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Motu and Victoria University's Arthur Grimes 'moderately optimistic' NZ & world economy will recover from COVID-19 economic downturn much faster than Great Depression, but is concerned about xenophobia

Motu and Victoria University's Arthur Grimes 'moderately optimistic' NZ & world economy will recover from COVID-19 economic downturn much faster than Great Depression, but is concerned about xenophobia

He thinks house prices may fall sharply, sees an opportunity for KiwiBuild to be ramped up, and is concerned about the potential rise of xenophobia. But Arthur Grimes is reasonably upbeat about New Zealand's economic outlook in the face of the COVID-19 pandemic.

Grimes, senior fellow at economic research institute Motu and professor of wellbeing and public policy at Victoria University, says the economic fallout from the pandemic could impact housing in two key ways.

"I think house prices will drop. I think they could drop quite sharply. I haven't seen much evidence of that happening yet, but I think there is potential for house prices to drop very sharply," Grimes says.

Grimes, a long time advocate of improving housing affordability, says lower prices "would be a good thing socially, it would be a very good thing."

Meanwhile the steep economic downturn provides an opportunity to "really ramp up KiwiBuild," the Government's beleaguered housing programmeGrimes suggests.

"KiwiBuild never made much sense when we had fully employed resources but it makes a lot of sense when we don't have fully employed resources. So once we can get the construction industry going again, whether that's level 3 or level 2, I think there's a huge opportunity for KiwiBuild to come into its own," says Grimes.

A former chairman of the Reserve Bank, Grimes believes the COVID-19 related economic hit will be the biggest one since the Great Depression in the 1930s, but is optimistic the downturn won't last as long this time.

"I think the difference between this one and the 30s is I expect this one to be much more short lived. I'm moderately optimistic that we and the world economy will pull out of this much faster than we did out of the Great Depression. But the short-term downward effect is probably at least as large as the initial significance of the Great Depression."

Why is he optimistic it will be short lived? 

"I'm optimistic that the antiretrovirals will come through ... or else vaccines, and that may take a year or whatever, but once those are in place I don't see any major impediment to the world economy rebounding sharply at that stage. In the interim we're lucky that we're a commodity producing country. People still want to buy food. We went into this downturn with an extraordinarily strong fiscal debt situation, public debt situation, so we've got a lot of leeway to cushion ourselves through it. So even in a year or two's time, our public debt situation won't be disastrous," says Grimes.

"And so it's not like we'll have to go into a prolonged period of fiscal tightness or anything like that, because our public debt will be at quite a reasonable level compared with our history and compared with other countries."

But as a small, trading nation how important to NZ is what happens in other countries?

"It's very important clearly. Exports are a reasonable proportion of our economy... And I think we have to realise that tourism exports are going to be down the drain for a couple of years, but the rest of our export sector I think will be pretty strong. We're lucky that we have China as our biggest market, they've done very well through this. And we're quite diversified in terms of our exports, they go to different places," Grimes says.

"So we're dependent on the rest of the world but I don't see any reason why the rest of the world won't pick up also within one or two years."

Grimes agrees with Climate Change Commission Chairman Rod Carr that the stimulus measures the Government adopts should include a climate change lens. 

"So I don't think we can stop our path towards net zero carbon emissions, that should continue. And that should continue on our existing big emitters and that includes agriculture," says Grimes.

He acknowledges migration, a key economic driver over the past decade, is gone in the short-term. But Grimes says medium to long-term migration will be a choice for NZ because there will be as many, if not more, people wanting to move to NZ than in the past. He is, however, concerned about potential for rising xenophobia.

"One of my concerns at a social level is growing xenophobia, - with people suddenly saying 'do we want these tourists, do we want these migrants etc.' It's quite a xenophobic attitude in my view. I've always been very partial to having a diverse group of tourists and a diverse group of migrants coming to New Zealand. I think it's great to stop New Zealand being so dull as it used to be," Grimes says. 

"My main fear on that front is we will become more xenophobic. That will be very counterproductive I think for New Zealand. If we don't go down that route and we stay nice and open, I think we've got great prospects going forward. I don't see major issues with how most of our exports are structured."

Beyond NZ Grimes is concerned about anti-globalisation, and xenophobia, as countries strive to recover from COVID-19.

