Last July, there was a line in a National Party press release that painted such an apocalyptic picture of the future awaiting New Zealand households I wondered if Labour had any hope of winning the 2023 election.
Responding to hiked interest rates, National’s finance spokeswoman Nicola Willis said “[t]his dramatic tightening means anyone due to re-fix their mortgage in the coming months will get hammered by rapidly rising borrowing costs. Under Labour, a family with a 80 per cent mortgage on an average priced home will pay nearly $350 more per week in interest payments today than when Labour came to office”.
I mulled these numbers over the break, pondering what they would mean for Labour’s chances.
About half of New Zealand’s stock of mortgage lending is set to refix this year at higher interest rates.
They will all face massive jumps in the cost of their repayments. Voters who have bought a home recently and have a mortgage similar to the one used in Willis’ example, will hit the wall. She’s quite right to reach out to these people, because for them it will be incredibly tough.
A household with a $500,000 mortgage (roughly what you would need to buy a median home in 2020) on an average two-year mortgage rate would have faced interest costs amounting to about $340 a week in 2020 (that excludes paying down any principal).
A similar mortgage in 2023, will see interest costs shoot up to the equivalent of $675 a week.
On those numbers, you might conclude that the election is over. Between the last election and this year, the inflation environment has sucked an extra $335 out of the pockets of this hypothetical household - $15,000 a year.
If this house were owned by one person earning an income of say, $80,000 you’d have to cut their income tax rate to nearly zero (they would pay a total of $17,320 in tax on that income) to make up for the increase in their interest costs since 2020 (although, in reality, this mortgage is probably held by a couple).
On those numbers, you’d have to say, it’s a very difficult economic environment for an incumbent to fight an election. How could any Government run a successful campaign when an average household has become so markedly poorer under its watch (and that’s before you factor in the way that household’s wealth has been eroded by declining house prices or the impact on weekly budgets of skyrocketing grocery bills).
While these stories are tragic on an individual basis - many people will face financial ruin - there’s reason to be sceptical that they amount to a significant enough voting bloc to shift the election.
The average home buyer of the last few years is actually very different from the average New Zealander - they’re also very different from the average mortgage holder.
Most New Zealanders who own homes either have no mortgage, or a very small mortgage. In fact, New Zealand’s true median household with a mortgage (that’s not including people who own a house outright or don’t own a home at all), will see their interest costs increase by $175 a week since 2020, to about $350.
So what’s going on here?
New Zealand has very irregular data on the average mortgage. The Reserve Bank, which publishes excellent monthly data on the number of new mortgages issued and the amount of money loaned by our banks, does not keep data on the average size of a mortgage (an interesting omission given one of the Bank’s tools for controlling the economy is to make these mortgages more expensive).
Stats NZ, however, publishes Household net worth statistics, which shed some light on the massive disparity between the rich, the poor, and the really poor when it comes to housing.
These statistics are quite irregular. The last lot captures the state of play at June 2021, the next lot is not expected until 2025.
Only about 32 per cent of households have a mortgage on their primary residence (their home, in plain English). The rest either own their home outright or rent.
For those 32 per cent, the average size of their outstanding mortgage debt was not $500,000, but $260,000.
This makes sense. People have mortgages for decades. A decent whack of homeowning Kiwis will be paying off mortgages they took out on homes decades ago and many people with new mortgages on more expensive homes will take out smaller loans thanks to the money they have made from their existing home.
That means that 16 per cent of households have a mortgage over $260,000, and an even smaller fraction of households have mortgages touching $500,000.
It’s difficult to know what this means for the election (remember, these stats refer to single households of one, two, three or more people here, not individual voters).
What’s obvious is that while rapidly rising interest rates are clearly not good for an incumbent government, they’re clearly not the slam dunk National might be hoping for. That household with the $500,000 mortgage might be heading for utter destruction, but the vast majority of homeowners will be fine.
It’s difficult to know how good this news is for Labour, however. The homeowners who own their homes outright - who are probably doing quite well out of rising deposit rates - are either exceptionally wealthy or older people, who have paid off their mortgages over the course of their lives (two-thirds of superannuitants own their homes outright).
Wealthy voters are unlikely to be friendly to Labour, and Taxpayers’ Union-Curia polling showed that National took its support among voters aged 60+ from 33.7 per cent to 60 per cent between December 2021 and 2022.
The 32 per cent of households with mortgages is a healthy place to go looking for votes. The 16 per cent of households with mortgages of $260,000 or above are likely to have gotten into the housing market more recently.
These are probably youngish people on relatively high incomes - an area where Labour might have hoped to do quite well, particularly given its efforts over the last decade to cultivate support among New Zealand’s hordes of first-home buyers - a mythical voting bloc which party strategists once hoped included not just FHBs (as they’re called) themselves, but their grateful parents too.
There’s a chance then, that while the overall housing picture isn’t quite as dire as Labour might fear, it isn’t a good news story for the party either.
True mortgage pain is avoiding people National would have won anyway, and hammering people Labour had wanted to cultivate.
Even so, this is a tiny number of people.
Just 62,000 mortgages have been issued to first-home buyers since the last election.
The average size of those mortgages was $550,000 at the time they were taken out.
Many, maybe most, of these mortgages will belong to multiple people, often couples, but even if the number of borrowers struggling with half-million dollar mortgages is 100,000 say, we’re still talking about a tiny number of voters - about 3.5 per cent of the total number of votes cast in the 2020 election.
The number of other owner-occupier’s mortgages written since the election was 393,503 - but the value of these mortgages was far smaller thanks to the fact these people likely did quite well from selling their previous home before taking out their next mortgage.
Their mortgages were an average of $297,300 when they were taken out, meaning those households will feel far less pain from higher borrowing costs (although this does not necessarily make them any less likely to cast their vote based on those costs).
The economic picture is unfavourable to Labour. Rising grocery bills, expensive fuel, unemployment and recession are not words any government wants to hear in an election year. Voters often make their decision based on how they feel about the economy, rather than how bad it actually is. But Labour might take heart from the fact that the picture, at least when it comes to mortgage rates, is not quite as bad as some fear.