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Kiwis injecting equity into homes, as households move from debt to savings, Finance Minister English says

Kiwis injecting equity into homes, as households move from debt to savings, Finance Minister English says

New Zealanders are injecting equity into their homes, English says

New Zealanders have been injecting equity into their homes in recent years, rather than withdrawing debt to effectively boost their disposable incomes, Finance Minister Bill English said today.

English cited figures from Statistics New Zealand and the Reserve Bank that indicated Kiwis injected about NZ$5 billion of equity into their homes in the year to March 2009. That is still continuing, although at a lower level through 2009 and into 2010, according to a chart English showed when presenting the governments accounts for 2010.

This followed equity withdrawals between 2003 and 2008, which peaked at NZ$7 billion in the year to June 2007, he said.

“Households are now reducing borrowing and injecting equity into their homes – effectively saving," English said.

This would in turn mean the economic recovery would not be led by consumption, which would make things challenging for retailers and domestic industries, English said.

“That’s why this recovery will remain quite different to what we have seen in New Zealand in the past. It will not be fuelled by debt and consumption," he said.

Here are English's comments on the rebalancing

Households have made a multi-billion dollar move away from borrowing towards saving in the past two or three years, which is already reshaping the nature of the current economic recovery, Finance Minister Bill English says.

It means the recovery is not being led by traditional “sugar fixes” of borrowing, consumption and retail spending, he told a media briefing today to release the Government’s financial statements for the year ending 30 June 2010.

“New Zealanders understand our need to rebalance the economy away from debt and spending towards savings and investment,” Mr English says. “The Government’s economic programme – including the tax package this month – aims to achieve that over the next few years so we can create faster growth and sustainable jobs.”

Early signs of progress on this score are clear from estimates of movements in households’ equity in their homes.

Treasury analysis of these figures shows households withdrew several billion dollars of equity from their homes between 2003 and 2008 – effectively borrowing to boost their disposable incomes. At its peak in 2007, that equity withdrawal exceeded $7 billion.

“But we’ve seen a marked turnaround in behaviour since then,” Mr English says. “Households are now reducing borrowing and injecting equity into their homes – effectively saving. In the year to 31 March 2009, that equity injection amounted to about $5 billion.

“That’s a significant change, equivalent to about a 10 per cent reduction in household incomes available for spending. It remains to be seen whether this trend continues, but these early signs are promising.

“At the same time, household consumption has fallen from a peak of more than 64 per cent of GDP in 2007 to 62 per cent this year. The Reserve Bank forecasts this will decline further to about 60 per cent of GDP by 2013.

“That’s why this recovery will remain quite different to what we have seen in New Zealand in the past. It will not be fuelled by debt and consumption.

“While this will make it challenging for retailers and other domestic industries in the short term, it is what the economy needs over the long term as we build our future on savings, productive investment and exports.”

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"It will not be fuelled by debt and consumption."

 "it is what the economy needs over the long term as we build our future on savings, productive investment and exports.”

So why are you borrowing and pissing against the wall over 6% of GDP Bill?

Well the Govt's deficit is 6.3 bn so there's only one place (+ exports and - imports) that the money can end up.  As savings.  The only reason the Govt was able to run a surplus for all the years that it did is because the housing/farm debt bubble was being blown up.

This statement from what!....between the lines the real story is a long long period with bugger all growth is coming where deflation in property prices will be dragged out because the govt and the RBNZ have decided to protect the ponzi scheme to prevent an Irish collapse. Saving by paying down mortgage debt is not so cut and dried as English makes out....the debts demand interest payments. So Bollard joins in the game by keeping the cheaper for longer credit play going and...and making sure inflation eats away at least 3 to 4% of the value of the toilet paper currency every bloody year. What this means for savers is they make no progress at all. Those who placed their faith in the Kiwisaver rort will discover they are standing still.

Savers will find it is to their advantage to spend spare money on stuff they need and on altering their lifestyles to do with less. It is the chooks in the yard time and owning a Predator in partnership with others. Why pay through the nose for fish when you have the tools to catch your own. Expect harsh red tape to arrive to reduce the number of fish you may catch.

Still other will go bush or go rural to live on the bush. It is likely the entire middle classes as they are called will revise their more going into debt to buy qualifications that promise buggerall extra income. Only the super rich will thrive in this economy and the parasites at the bottom who know the ropes as taught by Labour.

