How do business media report a major problem like housing inflation when it has become a foundation stone for the economy? It turns to the major players in the economy. But sometimes the major players are beneficiaries of the problem. When bank economists talk in the media, they are independent from the people who pay their salaries. In my opinion. they will give a view that reflects the values their sector, and common sense tells you that will be from the perspective of banks. Banks have earned strong profits during the crisis in housing affordability in Auckland.
This week, ANZ chief economist Cameron Bagrie appeared on nzherald.co.nz’s Economy Hub and talked about a spate of good news for the the economy. He described the housing market as “going gangbusters,” New Zealand was on a roll and he wished it would continue. “Let The good Times Roll, “he said, sounding a bit like the HSBC Bank in October who made headlines saying New Zealand had a “Rock Star Economy.”
On Economy Hub, Bagrie said:
“Look at the positive side of the ledger: tourism is booming, dairy prices are in recovery, the housing market is going gangbusters, migration is trundling along nicely and firms’ biggest constraints at the moment are finding labour,” he said.
Now it looked like we will be reporting a 3.5 per cent GDP growth figure next week, “which is absolutely world class and if you look at the forward indicators the business confidence survey is flagging 3.5 to 4 per cent growth. So let the good times roll on.”
“But the temptation is to strip out all the positives and you’re left with something negative,” he said.
There is no conspiracy. I’ve got no gripe with Bagrie or the other bank economists who are frequently quoted in the media. They contribute to the debate. They are focused on the need for growth and stability in the wider wider economy not the politicised details of fairness or equality or social cohesion that are bedevilling New Zealand. Banks are interested in a strong and stable economy but can’t get bogged down in political questions about inequality or distribution of wealth. Economic performance is based partly on sentiment, and if there has been lot of negative news, it discouragers growth. Economy Hub was right to point out a period of good news. But there is bad news too. Surprisingly, Bagrie said despite the global instability there was “little on the domestic horizon that would spoil New Zealand’s economic party”
Things must have changed from July when the ANZ Bank New Zealand chief executive David Hisco warned about serious economic dangers due to dangers the housing bubble will burst, Maybe Bagrie does not agree. But Hisco made the warning for a reason . That banks are exposed to the risk from the bubble popping,
Hisco advocated further voluntary tighten of lending by the banks.
“If the economy took a turn for the worse with unemployment rising we could see a scenario where many people were unable to pay their mortgages.
“Baby-boomers that had become property investors could face a scenario where they could no longer find tenants or the rents they could charge would not cover the mortgage costs.
“Overseas investors could sell out “most probably in a stampede”.
“Here’s a fact – property markets can and do go backwards,” Hisco says. “There are storm clouds on the horizon for sure and when they break who knows what will happen.”