Household wealth growing

By MARK FRYER

For richer or for poorer?

That's one of the questions the Reserve Bank attempts to answer each year when it publishes its annual update of the assets and liabilities of New Zealand "households" - the bit of the economy that's not accounted for by business or government. You and I, in other words.

And the answer is "richer", say the latest numbers. As of December last year the country's households had assets worth $284 billion, up from $261 billion 12 months earlier.

That's the total after totting up our financial assets such as money in the bank and investments, subtracting debts and adding on housing.

The figures, which go back to 1978, have lots more to say about the shape of wealth in New Zealand.


FIXATED ON MONEY IN THE BANK

Fixed interest investments are all the rage among cautious investors, but the fashion is nothing new.

Directly-owned fixed interest has generally accounted for about half our "financial assets" - that is, everything but our houses. At the end of last year the figure was 51 per cent.

The real proportion is even higher, given that some of the money invested through fund managers, superannuation schemes and life insurance will also be in fixed interest.

The $65 billion households have in directly-owned fixed interest dwarfs the $15 billion in directly-owned shares.

The share component has fluctuated dramatically over the years; shares accounted for 28 per cent of household financial assets in the heady days of 1986 but less than half that in the past decade.


AMOUNT OUTSTANDING: $91 BILLION

Collectively, New Zealand households were in hock to the tune of $91 billion by the end of last year, $8 billion more than we owed 12 months earlier.

The vast majority of that was owed to the banks.

To be strictly accurate, the Reserve Bank says most of that is owed to "large institions", which includes some finance companies, for example, but bank debt accounts for by far the biggest share.

In 1978, more than a quarter of the money we owed was borrowed from sources such as solicitors' trust accounts and insurance companies, which today account for only 1 per cent of all household debts.

Student loans first showed up in the Reserve Bank tables in 1993, and now account for 5 per cent of household debt.


HOME IS WHERE THE MONEY IS

All those critics who reckon New Zealanders have too much of their money tied up in bricks and mortar just might be on to something.

As of the end of last year housing accounted for 87 per cent of household wealth (the remaining 13 per cent was "net financial assets" - financial assets minus financial liabilities).

But haven't we always had a thing about our homes?

Maybe so, but not to this extent. Back in 1979 (there are no figures for 1978) housing accounted for 65 per cent of all household wealth.

It stayed around that level through the 1980s, then took off about a decade ago.

Now, our houses are worth almost seven times as much as our net financial assets.


BUYING OUR SHARE OF THE MARKET

New Zealand investors are often criticised for being reluctant to buy shares but, while shareholdings are a fraction of our investment in housing, there is another side to the numbers.

By the end of last year, households' shareholdings - $35 billion worth - were equivalent to about 50 per cent of disposable income (income after subtracting tax and adding benefits). In other words, it would have taken about six months disposable income to buy all those shares.

Measured that way, our investment in shares has more than doubled since 1978.

The big spike in the graph is in December 1986, during the bull market that eventually collapsed in 1987.

The numbers include local and overseas shares, owned directly and indirectly, through managed funds, superannuation and insurance.


TURNING A BRIGHTER SHADE OF RED

Are we really a nation of spendthrifts, as we're so often told? Answer: No and yes.

"No", because household financial assets have in fact risen over the years.

Back in 1978 financial assets were worth the equivalent of 150 per cent of disposable income, but by last year the figure had risen to over 180 per cent.

"Yes" because, while financial assets were rising, debt rose much faster.

In 1978, household debt amounted to about 50 per cent of disposable income, meaning 6 months' income would have been enough to repay our debts. Today debt is 130 per cent of disposable income; repaying those debts would now take over 15 months' disposable income.

Subtract debt from financial assets and the result is that household net financial wealth has fallen sharply.


IF IT WASN'T FOR PROPERTY...

If we relied only on our financial assets - money in the bank, shares and so on - we'd be feeling rather impoverished by now.

Fortunately for the national sense of financial wellbeing, house values have more than taken up the slack.

As net financial wealth declined, roughly halving between 1978 and last year, house values have soared.

In 1979, (1978 figures aren't available) housing was worth less than twice as much as net financial assets. Today it's worth almost seven times as much.

To put it another way, in 1979 it would have taken about $21 billion, or 19 months disposable income, to buy all the houses in New Zealand.

By last year it would have taken three-and-a-half years of income - $247 billion.