Meanwhile the fatcat bankers are protected by law in their game of fleece the peasants of what income they have. The fools who borrowed to splurge are trapped in their own hole with a fat banker blocking up the exit.

"Expect harsh red tape to arrive to reduce the number of fish you may catch." - That won't be a problem for us...seeing I'm still waiting for the day hubby doesn't come home from fishing empty-handed (well, it did happen once but it turned out that a guy who was over the limit gave it to him!). The chooks are definitely more reliable.

"no more going into debt to buy qualifications that promise bugger all extra income". 

Geezus Wolly, I'm worried about NZ if your an indication of the general view!  We'll end up a country of minimum wage earners - not to far off now actually!  The best investment you can make is in your education.  Getting a piece of paper etc doesn't automatically mean that you'll walk into a high paying job, but it does open doors that would otherwise remain shut. 

After that, its up to the individual to bar up and make the most of what they've got.  No point studying something that you can't get a job in or earn a decent people have noticed, theres plenty of numbnuts who spent alot of money to end up working down at the local takeaway! 

NZ salaries are on the low side no doubt, but we participate in a global market place...its a big wide world out there, with lots of opportunity and the big pay packets to boot. 

Just have to buy the ticket to to participate. 


'No more going into debt to buy qualifications that promise buggerall extra income'

That's another rant, of course people will want to get qualifications, and for the record, those with a basic university degree have an earning power 64% higher than those who don't (official figure reported publically in newspapers).  Those who want to get ahead will always make the effort.

I remember working with people in my early 20's who had degree's and they earned exactly what i did at the supermarket ;-)

Stop borrowing and creating DEBT yourself BIll!  Be honest with the public for a change. Tell them WFF is unaffordable, Tell those SCF investors to 'suck it up' and pay for their OWN gambling!

Stop borrowing 250+ million a week NOW! Then maybe YOU will have some credibility

Do you not realise that the ppl on WFF is what's helping to keep the retail sector from totally collasping?  It may be bad now, but where would the economy be without the millions & millions that they (WFF) are spending each week.  Sure, they are not buying BMW's, but they have helped simulate the economy in other areas

If there was no WFF at all , the government could take the $ 2.4 billion that it " costs " ( in lost tax receipts ) , and give all tax payers a much bigger tax rate cut . Imagine how useful that would be to the greater number of people , who earnt the munny in the first place , rather than concentrating it into Michael Cullen's chosen few . ... ........ [. And a huge saving in the bureaucracies , who " manage "  the whole she-bang . ]

Taking $2.4 billion by the 3.3 million taxpayer (Budget 2010 - Treasury figure) gives each TP $727 per year, or $13.98 per week.  Would that really deliver the same boost to the economy?

Yes , it would . But delve into your figures a little deeper , there aren't 3.3 million income tax-payers in NZ . Much less . So the return to each would be greater ........ and no government bureaucracy to cycle the whole thing through , as there is with WFF .

Rightly or wrongly, what sound minded New Zealander earniong about $40K with 2 kids, now effectivitly paying no tax is going to vote to have WFF removed, with a 'smaller' tax cut/credit instead?

Exactly the reason that Cullen used it , as a cynical ( and successful bribe ) to beat Don Brash in the 2005 election . It is poor policy . .......... But  Key & English were too spineless to remove it , 'cos they believed that voters would continue to hammer National over the issue , in the 2008 election .

Labour (1999-2008)  tried to pull the greatest number of Kiwis into the welfare net , without actually collapsing the economy , to garner votes for Labour in perpetuity ......... Unless National lost their kahunas and agreed to retain these woeful tax indulgences of some , against others . ........ Which they did . Sadly !

I agree that National is between a rock & a hard place, so to is ACT to a degree.  Why would I, give up a 0% tax rate, or 100% tax cut for any other rate above, or tax cut below?

The thniking you are on welfare is wrong, what it means is that you are paying a heck of a lot less tax.

Justice, your comment is based on anecdotal evidence of some people you worked with.  The stastical figure for all working New Zealanders over the past year is as quoted, 64% higher earnings for those with a basic degree compared with those who haven't (it's more for those with higher qualifications). However, the point being made is that Wally's premise is off the mark and those who want to get ahead will always do so.

