Brad Olsen: Infometrics principal economist on what's caused the recent recession to last so long

The Reserve Bank has blamed the ongoing recession on an uncertain property market, prompting experts to weigh in.

New Zealand has traditionally relied on housing as an engine of growth, but years of flat property prices have reportedly contributed to the ongoing economic downturn.

Infometrics principal economist Brad Olsen explained further.

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Episode Transcript

Speaker 1 (00:00):
Now.

Speaker 2 (00:00):
The Reserve Bank yesterday blamed our prolonged recession, and they've
done this before on the fact that we don't feel
wealthy because the house prices haven't been rising as they
used to. This may, though, be the correction that we
actually really need. Brad Olsen is in for metrics principle
economist and with us. Now, Hi, Brad, good evening. Do
you still I mean you said to me in the
text I text you today. I said, do you still
think it was worth it? Because it's made this recession

(00:21):
so hard? And you said yes, why.

Speaker 1 (00:23):
Oh well, just I mean simply because you know, what
we've done before has just been such a short term
sugar hit that you've yeah, okay, you might have got
a little bit more economic activity out of it, but
you look at the sort of social ills that have
come from it. When you've been locking generations out of
the housing market, you've got the numbers in such a
state that, you know, for a long period of time, genuinely,
kiwis were not feeling like they could actually afford a

(00:45):
house and you were seeing, you know, the rug pulled
out for under us. So I'm actually pretty okay with
the fact that we might have had a slightly slower recovery,
but a more sustainable one. And let's be clear, you
look at some of the economic numbers at the moment,
Yes it's tough, but I still think that we're actually
seeing already a bit of the early fruits of the
labor there when we've been able to decouple economic activity

(01:07):
a bit more with house prices, house prices of what
gone sideways at best this year, we had consumer spending
data out today that showed a one point nine percent
lift quarter on quarter, So we can have both. We
can have better housing outcomes and still economic activity without
having to sort of inextricably link ourselves to a rocket
to shoot up to the moon and then blow up.

Speaker 2 (01:26):
How much harder, Like, can you actually quantify how much
harder the wealth effect going into the negative has made
this recession.

Speaker 1 (01:33):
It's tricky to sort of pull out at an exact
number and say, you know, we would have been in
a better spot six months earlier or whatever it might
have been. Because I think also like part of this
is also just a fairly realistic reaction from investors from
homeowners who are going, you know what, like, there's still
houses being sold in the market, right. You know, house
sales at the moment are back towards sort of you know,
historical averages roughly. So it's not like there's no activity happening.

(01:56):
It's just so I think that we're not boostering things
to quite the same degree. And from that wealth a
thick point of view, you do often look at that
and go, well, was that people that were feeling wealthier
and spending their money, was that actually good for them themselves?
When you know they might have been putting it into
increasingly sort of speculative areas. Put it this way, and
I think this is probably where's it's a lot more
encouraging from an economic point of view. People are quite

(02:18):
sensibly now tossing up and going do I put my
money in the bank, Do I think about buying a house?
Do I think about building a business? Do I invest
in you know, some listed stocks or something. People having
a much more rational idea of where do I put
my money and where do I get a return? Rather
than you know, previously it did feel like sort of
flash banging economics when we were working so much in
the housing market that was just such big numbers. I mean,

(02:39):
the point I've made before here that I find that
it's wrong, and it was clearly not sustainable when back
a couple of years ago, I would have been better
to have been made of weatherboard than flesh and bone
in terms of earning potential like that, If anyone's sitting
out there and going, you know what, those were the
good old days, that is not a good old day
that was ever going to persist for a long time.
So more sensible, way better an approach for their homes.

Speaker 2 (03:01):
Okay, So I mean, and the thing about it is
that what we need to understand is that's never going
to happen again, is it. We've got all of these
things in place like DTIs now that will prevent that
ever happening. So can we can we be sure that
we will never pile back into houses in the way
that we did before, and we will continue to put
our money in more productive assets.

Speaker 1 (03:19):
I feel like no economists should ever say never, never
say never, you know, But realistically, I mean, you're right
that yes we had you know, well we've now got DTI's,
we've previously had our vrs. We still had house prices
that skyrocketed like thirty percent within a year when we
dropped interest rates, really low. So I think it's more
at the moment that you've sort of had the market
shopped a little bit and gone actually expecting ironclad massive

(03:42):
returns on an asset is probably not likely to be
long term. And more importantly, yes, you haven't seen the
full impact of supply coming into the market. Yes we
had a lot of building, but there's a lot more
the government wants to do. It's more than mindset. Everyone's
sitting out there now and going, you know what, I
might still be able to make a house work as
an investment property or everything else, but it's not going
to be the sort of thing where I can just fall,

(04:02):
you know, unassumingly into housing and it's going to make
me a megabillionaire. It's that you've actually got to do
a bit more hard work. You've got to run your numbers,
you've got to have the right option. So in that sense,
I think people are going to be a lot more
shy of committing wholly and solely into housing. They're going
to spread their risk a whole lot more, and that's healthy.

Speaker 2 (04:19):
Yeah, they're gonna have to think about it a bit more.
So we come out of this probably in a better
place as an economy. Hey, and thank you for that.
Brad appreciated Brad Olson in for metrics principle econnors.

Speaker 1 (04:27):
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