Kiwis' debt pile now exceeds annual disposable income by nearly $100 billion

By David Hargreaves

Kiwis continue to get into hock on their houses at record levels, new quarterly household financial statistics from the Reserve Bank show.

The latest figures show that household financial liabilities (mostly mortgages) were nearly $252 billion by the end of the June quarter.

This number dwarfs the $152.7 billion annual disposable income figure as at June.

The debt figure now makes up some 165% of the disposable income figure - which is a new all-time high, jumping up from 163% (which was also a record) in March.

The debt to income figure has risen sharply in the past year, up from 159% as of last June.

In the past 12 months household debt has risen by 7.75% (in dollar terms by over $18 billion), while disposable income has increased just 3.75% (over $5.5 billion).

During the same period net household financial wealth has shrunk very slightly, from $460 billion to $459 billion.

However, those figures don't include house value - with houses of course being the main reason for the debt. There's a lag on the house value information being collated, but the figures up to the end of the March quarter showed that the value of houses had shot up 14% in the previous 12 months to $679 billion, which had led to a 7.6% increase in total household net wealth to over a trillion dollars.

The figures do show, however, the extent to which New Zealand household wealth is centred around the housing market. These latest figures will again concern the Reserve Bank, which has, for financial stability reasons, introduced new lending restrictions that come into effect next month.

The latest household financial statistics follow on from the RBNZ's monthly sector credit figures for July, which showed that total household claims (mostly mortgages, but also including consumer finance) rose a seasonally-adjusted 0.9% to $238.432 billion (from upwardly-revised $236.791 billion in June).

This was the fastest monthly rise since the 1% gain recorded in the month of November 2007 when the previous housing boom was just starting to tail off.

In terms of just mortgages, the total in July rose to $223.052 billion (from $221.42 billion in June), and is up 9% in the past 12 months.

That's the biggest rate of annual growth since May 2008.

Nearly $18.5 billion was added to the country's mortgage bill over the past 12 months.

The new LVR restrictions to be placed on housing investors were announced by the RBNZ on July 19. Whether there has been therefore something of a surge in the latter part of the month to 'get in' before the introduction of the rules will become more apparent over the next few months.

One seemingly contrary aspect of the new household financial figures for the June quarter, however, is that while the debt pile for Kiwis is getting bigger - their ability to service it is improving. This is because of the historically low - and falling - interest rates.

The latest figures show that on an annual basis as at June interest payments were consuming just 9% of disposable income - and that's actually down on the 9.2% figure as at the end of March.

In historical terms that current 9% figure is comfortably manageable. In 2009 at the end of the last housing boom, the percentage of income chewed up by interest payments was a touch under 14%.

But what the Reserve Bank would be concerned about is that when interest rates do start to rise again (and clearly that's not on the horizon at the moment) the affordability of interest repayments will be quickly squeezed.

In the meantime, and at these levels of affordability, there's nothing to really stop people continuing to ramp up the debt.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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84 Comments

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John Key, shepherd of debt.

Ive just realised the brighter future was about being in direct sunlight, homeless.

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What do you expect from a money market dealer from Merrill Lynch - look what they got up to during the GFC.
How did Key make his money? The sad fact is that its average Kiwis punting for homes this time:(

John Key worked for Merrill Lynch, NOT Lehman Brothers

David does that mean that you think Merrill Lynch was not culpable and one of the goodies among the too big to jail Wall Street banks?
Well I reckon they "merrilly lynched" just as many innocents as the other iceholes.

The fault was not just with the banks. The real estate industry was out of control in the US...it needed correcting and regulating.

The fault was not just with the banks. The real estate industry was out of control in the US...it needed correcting and regulating.

Not really sure of your point. But Merrill Lynch likely would have ended up the same as Lehman had it not been brought by Bank of America.

Not really sure of your point. But Merrill Lynch likely would have ended up the same as Lehman had it not been brought by Bank of America.

