Perspective with Heather du Plessis-Allan: Is there a positive side to this recession?

Can I give you a positive spin on the recession that we're just coming out of?

I mean, maybe it's not so much a positive spin, but maybe it's an explanation for why this recession was harder than it needed to be - but why it actually did need to be this hard.

If you've been following the commentary around the Reserve Bank's last two OCR decisions, you'll know there's been a fair bit of chat about the wealth effect and how that has made the recession worse.

Now, the wealth effect is the thing that happens when your house goes up in value. You feel rich - you’re not rich, you just feel rich - so you go out and spend more money.

And then, of course, when it does the opposite and goes down in value, you feel poor. You're not poor, you just feel it, so you shut your wallet.

And that is part of the reason why this recession has dragged - because our house prices are not going up. They have gone backwards, and so we're not spending, which means that we're not spending our way out of the recession.

Now, the thing about this is that the Reserve Bank has actually done things to deliberately keep our house prices suppressed, right? Things like debt-to-income ratios.

Some of the stuff is not their fault, like people leaving the country and therefore not wanting to buy a house - supply and demand, blah blah blah - but some of it is the fault of the Reserve Bank, who've done this deliberately.

And I warned you about this on the show before. I said this to you in August, I said I was worried that the Reserve Bank was keeping house prices depressed and that it would drag out this recession longer, which it has.

And I've been talking privately to Brad Olsen about it as well, who's been keeping an eye on it too, and we've been debating the merits of it.

But here's the silver lining - we actually needed to let go of this property obsession. It's been hard, but we needed to do it because we have got to stop putting our money into property and we've got to start putting our money into businesses and other productive assets.

 And this is the breakup that we needed to have. No breakup is nice, and this one isn't either.

So I text Brad Olsen this morning, yet again. He goes, “Oh, here we go. Here's a text from Heather.” I said, “Brad, are you still sure that it was worth it to break up with our property obsession given how hard it has made this recession?” And he just replied with, “Yes, I do.”

So what I would say is, if you're doing the glass-half-full thing, at least we will come out of this recession less in love with houses and more likely to put our dollars into stuff that will actually make New Zealand richer - and that's got to be a good thing.

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Episode Transcript

Speaker 1 (00:09):
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Speaker 2 (00:17):
Can I give you a positive spin on the recession
that we're just coming out of. I mean, maybe it's
not so much a positive spin, but maybe it's an
explanation for why this recession was harder than it needed
to be, but why it actually did need to be
this hard. If you've been following the commentary around the
Reserve Bank's last two OCR decisions, you'll know there's been
a fair bit of chat about the wealth effect and
how that has made the recession worse. Now, the wealth

(00:37):
effect is the thing that happens when your house goes
up in value, you feel rich. You're not rich. You
feel rich, so you go out and spend more money.
And then, of course when it does the opposite and
goes down in value, you feel poor. You're not poor,
you just feel it so you shut your wallet. And
that is part of the recession. The reason why this
recession has dragged because our house prices are not going up,
they have gone backwards, and so we're not spending, which

(00:58):
means that we're not spending our way out of the recession. Now,
the thing about this is that the Reserve Bank has
actually done things to deliberately keep our house press prices
suprise right, things like debt to income ratios. Some of
the stuff is not their fault, like people leaving the
country and therefore not wanting to buy a house, supply
demand blah blah blah. But some of it is the
fault of the Reserve Bank. Have done this deliberately, and

(01:19):
we taught I warned you about this on the show
before I said this to you in August, I said
I was worried that the Reserve Bank was keeping house
prices depressed and that it would drag out this recession longer,
which it has. And I've been talking privately to Brad
Olsen about it as well, who's been keeping an eye
on it. Two and we've been debating the merits of it.
But here's the silver lining. We actually needed to let
go of this property recession. It's been hard, a property obsession.

(01:42):
It's been hard, but we needed to do it because
we have got to stop putting our money into property
and we've got to start putting our money into businesses
and other productive assets. And this is the breakup that
we needed to have. No breakup is nice and this
one isn't either. So we know our text Brad Olson
this morning, Yet again he goes, oh, here we go
use a text from Heather. I said, Brad, are you
still sure that it was worth it was worth it

(02:04):
to break up with our property obsession, given how hard
it has made this recession? And he just replied with yes,
I do. So what I would say is, if you're
doing the glass half full, at least we will come
out of this recession less in love with houses and
more likely to put our dollars into stuff that will
actually make New Zealand richer. And that's got to be
a good thing.

Speaker 1 (02:23):
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