Briefly in the news in Aotearoa’s political economy around housing, climate and poverty on Thursday, February 19:
The Lead - The Reserve Bank surprised financial markets yesterday by downplaying the prospects of an early (or more than one) rate hike in 2026, saying it wouldn’t hike until it was sure jobs growth was recovering more strongly.
The Sidebar - It forecasts the economy would have to grow in future without tailwinds from housing booms, but it wasn’t sure it could grow very fast from the ‘bits-tacked-on’ parts of the economy. The RBNZ also downgraded its forecast for house values. It now sees real house price deflation of 2.2% in 2026, rather than the 1.5% inflation it saw in its November MPS. No Government in the MMP era has been re-elected in a year in which real house prices have fallen.
In my view - Aotearoa’s economy has rewired its inner workings so fundamentally in the last 30 years it will struggle to generate much growth from the ‘normal’ sources, including real wage growth due to productivity growth.
Also in my view - Our economy can’t restructure itself to focus on productivity from real businesses and exports in particular unless it changes the investment incentives for households properly, and starts using the Crown’s balance sheet to fund investment in public infrastructure to boost productivity.
Solutions? - That proper shift should include full taxation of income from leveraged capital gains in residential land values, including from owner-occupied homes, along with tax incentives for households to invest in New Zealand businesses and infrastructure directly, or through KiwiSaver or other pension funds. Labour’s capital gains tax on only rental properties and/or National’s ‘Investment Boost’ tax rebate for business investments isn’t enough to move the dial. An annual, broad-based and low rate of tax on residential-zoned land values combined with the reinstatement of a universal matching Government contribution to compulsory KiwiSaver schemes that was limited to, for example, $5,000 per year, and limited to New Zealand non-land investments would work.
In news elsewhere from Aotearoa’s political economy today: The Post-$’s Freshwater poll1 found Labour’s support in the second week of February at 37%, down from 38% in December, while support to National was unchanged at 30%. Support for NZ First rose two points to 11% and Green support rose two points to 10%, while ACT fell two points to 6%.
Also, Housing Minister Chris Bishop is expected later on Thursday to confirm a U-turn of his housing densification policies, which were designed to increase housing supply and lower house prices and rents. The U-turn comes after a revolt by National MPs in Auckland, who want house price inflation.2
In the news from overseas this morning, Iran is preparing for war with the United States3, peace talks between Russia and Ukraine ended abruptly4, and a US arms package sale to Taiwan is on hold after complaints from China.5
We don’t know how to go cold turkey and we can’t handle that truth.
Can NZ grow with just the ‘bits-tacked-on’?
As Jack Nicholson might have said in A Few Good Men if Tom Cruise believed New Zealand house prices always doubled every 10 years and its economy didn’t need that inflation to grow successfully: “You can’t handle the truth.”
Can we handle the truth that house prices can’t double again every 10 years after doing so three times in the last three decades? And can our voters, politicians and policymakers handle that truth that our political economy has so fundamentally rewired itself in the last 30 years into a ‘housing-market-with-bits-tacked-on’ that when the housing market inflation stops, it can’t grow much anymore because the ‘bits-tacked-on’ are now too shriveled and weak to generate growth?
We’re about to find out if the ‘bits-tacked-on’ are enough.