As for your comment about SCF investors, I  would have thought that investing money in any government guaranteed scheme would be the opposite to gambling, surely it would be the safest  investment available?

I do however concur with your querying the credibility of  Double Dipton.

Desperate spruiking for a dying bubble. She's all over, baby.

There's too much debt and not enough credit, and too many debtors unwilling and unable to borrow more to play a bubble which now resembles a used condom floating in a puddle in an alley gutter.

House prices are still too high and will stay that way until all the overextended dreamers have been culled, and those left either drop their prices to meet the real world market or withdraw their property from it while grumbling about "cheapskate" buyers.

All of the extraordinary (and extraordinarily idiotic) conditions which enabled the bubble to form and expand in the first place are gone.

It. Is. Over.

100% correct. Well put

Notice the smiley face? My comment was to just provoke and ..............well, i succeeded

As for SCF, the original investors (pre GGS) i'm refering too. The others (post) saw a loophole and went for it. They need a beating is all 


Your  'Irish style collapse' would be a social disaster with few winners. A staged let down such as we have is far less dislocating,  even if at the cost of some inflation  (maybe -  it's not a certainty). 

Good luck with catching your own fish for cheaper by running your own boat. I kid myself on that score all the time to justify the money drain a boat is. 

Dippers chart shows households are whacking off debt at a huge rate. Corporate balance sheets are in great shape with many having too much cash. It'll be a longer game before Governments turn the tide but early signs of developing resolve ; ignore the dumb Frog peasants presently howling against the wind. It's not all nuclear winter out there.  

On balance do you really believe we need the chooks in the yard as much as we did last year or the year before? . As for going bush - ha, only ignoramuses think you can do that in NZld and survive with any degree of dignity. Figure of speech I hope.

I reckon we are slowly inching our way round a corner in a very long and winding and still risky road. Not a popular view with you economic Bear Gryls survivalist types of course but it has just one or two of the elements of previous recoveries about it. And I've lived through quite a few ups and downs.                        





MMM... On a market value basis. Have NZ's improved the debt to equity ratio on housing stock or have by increased savings and having a slightly tanking property market have they kept the ratio constant??

So NZ'ers are finally getting it and paying off debt and the low realestate sales figures are showing that first home buyers are not entering the market and investors of the ponzi scheme in housing are staying away. Sounds like a slow decline of house prices is to come for years. The only reason there's no huge decline is because the sellers are still in lala land and won't reduce their prices and are not forced to sell. You only need to look at coastal developments and the huge decreases in prices there to see what happens when sellers actually do get desperate and sells. My GV in Coromandel went down 25% since 2006.

"Kiwis injecting equity into homes" is not the same thing as "Kiwis paying off debt". Residential mortgage debt is in fact still rising, and rose $4b in the past year. The point is that $11b of residential building consents were issued so that the remaining $7b was paid for out of savings rather than debt.

In 2006-7, say, mortgage debt rose $20b against building consents of $13b, hence the $7b "equity withdrawal" (rough figures).

This is a fairly rose-tinted way of looking at things. Putting money into houses is not a great way to boost long-term productivity. Suppose we spent $10b on French champagne and drank it all (or threw it away). Maybe it would be better if that was funded out of savings rather than debt, but either way it would still be a mistake.

Secondly, Bill's discussion doesn't mention the total debt incurred during the binge-up, now $170b, which will remain a drag for at least a decade under the most optimistic predictions.

Thirdly, in my view spending money that you have on houses (new or old), that is, "building equity" in Bill's terms, is not really the same thing as usually understood by the term "saving".

Middleman wrote: " Corporate balance sheets are in great shape with many having too much cash" - do you have any figures for that? The charts on this web site show that business debt has fallen from $81b to $72b over 2 years - I don't know how much cash they have on hand but surely not more than $72b. Rural credit is still increasing, although by only $1b in the past year ($5b the year before).

So NZers are injecting equity into their homes. Does this mean they are spending more money on their overpriced house, on things such as maintenance and improvements, to supposedly increase it's value? I can't see how that is good. As prices continue to slide back to a sustainable level, a lot of that equity will be lost. Putting money into a house in that way is not an investment.

I doubt it. Many poster here have been doing it simply by 'paying more off the mortgage'. They are re-paying for the renovation work, already previously done!

Now that's an interesting perspective.

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Days to the General Election: 39
See Party Policies here. Party Lists here.