AUGUST 3 2019 LISTENER 3

EDITORIAL

Bleak house

D

o we laugh, cry or simply shake our heads that

when growth in Auckland house prices finally

ends, after many years of a sharp upward trajec-

tory, economists talk as if this is a bad thing?

Yet it is not just economists. Everyone who has

borrowed huge sums – because that was the only

way they could buy a

house – worries about

prices falling. Most concerned are those

whose equity in their home would be

wiped out if our largest city saw a correc-

tion such as those recently in Melbourne

and Sydney.

So far, that is not forecast, because

of the simple fact that Australia has

an oversupply of houses whereas New

Zealand, and particularly Auckland,

remains chronically undersupplied. By

Kiwibank’s latest analysis, the country

is short of 130,000 houses, up from

100,000 a mere year ago. For all those

New Zealanders in overcrowded living

conditions this winter, this would have

been an excellent time for KiwiBuild

to kick in. It will not happen, however,

because – this is the kindest way of

putting it – of the complete failure of

the Government’s single biggest policy

promise at the last election.

For everyone who is not already an

Auckland homeowner, the tempering

of the city’s house prices might be good

news, except that the drop of more than

3% in the past 12 months is just one

among many contributing factors to the

palpable feeling of economic malaise.

New Zealand is not alone in having

the anomalous situation of low unemployment yet low wage

growth. (Although surely it is alone in having the number on

Jobseeker Support benefits increasing while unemployment is

decreasing. The Government should explain that.) Inflation is

1.7%, so it’s no wonder that, with wages growing at just 2%,

workers feel they have stalled and are close to slipping backwards.

Everything feels as if it is tempering, sliding and drifting.

A

s unsettling as that might be, the real concern is not that

New Zealanders are treading water now, but that in the

near future households and businesses might start sink-

ing. As with house prices, sharemarkets have outperformed all

predictions by growing, then growing some more. Nice if you are

in those markets, but even those who have seen their invest-

ments prosper know this can’t go on indefinitely.

Interest rates are low and possibly going lower, but the Reserve

Bank’s most recent cut in the Official Cash Rate did not stimulate

the economy and there is no reason to expect the next one will,

either. Those whose savings are in the

bank are earning a fraction more than

people whose cash is under the mattress.

Infometrics describes the outlook

bleakly by saying that households could

go into their shells over the next year as

economic conditions worsen, with little

to support spending growth in the near

term. Meanwhile, firms’ unwillingness to

commit to capital expenditure is being

matched by a lack of new hiring activity.

No employer likes laying off staff, so

to hire a new person is an act of con-

fidence. Confidence is that essential but

invisible oil that greases the economy.

Starting with business confidence falling

after the last election, and now spread-

ing to households, there is a palpable

sense that many people are wary about

what is coming. With rare excep-

tions such as Sleepyhead’s expansion

announcement, people and firms are

holding off spending and investing.

Any future policies aimed at curbing

greenhouse-gas emissions are likely to

add to the cost of living. Meanwhile,

indebtedness in the agricultural sector

has had little attention, but spending

reductions by farmers are immediately

felt in provincial towns.

All these concerns and indicators are

now being weighed up. None alone is catastrophic, and growth is

still forecast, albeit lower than previously signalled, but the accu-

mulated weight of lowered expectations is burdensome. Against

this, Prime Minister Jacinda Ardern risks sounding as though she

fails to understand the very real worries and concerns of ordi-

nary New Zealanders. For those alarmed about their hard-earned

retirement savings dwindling before their eyes, the PM’s themes

of “widening our idea of what prosperity means” can feel not

just fluffy but frightening. New Zealanders know what prosper-

ity is. We want everyone to share in it. But first we need to feel

confident that ministers know how to create the policies that will

genuinely help achieve it. l

GE

TT

Y (^) I
M
AG
ES
Infometrics describes the
outlook bleakly saying that
households could go into
their shells as economic
conditions worsen.