex markets but that appeared to cause no problems for the supermarkets.

In any case, parity value between the £UK and £B is not enforceable because the Bristol Pound (£B) isn’t legal tender. Nor will the ‘Cantab’ dollar be legal tender. Anyone can refuse it outright or negotiate a greater or lesser value. In practice a local ‘Cantab’ would have virtually no value in, say, Dunedin as it would be harder to pass on.

This will raise a major problem for the Christchurch City Council. If it insists on numeric parity between the currencies and also allows either to pay rates, it has effectively guaranteed the value of the Cantab dollar but it has little control over its issue – that will presumably rest with whatever Bank or Credit Union the Council chooses.

I am in favour of local currencies so long as NZ has a monetary system that leaves the economy always short of currency, because they add ‘purchasing power’ to the economy. However I think the acid test for an authentic local currency is that it must not be tied to any other currency. The Cantab dollar fails that test.

Dennis Dorney is an ERA member living in New Zealand and is a regular contributor.