The government expects significant growth in house prices for five years, but there is some good news

The Treasury Department gave Treasury Secretary Grant Robertson an early Christmas gift in the form of a rosy economic outlook for the next four years, even though explosive home price growth forced the government to announce a housing package early in the new year.

The forecast came in the form of HYEFU – Treasury’s forecast for December. The time has come when the Treasury Department says what it thinks the economy will look like over the next five years.

There is still a lot of economic pain. Inequality will only deepen as income, housing prices, and the economy as a whole grow at different speeds.

Don’t expect a deal in the housing market anytime soon – in fact, housing will get more difficult as prices rise by doubling the wage rate.

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Before the election, the Treasury had been expecting a brief drop in home prices. Having proven to be really good and wrong, it now expects explosive growth in house prices over the next five years.

Next year, prices are expected to grow four times faster than wages and five times faster than the economy as a whole, rising 8.5 percent.

Home price growth will slow, but will continue to nearly double the speed of wages and the economy as a whole over the next four years. The Treasury has been stabilizing growth of more than 5 percent annually every year through 2025. The only exception is 2022, when it expects growth of 4.5 percent.

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In response to these numbers, Robertson said the government will announce new housing policies early next year, after receiving policy advice from the Reserve Bank and Treasury.

Housing Secretary Megan Woods may also look for ways to increase the housing supply.

In contrast, wages are expected to grow by 2.3 percent next year, and 2.2 percent the following year. Wages are only rising over 3 percent in 2025 – growing by 3.3 percent.

Unemployment, currently hovering above 6 percent, does not return to pre-pandemic levels until 2025 and will remain above 6 percent until 2023.

Prime Minister Jacinda Ardern listens to Finance Minister Grant Robertson during the new government's first questions time in the House of Representatives discussion room.

Robert Kitchen / Stuff

Prime Minister Jacinda Ardern listens to Finance Minister Grant Robertson during the new government’s first questions time in the House of Representatives discussion room of Parliament.

The creaking state machine will continue to bleed money. The average deficit of DHB is expected to be $ 600 million per year – an optimistic measure with the Treasury Department warning that there is “a significant risk that the deficit of DHB will rise.”

“The NBD sector is likely to face significant cost pressures in the future to maintain current service delivery,” the Treasury Department said.

The economy as a whole is going to grow – and fast. The Treasury will grow 1.5 percent next year, and reach 2.5 percent in 2022, before achieving growth of 3.7 percent in 2023, 3.8 percent in 2024, and 3.2 percent in 2025.

The government’s own books are likely to look much better than feared in the Treasury’s latest batch of forecasts, delivered just before the election. An improved economy means more tax revenues and fewer expenses on things like benefits.

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The Treasury expects the government to collect $ 4 billion in taxes each year over the next four years than it did before the election. It also expects its expenditures to fall by $ 5.3 billion next year.

There will still be a large government deficit. Next year there will be a deficit of $ 21.6 billion, which will drop to $ 7.5 billion by 2024. These are large surpluses, but they are $ 10 billion to $ 10 billion less each year than the Treasury had feared just a few months ago.

A stronger economy, lower borrowing, and smaller deficits mean that the government will borrow much less than initially expected.

The net primary crown debt will rise to 52.6 percent of GDP by 2023 before falling to 46.9 percent of GDP by 2025.

However, this measure calculates the effects of the Reserve Bank’s unconventional monetary policy tools – essentially the bank’s decision to make money to pump into the economy by purchasing debt and financing banks.

If you tweak these unconventional tools by taking into account the fact that fund creation creates an asset plus net underlying crown debt is lower – rising to only 44.8 percent in 2023 and down to 45.5 percent.

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