"Yes that is a danger if the rest of the world leverages that feeling. If you think about the Great Depression, one of the big reasons the Great Depression lasted so long was because of the xenophobia that happened at the time in terms of people putting in place trade barriers etc across many countries in the world. So I just hope that doesn't happen again. I hope that we've learnt from history in that way."

"But as you say many of the world leaders are pretty xenophobic these days and that is a concern. And for me that would be the major concern for the world economy, that countries become insular and that we drop the globalisation agenda. The globalisation agenda has been an extraordinary benefit to billions of people throughout the world. And to go back on that agenda I think would be extremely counter productive especially for the poor, who have benefited hugely from it," says Grimes.

*This is the third interview in a series looking at reactions to and potential policy responses to the coronavirus pandemic and evolving economic downturn.  The first interview, with staunch critic of the economic mainstream Steve Keen,  is here. The second interview, with director at economic advisory firm Landfall Strategy Group David Skilling, is here.

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(Trolling comment deleted, Ed).


My main fear on that front is we will become more xenophobic. That will be very counterproductive I think for New Zealand. If we don't go down that route and we stay nice and open, I think we've got great prospects going forward. I don't see major issues with how most of our exports are structured.

One of the problems with migration, particularly in NZ and Australia, is that its main purpose is economic. Any anger should not be directed at migrants who move to NZ for various reasons, but at the ruling elite who do not plan for a higher population with requisite infrastructure. The standard of living deteriorates for existing citizens and the migrants themselves. Furthermore, without wanting to sound like a broken record, GDP per capita needs to be used in the business case to support high immigration. Never heard it from the Tories or the Lefties once. There's probably a reason for that in that it's flat or even declining.

Despite what Grimes says, xenophobia (and racism) has been alive and well in NZ for a long time. And while most don't wear racism on their sleeve, it is subtle and passively aggressive. There is a big difference between racism / xenophobia and demanding that the ruling elite take a more responsible approach to migration.

very well said

Well said.

Yes. Maybe a better word is "resentment".


He almost had me. Then he has to claim that wanting reduced tourism, one of the lowest paid industries, and reduced migration, which suppresses wages, was somehow xenophobic. Jog on you clown.

If he wants a return to excessive tourism and excessive migration then he is nuts or in the pay of self-interested lobbyists. But if he wants a rational level of planned tourism & immigration thats great for NZ. Now we actually have an opportunity to replace foreign freedom campers with wealthy tourists (the type of tourist who used to spend big on cruises) and we could employ the expeienced top flight engineers who have been going to California while leaving their inexperienced, not so bright middle-class 3rd world compatriates coming to NZ to drive Uber, run petrol stations and liquor outlets.

Agree with the Kiwibuild statement. Opportunity for the govt to free up more land, build the infrastructure faster & remove some of the red tape & associated costs. Get people working, kiwis retrained to deploy technology & modern methods of construction in the industry. Shouldn't waste a good depression.

Render all District Plans null and void by fiat, then redeploy the floors-full of Plannerz onto Housing Prefab Factory floors as Sweeper-uppers. Instant move from non-tradeable/overhead, to tradeable/productive. Win/win. Of course, it'll nevah happen.

You show the solution, give us hope, and then in your last sentence bring us back to reality.

They don't even need to do that.
As I have said several times, the government can buy up sites with consents and infrastructure in place, and build in lieu of private developers.

That will only work if it is buying land/consents/developed sections at a crashed price, otherwise will only be AGAIN feeding the beast that is unaffordable housing, which will be that much more unaffordable for many more in the years ahead.

If they buy sites pre-construction at present market value, then they can build and sell at no profit.
Profit margin on medium density housing in Auckland is typically circa 25%. And if they reduced gst to 10% (for everything, not just housing) that would also help.

Something consented and ready to go has huge value. And how exactly will they "build in lieu" without the labour and management. Dont say they will get HNZ to do the build because I think they also go out to market and use private construction companies.. btw what's the status of pt chev Unitec kiwibuild?

They get the private sector to build the consented developments, of course. Just like they do on their Housing NZ developments.
Yes I know a consented site has good value, I work in that field. The govt pays the owner the market value of the site, which includes the value of the consent.
Private builders build it for the govt. Then the govt sells to FHBs.

