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

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

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  Speaker 1: You're listening to a podcast from News Talks'd be follow
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  Speaker 2: Infametric says house prices need to fall at least another
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  Speaker 2: sixteen percent to become anything like affordable.
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  Speaker 1: Now.
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  Speaker 2: This comes after the Housing Minister Chris Bishop said last
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  Speaker 2: week that house prices needed to drop, which is a
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  Speaker 2: pretty big thing for a housing minister to say. Already,
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  Speaker 2: according to the Real Estate Institute, house prices are sixteen
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  Speaker 2: percent below their twenty twenty one peak. Brad Olsen is
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  Speaker 2: Infametric's principal economist and.
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  Speaker 3: With us Now, hey Brad, good evening.
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  Speaker 2: So you're talking about sixteen percent on top of this
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  Speaker 2: sixteen percent we've already seen, which is what thirty two percent?
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  Speaker 3: Yeah, that would be from that peak. I mean, to
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  Speaker 3: be fair, we're comparing it to the most tippy top
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  Speaker 3: of the mark, which was sort of stupid o'clock when
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  Speaker 3: it comes to the housing market. Like no one I
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  Speaker 3: think seriously looked at that and went, this really huge
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  Speaker 3: number on paper is the number that I should you
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  Speaker 3: use as my reference points for the rest of time.
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  Speaker 3: But it also shows that given how much you know
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  Speaker 3: house prices they've gone out of kelter. With people's incomes.
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  Speaker 3: You're now paying us substantially higher proportion of your income
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  Speaker 3: to service a mortgage over time, far more than it
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  Speaker 3: was over the long term. That's why if you actually
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  Speaker 3: want to talk about affordability, if you want to get
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  Speaker 3: serious on that topic, you would have to see house
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  Speaker 3: prices full.
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  Speaker 2: Do you think they're going to.
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  Speaker 3: I don't think they'll fall at the moment. I mean
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  Speaker 3: we're doing some better things in the right direction, and
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  Speaker 3: we broadly expect to see house prices track sideways over
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  Speaker 3: the next couple of years. In fact, I think when
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  Speaker 3: we ran the lumbers last time, we thought that it
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  Speaker 3: might be twenty twenty nine before we got house prices
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  Speaker 3: back to their twenty twenty one peak. And of course
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  Speaker 3: over that period you to be expecting that people's incomes
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  Speaker 3: will increase over time, and that seems to be a
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  Speaker 3: suggestion from a lot of people over how you get
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  Speaker 3: better affordability is you sort of try and hold house
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  Speaker 3: prices where they are, because look, let's be clear and
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  Speaker 3: hither I'm surprised you haven't taken me to task yet
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  Speaker 3: on asking for house prices go down. I mean that
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  Speaker 3: is the biggest value that most households in New Zealand have,
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  Speaker 3: And on these numbers, we're sort of suggesting it needs
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  Speaker 3: to go lower. The more palatable option and I sort
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  Speaker 3: of understand that is that you hold try and hold
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  Speaker 3: house prices where they are at the moment, and you
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  Speaker 3: let incomes grow over time. But it would take a while,
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  Speaker 3: and all the while you've got a bunch of young
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  Speaker 3: kiwis who are going well. At the moment, I'd be
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  Speaker 3: coming back and having to spend and splurge a whole
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  Speaker 3: bunch of money on a house that's worth far, far
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  Speaker 3: too much relatively speaking. Is that really the future I want?
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  Speaker 3: So it's a toss up over time looking at those
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  Speaker 3: house prices and people's incomes.
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  Speaker 2: I'm not taking you to task, Brad, because I think
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  Speaker 2: that I think that we've all come to accept that
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  Speaker 2: it cannot continue the way that it is right, And
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  Speaker 2: I also think it's not going to fall by sixteen percent,
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  Speaker 2: So I think you're just what you're talking about is theoretical, right.
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  Speaker 2: But I'll tell you what I am worried about is
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  Speaker 2: that the stuff that's going on at the moment, like
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  Speaker 2: the debt to income ratios, is going to have an
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  Speaker 2: effect on it's just not going to let the house
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  Speaker 2: prices rise at the extent to which we have got
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  Speaker 2: used to. Therefore, that adjustment in our heads and the
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  Speaker 2: impact on the wealth effect I suspect is going to
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  Speaker 2: be quite big economically, don't you think?
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  Speaker 3: Oh? Absolutely? But I do wonder if that's a most
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  Speaker 3: sort of a good thing for the future, if we
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  Speaker 3: don't have quite as much house price growth as we've
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  Speaker 3: did into our expectations. You know, up until a couple
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  Speaker 3: of years ago, house prices couldn't fall like that was
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  Speaker 3: just barming. You could write, you know, you could sort
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  Speaker 3: of sign your will on the idea that a house
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  Speaker 3: price will go down, And now it has. And I
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  Speaker 3: think that what I'm wonder is, with the lights of
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  Speaker 3: the details that have come in the future, that also
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  Speaker 3: means that if you're looking as an investor in anyone else,
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  Speaker 3: when you put your money, maybe you don't put it
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  Speaker 3: into a house. Maybe you think about trying to get
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  Speaker 3: a better or turn elsewhere. Maybe that's how we get
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  Speaker 3: those productivity hands over time. Maybe that's how we get
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  Speaker 3: our better and higher incomes over time that mean we
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  Speaker 3: can afford the houses. So this might be sort of
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  Speaker 3: a not too bad sort of feedback loop for the economy.
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  Speaker 3: But I think look bottom line, if it's a sixteen
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  Speaker 3: percent drop, even if it's house prices continuing at the
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  Speaker 3: same level, I think we probably should be able to
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  Speaker 3: agree right everyone, that house prices continuing to go up
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  Speaker 3: at a faster rate than people's incomes means that you
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  Speaker 3: will increasingly lock people out of housing market. That's certainly
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  Speaker 3: not the outcome that anyone wants.
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  Speaker 2: Yees, I take your point. So it's basically long term gain.
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  Speaker 2: You take the medicine right now. Brad, Thank you as
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  Speaker 2: always really appreciated this. Brad Olson in for Metrix, Principal Economist.
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