Brad Olsen: Infometrics Principal Economist on the new data revealing house prices need to drop by 16 percent to become affordable

House prices need to fall at least another 16 percent to become anything like affordable, one forecaster says.

According to the Real Estate Institute, prices remain 15.9 percent below their 2021 peak - but Housing Minister Chris Bishop has indicated they need to drop down more.

Infometrics Principal Economist Brad Olsen explains further.

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Episode Transcript

Speaker 1 (00:00):
Now, infametric says house prices need to fall at least
another sixteen percent to become anything like affordable. Now this
comes after the Housing Minister, Chris Bishop said last week
that house prices need to drop, which is a pretty
big thing for a housing minister to say. Already, according
to the Real Estate Institute, house prices are sixteen percent
below their twenty twenty one peak. Brad Olsen is Infametrics
principle economist.

Speaker 2 (00:19):
And with us. Now, hey, Brad, good evening.

Speaker 1 (00:22):
So you're talking about sixteen percent on top of this
sixteen percent we've already seen, which is what thirty two percent?

Speaker 2 (00:28):
Yeah, that would be from that peak. I mean, to
be fair, we're comparing it to the most tippy top
of the mark, which was sort of stupid o'clock when
it comes to the housing market. Like no one, I
think seriously looked at that and went, this really huge
number on paper is the number that I should use
as my reference points for the rest of the time.
But it also shows that given how much house prices

(00:48):
have gone out of kelter with people's incomes, you're now
paying a substantially higher proportion of your income to serve
as a mortgage over time far more than it was
over the long term. That's why if you actually want
to talk about affordability, if you want to get serious
on that topic, you would have to see house prices full.

Speaker 1 (01:05):
Do you think they're going to.

Speaker 2 (01:07):
I don't think they'll fall at the moment. I mean
we're doing some better things in the right direction, and
we broadly expect to see house prices track sideways over
the next couple of years. In fact, I think when
we ran the lumbers last time, we thought that it
might be twenty twenty nine before we got house prices
back to their twenty twenty one peak. And of course
over that period you to be expecting that people's incomes

(01:28):
will increase over time, and that seems to be a
suggestion from a lot of people over how you get
better affordability is you sort of try and hold house
prices where they are. Because look, lets be clear and
hither I'm surprised you haven't taken me to task yet
on asking for house prices go down. I mean, that
is the biggest value that most households in New Zealand have,
and on these numbers, we're sort of suggesting it needs
to go lower. The more palatable option, and I sort

(01:50):
of understand that is that you hold try and hold
house prices where they are at the moment, and you
let incomes grow over time. But it would take a while,
and all the while you've got a bunch of young
kiwis who are going well at the moment, I'd be
coming back and having to spend and splurge a whole
bunch of money on a house that's worth far, far
too much relatively speaking. Is that really the future I want?
So it's a toss up over time looking at those

(02:12):
house prices and people's incomes.

Speaker 1 (02:14):
I'm not taking you to task, Brad, because I think
that I think that we've all come to accept that
it cannot continue the way that it is right, And
I also think it's not going to fall by sixteen percent,
So I think you're just what you're talking about is theoretical, right.
But I'll tell you what I am worried about is
that the stuff that's going on at the moment, like
the debt to income ratios, is going to have an
effect on It's just not going to let the house
prices rise at the extent to which we have got

(02:35):
used to. Therefore, that adjustment in our heads and the
impact on the wealth effect I suspect is going to
be quite big economically, don't you think?

Speaker 2 (02:44):
Oh? Absolutely? But I do wonder if that's almost sort
of a good thing for the future if we don't
have quite as much house price prices as with what
we've did into our expectations. You know, up until a
couple of years ago, house prices couldn't fall like that
was just barming. You could write, you know, you could
sort of sign your will on the idea that a
house price will go down, and now it has. And

(03:04):
I think that what I'm wonder is, with the lights
of the details that have come in the future, that
also means that if you're looking as an investor in
anyone else, when you put your money, maybe you don't
put it into a house. Maybe you think about trying
to get a better or turn elsewhere. Maybe that's how
we get those productivity to games over time. Maybe that's
how we get our better and higher incomes over time
that mean we can afford the houses. So this might

(03:27):
be sort of a not too bad sort of feedback
loop for the economy. But I think look, bottom line,
if it's a sixteen percent drop. Even if it's house
prices continuing at the same level. I think we probably
should be able to agree right everyone that house prices
continuing to go up at a faster rate than people's
incomes means that you will increasingly lock people out of
the housing market. That's certainly not the outcome that anyone wants. Y.

Speaker 1 (03:49):
I take your point, So it's basically long term gain.
You take the medicine right now. Brad, thank you, has
always really appreciated this. Brad Olson in for Metrics Principle Economist.

Speaker 2 (03:56):
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