Ryan Bridge: House prices no longer lead economic growth

So the OCR decision was largely as expected yesterday, but what the Reserve Bank made very clear is where they think growth will come from. As we’ve spoken about on the show lately, house prices aren’t running away here like in Australia, bar Queenstown. In previous recoveries, the wealth effect kicks in and people go shopping when their house prices go up. But this time the bank says prices will stay flat, then pick up again later this year, but only at the rate of income growth.  In other words, the opposite of what we’re used over the past few decades.  Usually, as anyone who’s tried to buy a house will know, the price of a three-beddy in Auckland grows quicker than your salary. That’s all changed now because we have more supply, at least according to the bank. So without the tickle up, where does economic growth come from? Anna Breman answered that question specifically yesterday and was pretty clear: agricultural exports, tourism, and more recently, some signs that manufacturing is picking up. These are industries that bring us money from offshore. They provide the basis for other sectors, like services, to pick up. If you’re a farmer or tourism operator in Queenstown or Rotorua, you should feel proud of that. And we, through our government, should support them.  That means staying off their backs and letting them get on doing what they do best: feeding the world and providing unforgettable experiences for visitors. On manufacturing, it’s hard to ignore the energy debate. If we don’t have a steady and reliable supply of electricity, trying to run a factory or a mill, as the central North Island has learnt the hard way just recently, becomes very difficult. So while LNG and coal for Huntly, or methane target changes, might sound bad, they’re basically what ensure we support the industries that support us. What the Reserve Bank said unequivocally yesterday if that without them, there is no growth.  And without growth, there are no new jobs. There ain’t more tax. No new hospitals. Etc. etc. This is not to say it’s a perfect world. There are costs to not doing environmental stuff. But for them to work, you need the world on board. In the meantime, the question is whether we can afford to bite the economic hand that feeds us. If you listen to the bank, it wouldn't appear so.See omnystudio.com/listener for privacy information.