I hope it works. The properties need to be reasonably central or bloody cheap if not. If things get bad economically then part of the problem will be fhb with insufficient deposit, lack of income to service loan and actually securing finance. The govt may have to fund the loans Fannie mae/Freddie Mac situation.

A bit better than the Great Depressiom...but equity markets only off 10-15% from their all time highs.

The stock market is holding up simply because of the massive amounts of liquidity being pumped into the system.

It is not a good representation of what's to come.


Well there you go, I don't agree with him.
Get rid of the work visas, immigration should be downsized massively.
Foreign ownership GONE!
While we're at it govt should only be a quarter of the size it currently is. Let the citizens decide the important stuff, cause pretty much we do NOT trust the lying fools leading us.

Have a read of the comments section on Stuff, or on here even.. And you want the general public making binding legislative decisions ? I'll pass thanks.

The general public making binding legislative decisions - it is called democracy and I like it. Our problem is not the dumbness of the common person but the paternalism of our elite who 'know what is besst for us'.

Grimes says that property may drop sharply and that it is an opportunity for KiWIFLOP to be ramped up!
That surely doesn’t give Mr Grimes much credibility as to what he says!
KIWIFLOP has been a nonsense since day one and it is a year since Woods came out about the shite about the changes to KiWIFLOP and yet we haven’t heard anything since.
Who in their right mind would put the whole money into housing so that the tenant gets a share of any profit on sale???.


Well we could go the Austria route and build high quality housing which is 80% owned by the state and for which the cost borne by 'tenants' is determined and weighted on their income. Naturally, many in NZ believe in neo-serfdom (strong links with the Anglo Saxon mindset), but it would enable the country to allocate more time to productive and personal pursuits as opposed to being an economy of 'eat your porridge' rentier capitalism.

Had a chat to our family's Christchurch based forced-seller this morning. He wanted to know "What should I do?' I told him "It's your call, but...." (He got my unabbreviated version of the future - and like most - doesn't see it!)
So. His family home is listed for $645k. He'll take 'what it owes them' and if so, they'll end up "doing their Kiwiwsaver" contributions and walking away with $0 after 5 years of being 'in the market'. But in the meantime, I've offered to be a firm bid at $450k for the next 6 months. Why? Because that's not far off what I think it's going to go for, and the main thing is to give him the security of knowing where 'The Bottom' is and give him time to find out otherwise. That's what most won't know.
I could end up with it on my hands, who knows. But I hope there's 'one last gasp' left in the market to allow him to escape. I'll bet many are thinking the same. We'll see.....

It's Wednesday (isn't it? Days seem to come and go...). Buy him a Lotto ticket.....

Wow that's convenient. Even confirms your bias


A) "His family home is listed for $645k."
"But in the meantime, I've offered to be a firm bid at $450k for the next 6 months."

So the bid is 30% below the current offer ...
The Man 2 might be trying to outbid you - (perhaps by bidding $451k?)

B) "walking away with $0 after 5 years of being 'in the market'.

So that means a 100% loss of their equity (including their KiwiSaver)?
At the $645k price or the $450k price?

C) just out of interest, why have they become a forced seller?

Why don't you think for a change rather than rant?
There are thousands of sites in Auckland with consent, hundreds of them won't go ahead now as private development. The government buys those sites, builds the housing, then sells to FHBs at cost.
Much more along the lines of what Kiwibuild should be.
Those 650k 3 beddies then become 550k, the 550k 2 beddies then become 450k.


The "at cost" is too high at the moment. For a country in the depths of a depression we need to set aside the $150-200k ish of useless costs imposed by regulatory regime + council ticket-clipping. Reset to the status quo of 20-30 years back when it was affordable, keep building code changes, eliminate armies of parasitic compliance workers new required to get consents etc, and remove all liability for build issues from anyone but current owner - who can insure against problems if they wish to. Caveat emptor is cheapest approach.

Yes, work towards those things by all means. But that won't happen overnight, or ever (all those things have been talked about for many years). Plus, a lot of parasites will seek to ensure it doesn't happen.
In the mean time, what I am suggesting will get new housing prices lower for FHBs, and keep the construction sector going.

