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 (00:00):
Listen, 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

(00:20):
wealth 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

(00:41):
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 price
is 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 demand blah blah blah. But some of it is
the fault of the Reserve Bank. Have done this deliberately,

(01:02):
and we talk 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,

(01:24):
a 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 wen our text
Brad Olson this morning. Yet again, he goes on, here
we go use a text from Heather. I said, Brad,
are you still sure that it was worth it was

(01:46):
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, 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. For more from Hither Duplessy

(02:08):
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