NZ's household debt levels are reaching terrifying heights

by The Listener / 07 March, 2019
Illustrated/Getty Images

Illustration/Getty Images

RelatedArticlesModule - household debt nz capital gains tax

This new snapshot of our retirement indebtedness suggests this is a more deep-seated problem than our failure to tax capital gains. 

No wonder the mooted capital gains tax on property is slow to gain traction with voters. It now turns out we’re getting steadily worse at saving and paying off our debt, so more of us are betting the ranch on capital gains alone.

A large proportion of New Zealanders are irretrievably dependent on their property values to fund their retirement, which makes any tax reform politically fraught. Now there’s a new kicker: it turns out fewer and fewer of us will have even paid for those properties by the time we retire.

Fitch Ratings reports that this country has one of the world’s highest household debt levels, at 93% of GDP.

It’s estimated 70% of homeowners are mortgage-free, which sounds a solid number. But the trend is steeply in the wrong direction. Of those aged 50-64, only 38% are mortgage-free, according to the Commission for Financial Capability, which says the number entering retirement with freehold homes has been declining for two decades, with no sign of a turnaround.

Factor in the stalling market, with Auckland’s prices down 0.9% in the past year, and we may have to add negative equity into the near horizon.

The heart of the problem seems to be the idea that took hold in the late 1980s and 90s that you could “ride” your mortgage up and down, using it to fund consumption spending along the way – rather as governments “ride” the budget deficit to avert austerity and slumps. We’ve felt freer to upgrade the car, have a holiday or renovate using debt rather than savings. “Put it on the house” and capital gains would take care of it over time.

For some, it did. Mortgage interest and the price of consumer goods have plummeted over time. A bit of judicious extra borrowing, if well timed, might have done some borrowers little long-term financial damage. But the statistics suggest otherwise. Loans have seemed so affordable, and consumer goods so increasingly accessible, that the “on-the-house” habit has done further structural damage to the economy. It has three highly undesirable features: low to stalled productivity, very low income growth and consumptive spending bounding ahead.

This new snapshot of our retirement indebtedness suggests this is a more deep-seated problem than our failure to tax capital gains.  It’s about how we’re spending – and perhaps more importantly, why we’re spending. The internet has made every product imaginable deliverable to our doors – amped up by such marketing constructs as Black Friday – and ambient anxiety-fuelling over “not missing out” at Easter, Christmas, Halloween and the like have stoked our spending to ever-higher records. Popular TV home-renovation contests and “property porn” create a chronic sense of FOMO, with faddy edicts: one must refit one’s kitchen and bathroom every five years; last year’s wallpaper is now dated.

The growing trend towards consumer “fasting” – buy-nothing months and decluttering – shows a dawning recognition that consumptive spending isn’t making us as happy as we once thought, and could be a destructive habit. Social media’s clever algorithms stalking us with personally tailored advertising may have had the welcome perverse effect of making us more aware of how susceptible we are to media manipulation.

Although those pushing back are still very much in the minority, there are signs of resistance going mainstream. Consumers increasingly resent and avoid disposable plastic. The UK Government is actively canvassing ways to penalise “fast fashion” – super-cheap clothing that is mostly added to landfill within a year of purchase. Camping grounds and festival grounds here this summer deplored the mass-jettisoning of cheap camping gear. Even media-darling My Food Bag’s promotional beach balls were widely criticised in the media for littering.

In time, it may become a social faux pas to buy cheap and disposable if one can possibly afford a durable item. And, as tiresome as the virtue-signalling of those going “shop-free” for a month or “second-hand for a year” may seem, it’s still a worthy thing that they’re signalling.

The fact that charity shops are being hopelessly overloaded with unsaleable dumpings from nouveau declutterers, thanks to TV’s Tidying Up with Marie Kondo, suggests we’ve reached Peak Stuff. The underlying phenomenon of people failing to pay off their mortgages within their working lives shows the true cost of that stuff.

This editorial was first published in the March 16, 2019 issue of the New Zealand Listener.

Latest

50th moon landing anniversary: New Zealand's forgotten Nasa legend
108468 2019-07-20 00:00:00Z History

50th moon landing anniversary: New Zealand's forgo…

by Peter Griffin

Today marks 50 years since humans landed on the Moon, a feat achieved thanks to Kiwi scientist William Pickering and his team.

Read more
The best thing to come from the Black Caps' defeat
108621 2019-07-20 00:00:00Z Sport

The best thing to come from the Black Caps' defeat…

by Paul Thomas

For New Zealanders, the Cricket World Cup final was a brutal reminder of sport’s great paradox. But there's hope on the horizon.

Read more
What New Zealand can do about the militarisation of space
108498 2019-07-20 00:00:00Z Tech

What New Zealand can do about the militarisation o…

by Duncan Steel

We may decry the notion, but the hostile use of space is creeping into the plans of various countries.

Read more
Five technologies from the space race that we take for granted
108506 2019-07-20 00:00:00Z Tech

Five technologies from the space race that we take…

by Peter Griffin

If US$154 billion to land 12 men on the Moon seems excessive, consider the things we use every day that had their roots in a Nasa lab.

Read more
Top investigator urges police to speak up about wrongful convictions
108539 2019-07-19 00:00:00Z Crime

Top investigator urges police to speak up about wr…

by Mike White

Mike White talks to investigator Tim McKinnel, who says police often turn a blind eye to possible corruption out of a misplaced sense of loyalty.

Read more
Jacinda Ardern to focus on Australia deportations in talks with Scott Morrison
108570 2019-07-19 00:00:00Z Politics

Jacinda Ardern to focus on Australia deportations…

by Craig McCulloch

PM Jacinda Ardern has doubled down on her criticism of Australia's deportation policy as "corrosive", ahead of her meeting with Scott Morrison.

Read more
How closed adoption robbed Māori children of their identity
108572 2019-07-19 00:00:00Z Social issues

How closed adoption robbed Māori children of their…

by Te Aniwa Hurihanganui

Te Aniwa Hurihanganui looks at the outdated Adoption Act and its impact on Māori who grew up desperate to reconnect.

Read more
The new robotic surgery aiding vaginal mesh removal
108377 2019-07-19 00:00:00Z Health

The new robotic surgery aiding vaginal mesh remova…

by Ruth Nichol

Women with complications caused by deeply embedded vaginal mesh are being helped by a pioneering surgical technique.

Read more