"Reset to the status quo of 20-30 years back when it was affordable"
Remove the double and triple glazing, strip out the insulation, chop off half the house, take away the garage and replace it with a galvanised original skyline standalone of course, remove the concrete driveway and pretty landscaping and dump a load of gap40 and then also get rid of the clothesline and fencing. Then get to work on the govt charges. 15ish thousand for the water meter, 90 to 150 thousand for gst and minimise auckland council consent charges. That should do it. While socialist Goff sits there on his whopping salary you may as well forget about anything affordable.

For a 3-bedroom house:

Insulation costs what? $5-10k
Double-glazing? $7-10k

I reckon you could leave them in. Plenty of folk are happy with ~100sqm for raising a family, and yeah, don't really need a concrete driveway until much later on, while landscaping is something a family can do.


Sadly, I have not seen any real strategists in NZ with true global vision.

In a post Covid19 world, NZ needs to think about its alliance with the West given the unavoidable decline of the USA.


We are. And we'll take democracies, the Anglosphere, and two thousand years of evolved common law and custom, over a Deceitful Dictatorship, any day.

Obviously, you choose not see what is happening the Anglosphere, all the self-claimed democratic countries, how the common law can be easily broken to suit one's interests, and how easily the customs of multilateral organisations can be trashed by the US.


If you don't like it here, you can return to the motherland.
Why don't you?

I am here to make it a lot better place.


Pleased you keep writing. Adds diversity to the comments.

I think his real name is Albert Smith and he pretends to be Chinese to upset you.

I am not very happy with the motherland X...why have the wet markets opened again. Does not seem to be a bright decision in any sense - any comments? Do you see a China backlash or boycotting once the lock-down is over?

You make a good point about inevitable decline of any empire. When I was very very young Britain was just giving independence to African nations (giving before it was taken). The USA will not be top dog forever but with eight states with GDP higher than Russia it may take a while just as the decline of Britain started in Victoria's reign but took several generations for the British to realise.
So crazy for NZ to tie itself to any nation. We do have historic and rational ties to many small Pacific countries and to Australia and that is enough. Clearly avoid reliance on the USA so note our nuclear free policy that upset them. We need to do the same for China some action that proves our idependence. I suggest giving Falun Gong and Uighur refugees priority and having public meetings with Taiwan's politcal leaders. The latter have been very impressive with their handling of Covid-19.

Hope that you do not advise MFAT a single bit or if you do, they do not take your advice a single bit.

You suggestions on Falun Gong members, Uighur, Tibetans (I add this one for you), and meeting with Taiwan's political leaders is equivalent to deliberately be the enemy of not only China as a nation but 99.999% of Chinese people who consume NZ products, come visiting NZ, studying in NZ and permanently settling in NZ -- a very very dangerous move.


But why is it dangerous? The UN come to NZ and complain about our treatment of Maori (indigenous rights) but we do not threaten the UN or make it dangerous for UN officials in NZ. Why can't NZ make any criticism of China (whether it is a valid or invalid criticism is for others to judge) without it being dangerous? None of my suggestions is in the least challenging China's government right to rule China, none it putting a single weapon in the hands of any enemy of China. Seriously you are making a great country China sound like a petualent baby unable to handle criticism. Time to grow up.

The key difference is that the UN praises China's efforts while the Anglosphere led by the US spreads the lies and bias about China's efforts.

I am sure China will take any constructive suggestions seriously while condemn those lies.

Well Taiwan did a great job in fighting Covid -19 - they will also beat China back if it decides to invade a foreign country.

I'm sorry I made myself unclear. NZ upset the USA by our nuclear free policy and the USA and the 99.9999% of americans were upset and they did punish us by stopping their ships visiting. However at no point were we 'in danger' from the USA and no (sane) american said we were an enemy of the USA.
Now you are telling me that any equivalent action by NZ but to China not the USA would be dangerous to New Zealand and that 99.9999% of (presumably Han) chinese would decide we are an enemy. Your words "" equivalent to deliberately be the enemy "" and "" a very very dangerous move "". The govt of China does do things I don't agreee with some of which I consider actually evil (similar attitude to most govts in most countries). However I do have a higher opinion of them and the majority of Chinese than you do - I really do believe they would take criticism by NZ with irritation just like the Americans did but not as a reason for assuming Kiwis are an enemy.