If you think Ak City can help in providing lots more houses...here is a story....in Browns Bay we have The Pines, 52 Apartments, all finished but no one can buy them because the Council is not issuing final sign off. Its not that anything is wrong apparently, the work has been checked all the way along, its just that they take 20 working days to check the paperwork. They say they are inundated with such requests so you wait in the queue. That is 52 empty dwellings......
R

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That is a shame so the foreign buyers (offshore , foreign students & Temp visa workers) will have to wait before getting their properties.

Introducing The Pines, Browns Bay 52 Apartments:

http://harcourts.co.nz/Property/776372/BW23352/304-23a-25-Bute-Road-The-...

$740k
73 square metres. Balcony 16 square metres.
2bed 1 bath

Seriously not many kiwi punters on NZ wages can afford these expensive apartments.

10,000 a square meter ... roughly the same price as London 2bed for similar distance to the city .

Actually Browns Bay is 20 kilometers from the city so I would say more expensive than London

Australia 6 weeks from a housing collapse, US report warns

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=1170...

How Long will John Key manipulate and protect by not taking any action. Must be praying that does not happen till next election but the band has been so stretched that will happen and hopefully before next election.

It will collapse anyway with or without restrictions on foreign investment. People who bought in the overheated housing market are going to get burned big time.

Perth house prices have already fallen close to 10%. If a housing collapse does happen in Australia it would be the people in Sydney & Melbourne who would feel it the most.

That is wonderful news Joe about London prices. My daughter lives in London and wants to buy a flat. She would love to find a 2 bedroom flat for 407,000 Pounds. I think you might have your currency conversion mixed up.

Tell your daughter to look at least 20 kilometers out and forget about Notting hill or mayfair.

People i know just bought a 3 bed house for £450k in croydon which is less than 20km to central london (11.6 miles)

Well it is actually a shame for the people that have bought to live in as a home. There are many older folks and other people that just want to settle and make a home - not only the foreign buyers (offshore , foreign students & Temp visa workers) - who also deserve somewhere to live! If you specifically want apartment living it is also a challenge to afford.

slight exaggeration Rondon - all units are sold including the two ground floor retail units. but yes council is most likely dragging the chain on Code Compliance certification.

Feels like Council is being deliberately pedantic - need to add a process feedback opportunity from the actual affected parties - the home owners.

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Who cares. Definitely not John Key.

It is not New Zealands household debt that is the real issue , it is Aucklands debt that is the problem, a figure substantially over 167 percent.

Remember these ratios include the roughly one third of households with no mortgages.

Sit down with a stiff drink and recalculate debt ratios of those with debt.

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Negative equity - we dare not speak it's name...

Well, this sounds like a completely sustainable position.
Don't worry though, everyone is getting richer.

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There is no doubt now. NZ property market is too BIG to fail. Mess with it at your peril.

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And if the market messes itself ? I dont believe there is a nappy big enough.

The figures do show, however, the extent to which New Zealand household wealth is centred around the housing market. These latest figures will again concern the Reserve Bank, which has, for financial stability reasons, introduced new lending restrictions that come into effect next month.

I beg to differ.

The cornerstone of modern central bank activism has focussed on generating asset bubbles.

But how about asset price inflation and Bubbles? Well, there is a powerful proclivity for letting asset prices run. An inflationary bias in asset markets certainly “makes it more profitable to speculate than to produce.” And the larger the speculative Bubble the more powerful the constituencies that arise to demand government involvement, intervention and manipulation to sustain Bubble Dynamics. Misguided policymakers will endorse destabilizing asset inflation as confirmation of sound policies (Greenspan, Bernanke, Draghi, Kuroda…). In one of financial history’s most misconceived policy blunders, central bankers specifically targeted asset price inflation as the primary mechanism for post-crisis system reflation. Read more

Fed Vice Chairman::
FISCHER: Well, clearly there are different responses to negative rates. If you’re a saver, they’re very difficult to deal with and to accept, although typically they go along with quite decent equity prices. But we consider all that and we have to make trade-offs in economics all the time and the idea is the lower the interest rate the better it is for investors. Read more

This is why I find observing what is happening so fascinating. People fall for the boom bust cycle from these deliberately blown bubbles. There's no shortage of people that think they are getting rich by living in their house. Things are further down the track in Australia though with a large number of people using their house as an ATM to buy a luxury car. We'll get there soon enough.

