Latest / Best of Business / Brad Olsen: Infometrics principal economist on what's caused the recent recession to last so long

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

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  Speaker 1: You're listening to a podcast from news Talk zed B.
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  Speaker 2: Now.
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  Speaker 3: The Reserve Bank yesterday blamed our prolonged recession and they've
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  Speaker 3: done this before on the fact that we don't feel
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  Speaker 3: wealthy because the house prices haven't been rising as they
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  Speaker 3: used to. This may, though, be the correction that we
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  Speaker 3: actually really need. Brad Olsen is in for metrics principle
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  Speaker 3: economist and with us Now, Hi, Brad.
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  Speaker 2: Good evening.
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  Speaker 3: Do you still I mean you said to me in
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  Speaker 3: the text I text you today, I said, do you
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  Speaker 3: still think it was worth it? Because it's made this
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  Speaker 3: recession so hard? And you see, yes, why, oh.
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  Speaker 2: Well, just I mean simply because you know, what we've
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  Speaker 2: done before has just been such a short term sugarheit
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  Speaker 2: that you've yeah, okay, you might have got a little
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  Speaker 2: bit more economic activity out of it, but you look
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  Speaker 2: at the sort of social ills that have come from it.
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  Speaker 2: When you've been locking generations out of the housing market,
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  Speaker 2: You've got the numbers in such a state that you know,
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  Speaker 2: for a long period of time, genuinely, Kiwis were not
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  Speaker 2: feeling like they could actually afford a house and you
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  Speaker 2: were seeing, you know, the rug pulled out for under
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  Speaker 2: under us. So I'm actually pretty okay with the fact
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  Speaker 2: that we might have had a slightly slower recovery, but
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  Speaker 2: a more sustainable one. And let's be clear, you look
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  Speaker 2: at some of the economic numbers at the moment, Yes
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  Speaker 2: it's tough, but I still think that we're actually seeing
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  Speaker 2: already a bit of the early fruits of the labor
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  Speaker 2: there when we've been able to decouple economic activity a
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  Speaker 2: bit more with house prices, house prices of what gone
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  Speaker 2: sideways at best this year, we had consumer spending data
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  Speaker 2: out today that showed a one point nine percent lift
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  Speaker 2: quarter on quarter, So we can have both. We can
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  Speaker 2: have better housing outcomes and still economic activity without having
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  Speaker 2: to sort of inextricably link our salves to a rocket
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  Speaker 2: to shoot up to the moon and then blow up.
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  Speaker 3: How much harder, Like, can you actually quantify how much
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  Speaker 3: harder the wealth effect going into the negative has made
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  Speaker 3: this recession.
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  Speaker 2: It's tricky to sort of pull out at an exact
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  Speaker 2: number and say, you know, we would have been in
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  Speaker 2: a better spot six months earlier or whatever it might
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  Speaker 2: have been, because I think also like part of this
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  Speaker 2: is also just a fairly realistic reaction from investors, from
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  Speaker 2: homeowners who are going, you know what, like, there's still
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  Speaker 2: houses being sold in the market, right, you know, house
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  Speaker 2: sales at the moment are back towards sort of you know,
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  Speaker 2: historical averages roughly, So it's not like there's no activity happening.
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  Speaker 2: It's just I think that we're not boostering things to
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  Speaker 2: quite the same degree. And from that wealth effected point
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  Speaker 2: of view, you do often look at that and go, well,
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  Speaker 2: was that people that were feeling wealthier and spending their
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  Speaker 2: money was that actually good for them themselves? When you
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  Speaker 2: know they might have been putting it into increasingly sort
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  Speaker 2: of speculative areas. Put it this way, and I think
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  Speaker 2: this is probably where it's a lot more encouraging. From
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  Speaker 2: an economic point of view. People are quite sensibly now
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  Speaker 2: tossing up and going do I put my money in
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  Speaker 2: the bank, Do I think about buying a house, Do
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  Speaker 2: I think about building a business? Do I invest in
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  Speaker 2: you know, some listed stocks or something. People having a
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  Speaker 2: much more rational idea of where do I put my
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  Speaker 2: money and where do I get a return rather than
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  Speaker 2: you know, previously it did feel like sort of flash
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  Speaker 2: being economics when we were working so much in the
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  Speaker 2: housing market that was just such big numbers. I mean,
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  Speaker 2: the point I've made before here that I find that
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  Speaker 2: it's wrong and it was clearly not sustainable when back
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  Speaker 2: a couple of years ago, I would have been better
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  Speaker 2: to have been made of weatherboard than flesh and bone
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  Speaker 2: in terms of earning potential like that. If anyone's sitting
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  Speaker 2: out there and going, you know what, those were the
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  Speaker 2: good old days, that is not a good old day
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  Speaker 2: that was ever going to persist for a long time,
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  Speaker 2: so more sensible, way better of an approach for their thought.
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  Speaker 3: Okay, So I mean, and the thing about it is
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  Speaker 3: that what we need to understand is that's never going
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  Speaker 3: to happen again, is it. We've got all of these
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  Speaker 3: things in place like DTIs now that will prevent that
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  Speaker 3: ever happening. So we can we be sure that we
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  Speaker 3: will never pile back into houses in the way that
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  Speaker 3: we did before, and we will continue to put our
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  Speaker 3: money in more productive assets.
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  Speaker 2: I feel like no economists should ever say never, never
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  Speaker 2: say never, you know, But realistically, I mean, you're right
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  Speaker 2: that yes we had you know, well, we've now got DTI's,
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  Speaker 2: we've previously had our vrs, we still had house prices
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  Speaker 2: at skyrocketed like thirty percent within a year when we
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  Speaker 2: dropped interest rates really low. So I think it's more
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  Speaker 2: at the moment that you've sort of had the market
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  Speaker 2: shopped a little bit and gone Actually expecting ironclad massive
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  Speaker 2: returns on an asset is probably not likely to be
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  Speaker 2: long term. And more importantly, yes, you haven't seen the
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  Speaker 2: full impact of supply coming into the market. Yes, we
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  Speaker 2: had a lot of building, but there's a lot more
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  Speaker 2: the government wants to do. It's more than mindset. Everyone's
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  Speaker 2: sitting out there now and going, you know what, I
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  Speaker 2: might still be able to make a house work as
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  Speaker 2: an investment property or everything else, but it's not going
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  Speaker 2: to be the sort of thing where I can just fall,
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  Speaker 2: you know, unassumingly into housing and it's going to make
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  Speaker 2: me a megabillionaire. It's that you've actually got to do
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  Speaker 2: a bit more hard work. You've got to run your numbers,
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  Speaker 2: you've got to have the right option. So in that sense,
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  Speaker 2: I think people are going to be a lot more
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  Speaker 2: shy of committing wholly and solely into housing. They're going
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  Speaker 2: to spread their risk a whole lot more, and that's healthy.
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  Speaker 3: Yeah, they're gonna have to think about it a bit
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  Speaker 3: more so we come out of this probably in a
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  Speaker 3: better place as an economy. Hey, and thank you for that.
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  Speaker 3: Brad appreciated. Brad Olson in for Metrics Principal econnors.
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