"As for the risk to banks, in Dr Grimes’ view (and he is a former Reserve Bank chairman) our banks could handle that kind of shock; in fact, they could handle up to a 55% drop in Auckland house prices."
." So the risk to banks is low and, assuming the Reserve Bank continues to act, looks set to remain that way. "

Ashley Grimes April 2016. Economist, Professor of Wellbeing. / Former Reserve Bank Chairman / Essential worker

Modern govts, most particularly this one have an appalling record of managing projects and getting stuff built. Keep them out of it. Their whole role should be providing an efficient and low imposed cost regulatory environment that makes it cheap to build houses, they are the only ones who can make such changes, and have failed to do so - resulting in per m² house building prices increasing by ~200% in last 20 years while inflation has only been ~50%

'Could the COVID-19 pandemic prove to be a fillip for KiwiBuild?'
Fillip for kiwibuild, haven't we already tried that ?

Grimes has a point. When the building sector imploded post gfc something similar ought to have been implemented to keep economic activity sustained, especially in the regions where I was based at the times, it was an opportunity sorely missed. It took years for activity to rise and when it eventually did it was quite uneven with questionable earnings capacity, and many many tradespeople had left for Australia.

Agree with Foyle slash the bureaucracy and implement serious price competition on building materials the costs here are outrageous compared to oz we should be similar in finished cost

A mate got an email from ITM just before lockdown, "hurry up and place your order, our framing costs are being put up 7%"

slashing the bureacracy might not acheive much of a gain infact it might lead to inferior outcomes for consumers afterall the sector is legendary for taking shortcuts that can prove disasterous...hows that monoclad home looking up the road? On building materials...thats quite interesting, you can't force competition on a market and one as small as ours makes the unit cost of anything of suitably high durability expensive. In my view its the price of land held up by landbanking thats the prime issue

I agree with him on Kiwibuild, agree on dramatic drop in property prices, hope he is right but not confident about NZ and the world bouncing back from this economic downturn.
I think he along with most comentators do not understand the difference between acknowledging the existence of nations and xenophobia. Surely he has a family and everyone outside it is 'not family'. Doesn't mean they are less worthy or to be feared. Now swap nation for family - no need for any type of phobia.

Respectfully disagree. Commentators conflate wanting reduced migration with xenophobia intentionally in order to avoid a discussion about suppressing wages. We can't actually have a discussion about why our wage growth is anaemic, because it is apparently racist to do so.

There's a few problems with his views.
Where do I start...
Firstly, while he is right that globalisation has lifted a lot of people out of poverty around the world, that's a jaundiced view, ignoring the downsides. Including the fact that globalisation has helped foster widening inequality within developed countries. Further, it's a very ideological position... Rather, we can retain much of what's good about globalisation, but tweak elements of it to address some of its problems. It's not some pure, un-malleable thing. It's like the market right? No market is truly free, the level of freedom varies from country to country. Policies and regulation specific to countries set the parameters around the market.

He makes the same kind of intellectual error with migration. Again, it does not need to be, neither should it be, a binary conversation about a pro-migration position being good (and non-xenophobic), and an anti-migration position being bad (and xenophobic). That is simplistic and unfair.

In fact it's quite reasonable to argue a middle ground, of having much more selective and focused migration.

It's disappointing, but not surprising, that people of his stature express such simplistic, sloganistic and ideological views,

In NZ that there are a range of low paid jobs that were once done by Kiwis on a decent wage that are now done by foreigners usually of a conspicously different ethnicity. For example cleaners and helpers in care homes, Uber drivers, liquor outlets and Auckland petrol stations. These jobs are now badly paid, lack ethnic diversity, often linked to rorts (ref Prof Stringers report on worker exploitation in NZ). We are creating a caste like society. It is those who have pushed for our low-skill low-wage immigration policies who should be accused of xenophobia.

Many of the commentators here, over the years, have discussed the pros and cons of what needs to be done under the old status quo to make housing truly more affordable.

We know exactly the legislative changes needed to return housing to it's pre 1990s historical price of 3x median income, but resistances by vested interests in the rising market it has prevented this (which is understandable).

The issue was, how do we reset the market without someone getting hurt on the way (discounting the argument of course of the ones being hurt now because of the rentier market), even if at some stage a reset was inevitable?