Overall I agree with the article's content as I did look into household debt and servicing. I expect the servicing cost to keep decreasing until all the old fixed rate mortgages are refinanced in the next 18 months. Should be the last of the 5%-6%+ rates for 80% LVR. That's without any further interest rate decreases factored in.

Already happening, they're those 4WD BMW Wagons or Window tinted hilux utes that cut you off on the motorway, I call them ALPHA trucks and they are often driven by agressive men and women in the property game (Alpha Bullies). I hope they get served up some reality and end up losing their Alpha truck

We see that but I'm talking about importing so many that it exceeds the foreign currency flowing into our housing market.

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.. I think this brings us back to Gareth Morgan's point that our current tax system is skewered against wages and company profits ... we tax the sh*t out of those ...

And it's skewered towards capital gains ... you can negatively gear at the front end to off-set losses against other income , and there is zero tax when you choose to sell out and reap your profits ...

.. it's a no brainer in NZ , to speculate on property , rather than to produce anything ...

" I think this brings us back to Gareth Morgan's point that our current tax system is skewered against wages and company profits ... we tax the sh*t out of those"

Really? outside of PAYE on employee wages, most lareg corporates pay barely any tax.

I mean, what are the banks paying on their seemingly endless profits?

The vast majority of my NZ dividends come with a generous helping of imputation credits, so plenty of companies over here are paying tax. I don't own any of the banks and don't want to poke around their financial statements right now, but ANZ at least pays partial imputation credits https://www.nzx.com/markets/NZSX/securities/ANZ/dividends

As the company does most of it's business outside NZ I'm not terribly surprised they haven't picked up enough credits to fully impute, but they've definitely paid some tax over here.

Considering the bulk of Kiwis work for small companies your statement is meaningless. Small companies pay a ton of tax - outside of paye.

... what are the banks paying , you ask ... most large companies pay barely any tax , you assert ...

Some facts , good sir , to rest your mind on the subject :

... in its full year set of financial accounts ( 2015 ) our biggest bank , the ANZ , had an operating income of $NZ 2684 million , and it paid a full $NZ 438 million in tax to the IRD ( 28 % tax rate ) , finally declaring an after tax net income of $NZ 1127 million ...

... so your point was noncents , wasn't it !

Is that a question or a populist and incorrect statement ? Why can't we get people actually doing some research before casting aspersions - I assume if it's deemed populist if doesn't have to be even close to correct, and just adds nicely to the populist opinion of the uniformed.

bang on Stephen. Except they call blowing these crazy bubbles the wealth effect. Couldn't agree more about it being one of the most ill conceived economic policies in history. It creates all the wrong incentives....borrow don't save, hold assets don't work, chase existing assets don't innovate or create anything

bang on Stephen. Except they call blowing these crazy bubbles the wealth effect. Couldn't agree more about it being one of the most ill conceived economic policies in history. It creates all the wrong incentives....borrow don't save, hold assets don't work, chase existing assets don't innovate or create anything

Does it matter any more. Just a data. If it is a concern than definitely our Hon PM should be worried and act.

If the house prices are touching million or 2 million than it is bound to happen as wages does not support that type of saving to pay as a deposit and borrow less. Band is stretching not year by year but week by week now.

If the view that the government is more concerned and protective towards overseas buyer is correct than why will they be worried as they normally are cash buyer or their deposit is too high otherwise head of the government our PM would have acted and come out with an open letter.

I wonder if these figures represent a debt splurge just before the LVR's kick in. I imagine current LVR's will make it impossible for most people to take on more debt. The second derivatives (private debt wrt time) must be about to become negative. That's Steve Keens indicator of a looming recession by the way. If debt deleveraging occurs then the economy will become dependent on Government spending and the continuation Chinese money flooding in.

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Congratulations John Key

Your legacy will be a mountain of Debt !

Well done school children will be reading about your poor governance for years to come.

