Is it time to "stop the presses!"?

Dear *|FNAME|*,

We hope you’ve had a great June, and that the first month of winter has treated you well. It’s certainly exciting for many of us to see snow arriving on the slopes again!

Perhaps less exciting is this month’s GDP news: a 0.2% decrease in the first quarter, well behind economists’ predictions of as much as 0.8% increase. This was driven by falls in exports of things such as metal product; machinery; dairy, meat, fishing and other food products; and agriculture. Stats NZ chalked this up to exports being “significantly affected by the pandemic and continued border restrictions”.

So what happens if the quarter that just ended follows the trend? We’d be officially in recession. Still, global comparisons show some hope for the future. In the same quarter to March, Australia’s economy grew 0.2%, and the UK’s 0.8%, which coincided with the UK removing all COVID-19 restrictions.

With borders reopening to all international visitors soon, here’s hoping for positive news in the months ahead.

Will shouting “Stop the presses!” help curb inflation?

Some commentators, such as Wigram Capital’s Rodney Jones, believe one solution to our economic challenges is to stop increasing the cost of money through Official Cash Rate increases, and instead reduce the amount of money held by New Zealand banks and financial institutions.

That figure currently sits at a record $47.3 billion, up from just $7.16 billion in February 2020, when the Reserve Bank began to print money in response to COVID-19.

By reducing this, Jones says this could help lower inflation and reduce the amount of interest the Reserve Bank needs to pay to banks for the deposits it holds on their behalf.

And just how do we do that?

Put a hold on printing new money, and scrap the Funding for Lending Programme

Jones suggests one way is for the Reserve Bank to put a hold on printing new money and lending it to banks at the OCR.

The Reserve Bank began the Funding for Lending Programme in December 2020, which was intended to help fund banks if deposits dried up due to the OCR dipping into the negative. The Programme is intended to last until at least December this year.

But the OCR is now at 2%, well up from the 0.25% it was at when the Programme began. Jones says due to changing conditions such as this, it’s no longer appropriate to loosen monetary conditions by increasing the supply of money while tightening them by raising the OCR.

Sell off Treasury Bonds

In 2020 and 2021, the Reserve Bank bought $53 billion in New Zealand Government Bonds as part of its quantitative easing strategy. The aim was to reduce bond yields, which would also encourage a fall in interest rates, leading to more borrowing and spending by New Zealanders generally.

From next month these bonds will start being sold back to the Treasury, with the sale complete by mid-2027.

Jones says this needs to happen faster, and include sales back to banks, which could reduce that $47 billion held by the Reserve Bank on behalf of those banks.

Two significant changes to the Fair Trading Act coming up

The Fair Trading Act is our primary piece of consumer protection legislation. It’s something you encounter every day, applying to all commercial activities, trades, professions and businesses.

So any changes can affect a lot of people. And two big changes are coming up on 16 August.

• An extension of “unfair contract term” provisions to small trade B2B contracts.

• A new statutory regime prohibiting unconscionable conduct in trade.

Extension of unfair contract term provisions

The Act includes provisions aimed at protecting consumers against unfair terms in standard-form consumer contracts, in circumstances where the consumer does not have effective bargaining power.

This will now be extended from just consumers to “small trade contracts.” These are cases where:

• it is not a consumer contract

• both parties are engaged in trade

• it is not part of a trading relationship that exceeds more than $250,000 a year when the trading relationship first arises.

However, remedies rely upon the Commerce Commission obtaining a declaration from the courts that the “unfair terms” are indeed unfair.

Our research reveals that the first High Court declaration under this legislation occurred in November 2019, some four years after the consumer protection when into effect. It appears it is not a priority for them, so it remains to be seen what effect the extension into small trade contracts will actually have.

Unconscionable conduct in trade

The second change prohibits “unconscionable conduct in trade”. This comes after ongoing concerns that certain types of conduct towards consumers and small businesses have not been adequately protected by existing law. This conduct includes:

• unfair pressure

• inducement into contracts

• traders not observing contractual terms on performance and payment.

The new regime is designed to regulate this kind of conduct where it deviates from commercially-accepted standards. It is modelled off the existing Australian Consumer Law, with the intention being that we benefit from the body of case law developed there.

It boosts existing Fair Trading Act and Credits and Consumer Finance Act protections, and applies more broadly than existing protections in equity. The new regime:

• can apply outside a contract

• does not require any disadvantage

• applies a positive obligation to businesses to refrain from engaging in unconscionable conduct

• has the potential to cover misconduct where there is no misrepresentation or coercion (usually required under existing Fair Trading Act provisions).

It can be raised by private parties, and by the Commerce Commission, should it wish to proactively consider issues or respond to complaints.

Relaxed credit rules fall short

Changes to the Credit Contracts and Consumer Finance Act last year resulted in displeasure from lenders and borrowers alike, after borrowing became less efficient, and lenders required a lot more detail from prospective borrowers.

As a result, the Government reviewed and tweaked the legislation, with changes to come into force on 7 July.

The changes clarify:

• what lenders need to ask

• where they should get the information when assessing a borrower's ability to service a loan.

Lenders will not need to check current spending from recent transactions when assessing future spending, nor will current savings and investments be regarded as outgoings.

But the New Zealand Bankers’ Association says the tweaks do not go far enough, and the changes are again “rushed”. Association chief executive Roger Beaumont says many of the problems remain in place.

“Customers will still have to provide detailed information about their spending, resulting in a more painstaking process and more loan applications being declined than before the December rule change,” he said.

He criticised the one-size fits all approach for all lenders and all loan types, saying it meant the banks did not have the same discretion or flexibility as before.

The Council of Financial Regulators is currently undertaking a broader review of the CCCFA.

Monthly Housing Update

The cooling of house prices felt elsewhere in New Zealand may have arrived in these parts, as Trade Me reports the average asking price for Canterbury homes listed on its site during May dropped 0.3% from April. This was the first price dip for the region in a year, and coincided with a 30% increase in listings from May 2021.

QV consultant Olivia Brownie said Christchurch was the last of our major cities to see a price drop following the market’s peak at the end of 2021.

“We are starting to see some more realistic asking prices from developers for house-and-land packages on the outskirts of Christchurch and expect more of the same over the coming winter months throughout the region.”

Fellow real estate website, realestate.co.nz, noted another sign of the changing market: auction listings nationally have dropped by more than a third, while the number of priced listings has increased by a quarter.

Still, median home prices in Christchurch remain almost double what they were eight years ago, and QV reports the city’s average home value is almost 25% higher than 12 months ago.

If you are considering buying or selling property contact our conveyancing team.

Thanks *|FNAME|*.

That's it from us for this month. As always, we’re just an email or phone call away for any questions, help or advice. We look forward to chatting with you next time.

Regards,

Clive, Grant and the Team at Canterbury Legal