The government has a clear opportunity to address New Zealand’s shortage of social housing and support the residential construction industry by significantly increasing construction of state houses over the next two years, says economics consultancy Infometrics.
A commitment from the government to build an additional 9,400 state houses over the next two years would mitigate the construction sector’s downturn, helping to prevent a repeat of the massive loss of capacity that occurred following the Global Financial Crisis. It is also an opportunity for the government to make a real difference in housing outcomes for some of society’s most vulnerable people, contributing to better wellbeing in a way that KiwiBuild was never going to do.
The New Zealand economy faces up to two years of consolidation following the COVID-19 pandemic, according to Infometrics’ latest forecasts released last week. Even with massive government intervention to cushion the downturn and stimulate a recovery, there is no way the economy can quickly and completely bounce back from the restrictions currently in place. Instead, the structural changes the New Zealand economy is undergoing will establish a new “normal” operating environment for businesses.
From a few concerns about the effects on Chinese tourism in late January to a full-blown pandemic and lockdown in New Zealand, the COVID-19 crisis has evolved rapidly over the last two months. We communicate just how quickly the economic ramifications have unfolded and examine how things might play out for the economy over the next 1-2 years.
Infometrics’ latest forecasts suggest there is little reason to be feeling more upbeat about New Zealand’s economic prospects, despite some improvement in confidence surveys over the last few months. The company expects growth to regain some momentum over the next year, but it believes nothing has changed to help the economy avoid mediocre results beyond 2021.
Economic growth, inflation, and interest rates around the globe remain significantly lower than they were prior to the 2008 Global Financial Crisis. The limited success of efforts to stimulate the economy over the last 12 years are reminiscent of the Japanese economy’s stagnation during the 1990s. Are other developed economies, including New Zealand, at risk of suffering the same malaise as Japan over the medium-term?
House prices rose almost 50% during the last decade over and above consumer price inflation. It would be brave to expect a repeat performance over the next 10 years, although we might have felt the same way looking at the market 10 years ago, after the 60% lift in real house prices during the 2000s.
There’s a saying that it takes money to make money. There are, of course, exceptions to any rule, but this saying generally aligns with Thomas Piketty’s thesis (Capital in the Twenty-First Century) that if the rate of return on capital exceeds the economy’s growth rate, then wealth will gradually accumulate in the hands of fewer and fewer people. That is, if investment returns are growing faster than the economy, this wealth accumulates.
Infometrics Christmas Carol 2019 – sung to the tune of Santa Baby (written by Joan Javits and Philip Springer). Originally sung by Eartha Kitt, we used the version by Madonna
New Zealand’s housing market isn’t functioning as well as it should be, with higher house prices, rising rents, falling home ownership, and a lack of housing options. But just how large is the housing shortage that we continually hear about?