Westpac's latest upbeat housing market forecast hit the headlines. Photo / 123RF
Westpac's latest upbeat housing market forecast hit the headlines. Photo / 123RF
Opinion by Liam Dann
Liam Dann, Business Editor at Large for New Zealand’s Herald, works as a writer, columnist, radio commentator and as a presenter and producer of videos and podcasts.
After a long winter of negative economic sentiment, low business confidence and talk that we are sliding into recession, it's kind of hard not to read the market shift as good news.
It could provide a timely hit.
But it's a sugar hit and we know it. It's a cream-filled doughnut of an economic solution.
We've barely begun to scratch the surface of the structural issues in our economy - the housing shortage, the debt levels.
Home-affordability levels are just starting to move in the right direction.
Even the economist who made the upbeat call, Westpac's Dominick Stephens, warns that a resurgent market will mean a further widening of social inequalities that grew during the last boom.
For the record, Stephens and his Westpac team are picking a solid housing market rebound in 2020 - including a resurgence in the Auckland market, which has drifted backwards for the past two years.
In fact, Westpac has had that call in place since May - when the capital gains tax proposal was dropped.
So last month Westpac re-iterated its call and, in tandem with the annual spring bounce in turnover, the prospect of a housing market resurgence next year seems to have taken hold as the dominant narrative.
Stephens doesn't think this is rocket science.
He's not claiming that his May forecast was some kind of guru-level sooth-saying.
"Central banks have reduced interest rates and a by-product of that is a higher housing market ... like it or not," he says.
"Try and stand in the way of that. You certainly can't wish it away. It's just a fact of life. And it has been a fact of life time and time again over the last 15 years or so.
"Each time people have seemed surprised. When you drop interest rates you get higher house prices."
Crucially there is no moral or political judgement to good economic forecasting - nor should there be.
It's an economist's job to look at the data, put that in context of what we know about past behaviour and extrapolate a likely outcome.
In the case of a hot housing market, some things seem very clear.
Consumer sentiment and business confidence rises, as does social inequality.
"If there's one relationship that is rock solid in New Zealand – it's the relationship between the housing market and consumer spending," Stephens says.
"So it's a dead cert that consumer spending will get a shot in the arm from a stronger housing market."
But Stephen's doesn't sugar-coat what it means for social inequality.
"Absolutely I think this is going to worsen some of the social issues that we've been trying to avoid in this country," he says.
He also makes the point that it is not a great way to run an economy. The shot in the arm from higher housing prices is really just an injection of higher debt, he says.
Which, of course, should worry the Reserve Bank as it looks out at some big decision this month - including a rate cut call and a call on the loosening of Loan to Value Ration restrictions.
Auckland house prices, on the rebound? Photo / NZ Herald
But our central bank, like most others around the world, has been backed into a corner on housing debt.
As debt-to-income ratios rise on our mega-mortgages it becomes ever more crucial to maintain low debt-servicing levels.
If rates rose sharply, many mortgage holders would be sunk.
The answer, assuming there's no appetite for the chaos of a market crash, is a long steady flat period for the housing market - a drift backwards in inflation-adjusted pricing.
That's what's been going on in Auckland.
But politically, since the GFC at least, the public has become deeply intolerant of downturns, however mild.
The reaction to the slowdown to 2 per cent GDP growth has been one of mild panic.
Perhaps a short, sharp recessionary shock might perversely be more palatable.
Like losing a rugby game so comprehensively that you've got no cause for complaint, no what-if moments to dwell on.
New Zealand's economy hasn't seen a recession for more than a decade.
Our capacity to bite the bullet while we make difficult structural changes is missing in action.
The last National government was happy to bank the political capital from a booming housing market.
But a house-price revival presents a deeper moral dilemma for this government, with its promises of a fairer economy and more affordable housing.
It also presents a dilemma for the Reserve Bank, which wants to see more spending and more economic growth but also wants to see debt levels fall.
And it's a dilemma for homeowners, who stand to benefit individually from higher prices but know deep down that an ever-rising property market is not the path to a wealthier, healthier nation.