The answer of course was you can't, and no Govt. in their right mind would enact a long term policy benefit when it was at the expense of their near term votes.

What the Govt. (and we as a society at large) needed was some external force, something beyond our control, to press the button for us.

This could be it.

If the housing market does bust it will take us back closer to that lower median mark without us legislating anything, then that is the time to implement the new legislation at the bottom of the curve, to stop a repeat of speculative behavior, the wrong type of foreign investment, land banking, and bureaucratic behavior etc. that cause supply to be low relative to demand.

If we get to that position of the curve, is there anyone here that would be against new legislation that would allow housing going forward to be priced at a lower median multiple?

If you can postulate a workable mechanism for achieving that I would love to hear it. I would suggest a significant land tax ~2-3% ish or perhaps more progressive (0% up to some minimum value then 5% above it) would be the only way.

I totally reject that a country looking after the future of its citizens by limiting immigration, globalization,
FTAs. Is in any way xenophobic, xenophobia is what china is currently doing to African workers or the urghers the government of any country should have the ultimate responsibility of determining the best for their citizens.

The treatment of Uighurs in China with over a million in prison camps is not Xenophobia (fear of foreigners) since they are all Chinese. They qualify for a Chinese passport but if they ask for one they are sent for re-education. They live in the 'Xinjiang Uyghur Autonomous Region' which is six times larger than New Zealand. So not Xenophobia but certainly the true meaning of Islamophobia and also cultural genocide. Extreme racism - it is even coded into China's face recognition software.

Hi Foyle

As you are relatively new to this site, you won't be aware of the backstory, and all the previous comments from all sides on this subject. Can you please go and make yourself familiar with this site to get an understanding of how NZ used to be, and other jurisdictions still are. Or search on this site MUDs, land zoning, zoning restrictions for a taste.

While there are some good arguments put forward on land tax as you propose, until first principles around land economics is sorted, its' all a little like shuffling deck chairs, and may not be needed at all.

The working mechanism is very simple, and as said above is ideally suited to be implemented at the bottom of the cycle as it won't cause any further fall, but will stop non-value added speculative capital growth from that point on.

We shouldn't using migration to make money. There is a huge cost to this, including all the extra infrastructure to cope with the increased population. When things gd bad, we also have a lot more people to support, who can't pay their bills etc when they loose their jobs.

Again why is wanting to preserve our country xenophobic? Immigration yes. But targeted and well managed immigration at a steady and slow rate. Not opening the floodgates to a mass unfettered tidal wave of low quality from a certain continent that can barely speak English.

Agree. But Grimes is clearly a certified member of the 'unfettered neoliberalism and globalisation is great' club.
So 1990s.

I have a high regard and much respect for Grimes , but I am unsure whether Kiwibuild will ever fly .

Make land available and allow for the importation of kit form houses and we nail them together............ that may work to get the costs down .

Problem is .............Fletcher Building who control the materials supply chain, will ensure it never happens

BW, what is the address of this property in CHRISTCHURCH that this forced seller is selling please????
If it is a good buy then I might be interested and do them a favour?
If you don’t advise me I will take it that is just another of these made up stories that we often get on here!

"If you don’t advise me I will take it that is just another of these made up stories that we often get on here!"

The Man 2

Are you trying to intimidate / shame / undermine BW's credibility so that BW will give you that information? BW is way too savvy for that. That information is at least worth some fee & you're trying to get it on a public forum for free, while you are planning to potentially profit from it? Why don't you tell BW what sort of fee you're willing to pay for that valuable information?

The Man 2, you are already wealthy, with multiple investment properties (more than 30 perhaps?) - do you really need another investment property? How much wealth / income is enough for you before you have enough or perhaps you desire to be the wealthiest person in NZ? Perhaps you could leave the property for an owner occupier buyer?

Wonder what other commenters on here think of that behaviour to attempt to intimidate / shame / undermine a person's credibility in order to get a person into providing some valuable information for free for their own personal gain?

Why the need for Kiwibuild now when house prices are going to plummet, those on temporary work visas start exiting NZ and immigration levels decreasing?

Maybe to be a bit more even handed? If the reserve bank ultimately plans to destroy the value of savings to protect property investors then it would only be fair for the government to create housing for everyone to make up for that?

OMV have hit a huge offshore oil find in south taranaki.