Write to your MP'S. They all have email addresses

winston.peters@parliament.govt.nz
andrew.little@parliament.govt.nz
james.shaw@parliament.govt.nz
metiria.turei@parliament.govt.nz

Email them all calling on a Vancouver 15% tax. That's what the public can do. In the email state you would like to see policies that :

1. Ensure foreign Purchasers & Investors pay the Vancouver Tax when buying existing housing stock (new builds exempt)
2. Ensure we classify all foreign buyers correctly and therefore include
- Foreign Students
- Foreign Temp Workers
- Foreign Offshore buyers
- Companies/Trusts where a foreigner as per above has an interest.

This will bring us in-line with the global definition of what a foreign buyer is as used by Canada, Singapore & Australia.

This is what the concerned public can do.

WRITE THAT EMAIL DONT BE SHY.

AFTER ALL, THEY WORK FOR US AS WE PAY THEIR SALARIES.

(which are extremely high however let us not go there... John Key earns more than UK PM lol... what a Joke )

Not if the schooling budget pays for the deficit/bailout..

As per National Logic it is a sign of prosperity that so many people are able to take and get loan. Also if everyone is taking loan than definetly they trust national and is a Gold medal for John Key.

Silver Medal as I believe Belgium have gold for highest prices relative to incomes..

It reminds me of the many articles on the poverty mindset. Creditworthiness providing the ability to spend in the now is valued. Considerations like savings, cashflow and interest rates aren't considered.

$56.000 per each kiwi.it is not that bad..... but hold on .... Including my wife and 2 kids .... ups it is $224.000 on me as they are not working!

What if you go on the beni' and have 10 kids?

Someone else has my 280,000 share bless them.

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Knowing this surely we can deduct that central bank interest rates will never be increased. The have tried fixing a bubble by making it bigger than ever in the hope somehow some fundamental might change. Well.....no. Totally delusional and only dire consequences await us at some point. Anyone who can't see that must live under a rock

Ahh...That's not how it works...
It's not the RBNZ's problem that people will realise their risk.
Rates will rise if they need to.

Ahh, it IS in the RBNZ's mandate to keep our banking & monetary system solvent. That's their main job in fact. As for people on an individual basis, you are correct. Unfortunately...that's not what I'm specifically referring too.

It is mandated to maintain financial stability in the monetary system but not to maintain solvency among the banking system. A monetarist's position should be to set the rules and let the market play to them. If the financial services sector over leverages itself and collapses, it is a central government's decision to rectify the issue - not the CB's.
Also...the Auckland housing market is not the only driver of our economy. And, there is that meddling Fisher effect.
If the Fed rises by a substantial amount, our OCR will react positively.

Mate, I've well established that you are just one of those people who just can't handle facts. Has to try and argue some pointless tangent to have the final say. Were you ignored as a child? I think so. I'm well aware of what the RBNZ are, do and represent. Next!

"Mate, I've well established that you are just one of those people who just can't handle facts."
What facts?

This fact..?
"Knowing this surely we can deduct that central bank interest rates will never be increased."
Because that right there has absolutely no basis and is a blatant signal of a fundamental misunderstanding of the monetary system under inflation targeting. I wouldn't say arguing that is some 'pointless tangent'..I could be wrong, though.

But hey if you want to get all personal in lieu of logical debate, go for it. It says more about your psyche and intellectual prowess than it ever could mine..

Nah, nah, it's totally fine. We'll just extend the mortgage to pay off the mort-

Shit.

I just gotta,i just gotta have that new 4wd,i just gotta.(spoken with a trembling and sometimes undecipherable voice)

Never mind that $500+ monthly payment. Must keep up with the neighbours and buy a boat as well.

Why don't you buy one?
You gonna blame the entire world, cause you see something you can't afford.
Grow up.

Your sarcasm detector is broken.

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Stuff can bring short term happiness, but actually make you more depressed as you realize it's not going to fix your problems......we need very little to be happy, but its the dangling carrot that deceives you

Some people need very little to be happy, others who have passions for things that cost money to pursue need quite a lot.

What if you are happy, can more stuff make you as happy or slightly happier?

What if you are happy, can more stuff make you as happy or slightly happier?

There was a study a while ago suggesting happiness peaks at ~75k USD and drops again as income rises above that. All averages of course, if you're constantly looking at what you can't afford you'll never be happy. Certainly the link between income and happiness is tenuous once you get to a comfortable level.

