Govt may construct more state housing

ONE NEWS: The government is considering a big boost to state housing construction to help lift the country out of recession.

Finance Minister Michael Cullen made the suggestion in the wake of an influential business opinion survey which points to the downturn lasting longer.

The influential New Zealand Institute of Economic Research Survey shows 18% of companies are already trading less.

While the same number of firms predict trade to continue to decline over the next three months, nearly three quarters expect their costs to rise, and almost half plan to raise their own prices.

Some see it as a form of stagflation, a word used to describe the economy decades ago.

"Stagflation was a popular term in the 1970's where we had both low growth and high inflation," says Brent Layton of NZIER.

While the official figures aren't out yet, even the Treasury is saying there is a possibility we've experienced what it describes as a technical recession. That's when economic growth declines for two consecutive quarters.

Brent Layton, Chief Executive of NZIER says at  this stage it's looking more like 1998, when New Zealand experienced a relatively shallow recession.

In 1998 commodity prices fell sharply in the wake of the Asian financial crisis before recovering.

The government says two billion dollar tax cuts from October will help.

To combat the effects of the great depression, the first Labour government built state houses and now there are hints about a similar initiative.

"The fact that the construction sector is coming off, may give the government the opportunity, and I'll put it no more than that at this stage... to think about  whether we can be somewhat more expansive in terms of trying to promote housing development," says Finance Minister Michael Cullen.

Cullen won't reveal more about the proposal other than to say it could be in place over the next two to three years.