Housing boom boost spending
One side effect of the housing boom has been that New Zealanders borrowed an estimated $3 billion against the increasing value of their homes in the year ended March, according to Westpac Bank economists.
Wednesday, August 25th 2004, 2:42AM
by Jenny Ruth
The Westpac economists hasten to qualify this estimate by saying it is difficult to measure exactly due to such factors as the propensity of small business owners to borrow for business purposes against the value of their homes.
Nevertheless, New Zealanders rank as the second most likely among OECD nations, behind only Britain, to increase their spending on consumption as a result of rising house prices.
The Westpac economists were trying to estimate how much influence rising house prices have on overall economic growth.
They note that household consumption grew at an annual average rate of 5.2% in the three months ended March, the fastest annual pace in nearly 10 years. As well, over the past two years, consumption growth has been growing at twice the average pace through the 1990s.
This spending has been a major influence on overall economic growth as household consumption accounts for about 60% of GDP.
The economists say that between June 2001and March 2004, total net household wealth increased by 40%, or $100 billion, mostly due to rising house prices.
They forecast that house prices will fall 5% on average over 2005 as population growth slows, interest rates rise, new houses are built and sentiment changes.
The impact of this could be that consumption growth slows to about an annual pace of 1% by the end of next year and will cut overall GDP by 0.8%.
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