Guys, Guys, Everything is fine... Keep borrowing to consume.

Forget DonKey......Forget the "Big 4"..... Forget the RBNZ .....and most of all, forget the lies of Nick Smith !

BUT instead watch the FED..... as soon as Janet raises interest rates it's "Game On' ...then watch interest rates rise here, in this far flung corner of the world.... gives a great excuse for banks here to put up their rates on a GREATER scale than the FED will ie 25bps = 75bps here .... and believe me folks, despite all the "feel good" ads, the banks DO NOT give a flying ^&^^)^%%^% !!

The Fed is making as many excuses as possible to say it's ok to increase to 0.5%. Mostly smoke and mirrors but they know they have to escape the liquidity trap, it's just working out a bit slower than they hoped.

The FED is waiting until it is SO obvious that they have to increase interest rates - then they will do it.

Agreed. I know quite a few investors who are at their max LVR across 4 - 5 south Auckland properties. An increase of 1% is 50k a year in interest. 2% 100k extra a year. All financed interest only. It really hits the fan once interest rates go up. Do we actually think interest rates can go up though? The whole world will destruct.

Hands up who trusts the banks to slowly raise interest rates? They have all these people locked into large mortgages, watch the rates rise. Never trust a banker people, the days of cheap money will end.

'voluntarily' locked in. Mortgages are not compulsory. They won't raise as they know it could very well trigger mass defaults. No, they will go negative IF they have too, steal deposits from savers and ALL accounts they can, make excuse after excuse while the titanic continues to sink.

Cheap money will end the same time many FIAT currencies do. Then these central banks and governments will present their NEW and wonderful solution.........a new global cyber fiat cashless currency that locks us into the next game. IRD & IRS's around the globe will love it and back it 100%, banks will love it cause you will HAVE to use them for everything. Corps will love it and bring out all manner of digital devices to pay with (already well into starting)...

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The world went bankrupt in 2008. 140 trillion in debt. The answer was too make the problem bigger, now 230 trillion. We have to keep borrowing to make the problem.. oops i mean economy grow.

Immune to Interest rate - only need support of government and 1 milion will be a thing of the past.

http://m.nzherald.co.nz/property/news/article.cfm?c_id=8&objectid=11708116

Overspill from Canada.

Could we at least match our policies to those of Canada and Australia now? Seriously, how long are we going to go on cutting our own throats? Even if the plan (using the word loosely) is to base our entire economy on money-laundering for foreigners, there are less damaging ways to do it.

Going to have to until after the next election I'm afraid. The most you'll get out of National is rhetoric.

As longas John Key is the PM.

Per the article from herald

"Labour wants to ban foreign buyers and Land Information New Zealand is now collecting data on the number of foreigners buying properties here, although those show extremely low percentages."

Yes if you continue to ignore foreign students and foreign temp workers ..... wake up nz media ... have some back bone

The fact the media definition of foreign buyers in nz doesnt include all non citizen buyers is a bl**dy disgrace....

Latest poll out today still has National at 48% support and even Labour with the greens and NZ First cannot beat them combined. This is the way its going to roll until the next election unless something major happens in the economy and with no change here and other countries putting the brakes on foreign ownership it just means more of them looking to move their cash are going to be coming here. You can predict a National win at the next election, its a given. Plenty of haters posting on here, problem is the majority are driving their new cars and drinking champagne and cannot even be bothered reading this on interest.co.nz let alone posting here.

Yep short term greed and 'illusions of wealth' reigning supreme, at the expense of the country's future.
It's why, sadly, the Nats are not doing anything serious to address the housing issue

TVNZ is a state owned enterprise and national...............

Need say more about the survey.

Interest.co.nz is not state owned yet they fail to classify all non citizen buyers as foreign buyers....

why ?

Joe public you are correct. NZdemocracy for the rich,by the rich and to the rich.

If this continue it is not far that will social unrest in nz.

Get a job.

I'm sorry.
Did not hear you, girls blouse.
You want to get rich, well work for it.
Or too hard for you.

The vested interests of what is considered to be their audience.