Perception of wealth misleading

Tuesday 7th June 2005

Increases in property values continue to drive the net wealth of New Zealanders higher, but the level of debt is also rising creating somewhat of a "fools paradise."

The Spicers Household Savings Indicators show that the total net worth of households rose an estimated 3.2% or $11.4 billion in the March quarter, driven by a 4.1% increase in house prices.

However, in percentage terms household debt increased (up 3.9% in the quarter) faster than the rate of growth of assets (3.3%).

For the average household, the increase amounted to $20,000 in the year to 31 March 2005, taking the rise for the last three years to $75,000. This gain has been spread mainly amongst homeowners.

�Unfortunately, this perception of wealth may be a fool�s paradise for anyone looking for an excuse to keep spending and not put money aside for retirement,� Spicers economist Rozanna Wozniak says.

�An estimated 88% of housing is tied up in owner occupied homes and cannot be easily unlocked in retirement�.

Furthermore, there are strong reasons to believe that the pace of housing appreciation will continue to lose momentum.

"Consumers sometimes forget that housing is cyclical, and cyclical factors aren�t supportive at present."

The main trends evident in the March quarter Spicers Household Savings Indicators included:

The value of the housing stock increased 4.6% during the quarter, primarily driven by a 4.1% increase in house prices.
Although almost 90% of new borrowing was classified as being for housing purposes, increasing a rapid 15.8% during the year to March, this is probably overstated. In fact, some of this includes people drawing down equity to fund consumer expenditure and some small business borrowing.
Student loan debt increased an estimated 9.5% during the year.
Financial net worth declined 0.8% during the quarter.
Non-housing debt increased 3.9%, while the value of financial assets fell 0.2%.

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