WELCOME TO HILL NEWS AUGUST 2022
Inflation, and the economic pressures that arise from it, continue to be at the front of mind for many of us. Those of us who haven't managed businesses through periods of high inflation before are finding it valuable to speak to and learn from those who have. I'm personally finding it to be a steep learning curve, as we find new ways to think about and forecast the financial performance of our business and for that to feed into our day-to-day management decisions. (As an aside, it feels very fortunate that our primary industries are thriving at the moment, as this underpins much of our economy and so helps many of us).
Despite the immediate pressures and challenges inflation creates, however, there is perhaps a silver lining in the current situation. (Now is a good time to include the disclaimer that I am not, nor have ever been, an economist, so I am expecting some robust criticism around some of what I've written below).
I heard a commentator recently point out that we have been in an inflationary environment for many years now, but that inflation was only impacting asset prices. This has led to the perverse situation where many people's houses have earned more money than they have in recent years. While that feels good for us homeowners, it has had the consequence of making houses much less affordable for young New Zealanders.
This is unfair, and ultimately could be bad for all of us, because unaffordable housing creates a disincentive for people to settle in a place and put their roots down, to commit to a career and/or raise a family. At a time when our border has recently reopened and many young and talented people are weighing up a range of options available to them, it would be best to have the prospect of home ownership being a reason for people to stay in NZ, rather than a reason to leave.
Here at Hill Labs we employ a lot of young people, and so we feel this risk acutely. We see it through an ethical lens as much as through a business continuity lens.
The maths around making housing more affordable is simple - either house prices need to come down and/or wages need to increase. Now that inflation has moved from assets across to goods and services, and with the associated wages that underpin them also increasing and house prices dipping a little, houses have started to become a little more affordable for more New Zealanders. There is still a lot more ground to cover in the affordability gap, but this is fundamentally a good thing for all of us, as it will help with social stability and keeping talent in NZ.
I don't mean to diminish the significance of inflation and the pressures it leads to. We are certainly feeling the pinch on profit margins acutely at the moment, as is almost every other business that I speak with. We are all working hard now to control costs where we can, to rethink parts of our business where step changes in efficiency improvements are possible, and to move on price where we have to.
It is important for the overall health and sustainability of the economy that all of our businesses survive and thrive, despite these challenging times. If that means paying more in salaries to those who do all the hard graft in our businesses, and in doing so enabling them to thrive in their personal lives, including being able to afford their own homes, then that isn't a bad thing at all.
So let's hope and trust that we will all survive this challenging inflationary environment, and look forward to more settled and stable times.
- Dr Jonno Hill, CEO