A Simple Model of Housing Rental and Ownership with Policy Simulations

This paper develops a simple model that captures the essential features of the supply and demand for housing, and which is used to evaluate the impact of a range of policy interventions. The model incorporates functions describing the demand to rent or purchase housing, a function describing the supply of rental housing, and a function describing the supply of new houses. The model is used to explore the effects on prices, quantities, and owner occupancy (homeownership) rates of policies that change the stock of housing, that alter the taxes and subsidies facing landlords and homeowners, that alter the cost of new housing, and that alter real interest rates. The results suggest that despite the widespread attention owner occupancy rates have attracted, they are not a particularly helpful guide to the state of the housing market. Typically they are quite insensitive to policy interventions, a result that follows from the integrated view of both the rental and ownership market, adopted in this study.Housing markets; New Zealand; rental and owner occupancy; elasticities; rents; house prices; policy simulations

Capital Shallowness: A Problem for New Zealand?

There is now substantial evidence that New Zealand’s overall rate of economic growth relative to Australia’s has been lower in part because of lower levels and slower growth in our labour productivity. This then requires us to explore why the labour productivity is lower in New Zealand. This paper explores the extent to which a lower level of capital per hour worked (or lower capital intensity) is associated with less output per hour worked in New Zealand. We find that the capital intensity in New Zealand has not been increasing as fast as in Australia for nearly 25 years. Between 1995 and 2002, lower capital intensity explains 70 percent of the difference in output per hour worked. Whereas the cost of labour relative to capital has been rising in Australia, it has fallen by 20 percent in New Zealand between 1987 and 2002. The relative price of labour to capital in New Zealand fell to 60 percent of the Australian value in 2002 after being comparable in the late 1980’s. It is to be expected that New Zealand enterprises would therefore tend to adopt less capital intensive production methods. Differences in capital intensity could also have arisen because the underlying production technologies are different even if the relative prices of labour and capital in the two economies had been similar. We explore this issue and find a similar response of capital intensity to changes in the wage rate relative to the return on capital for the economies as a whole. However when we exclude the mining sector we find that the responsiveness in New Zealand is about one half that of Australia. Whether there are impediments or greater uncertainty in New Zealand that limit the ability of firms to respond to economic signals as much as their Australian counterparts remain as possible explanations requiring further investigation.New Zealand; Australia; Capital-labour ratios; relative factor prices

Separately Together:Working Reflexively as a Team

Discussions of reflexivity tend to ignore issues of practice, and those addressing practice are likely to presume a sole researcher. In this paper, we respond to the need for attention to reflexive practice in qualitative research teams. Drawing on our experience of working 'separately together', we identify reflexivity as an embedded feature of team-based research. We discuss how reflexivity can be used as a collective interpretive resource in the construction of the research subject/object, and we highlight reflexive possibilities unique to team-based research. We include in the article a presentation of the orientations and research practices that supported our reflexive teamwork

Saving in New Zealand: Measurement and Trends

This paper examines the trends in saving in New Zealand. It considers different sources of information about saving and highlights issues with the measurement of saving. Illustrations are provided of the impact of adjusting saving for both the effects of inflation and the inclusion of some items of expenditure, which are typically counted as consumption. The difficulty of drawing clear implications for policy on the basis of our existing knowledge and data on saving and wealth levels in New Zealand is highlighted. An appendix to the paper includes a comprehensive set of data on New Zealand saving and related variables.Saving by sectors, measurement

The Economics of Population Ageing

Demographic forecasts predict that over the next fifty years the proportion of people in New Zealand over the age of 65 will more than double, from 12 percent in 1999 to 26 percent in 2050. This paper reviews potential economic implications of this demographic change in the following broad categories: Demographic change, Labour Markets, Fiscal Impacts, Capital Markets, and Long-run economic growth effects. A synopsis is made of the key economic and demographic issues relating to each category, and the paper highlights those issues to be prioritised in further research. The paper also questions the existing frameworks and methodologies that have been used to study population ageing. Two issues stand out in this regard. Firstly, there is a tendency to view population ageing as a “static” phenomenon. The economic implications of population ageing are pervasive and complex. Future research may benefit from attention to individual behavioural responses to ageing and into the underlying demographic dynamics of population ageing. Secondly, the future economic impacts of an ageing population are inherently uncertain. Future research could well incorporate methodological approaches that attempt to account for these inherent uncertainties.Population Ageing; Economics and Demographic Change

Household Net Wealth: An International Comparison

Household saving can be measured as either the difference between the flows of current income and expenditure, or through households’ balance sheets as changes in the stocks of accumulated net wealth. This paper examines household saving in New Zealand and other OECD countries, with particular focus on the stock of net wealth. The ratio of real assets to disposable income in New Zealand is close to OECD levels. However, household financial net wealth as a proportion of disposable income has been falling in New Zealand since the late 1980s, whereas it has been rising in other OECD countries. As a result, housing assets in New Zealand have become an increasing share of households' wealth portfolios. The implied savings rate from households’ balance sheets is significantly higher than the flow measure. Moreover, it follows the business cycle more closely, consistent with consumption smoothing behaviour by households.Household net wealth, saving, financial deregulation

Household Debt in New Zealand

In recent years, the total debt of the household sector has risen appreciably. This has led to concerns about “excessive” borrowing, and to the possibility that some households may have become unduly vulnerable in the event of unexpected shocks. This paper draws on both aggregate and household level data to assess the extent and composition of household debt; to analyse the distribution of debt in relation to income; to examine the factors associated with high ratios of debt servicing relative to income and consider the extent to which individuals and households are vulnerable to unexpected shocks. Between 1982 and 2007, household debt grew from 33% to 149% of household disposable incomes. However due to the faster growth of assets, net wealth grew from 319% of disposable income in 1982 to 430% by 2002 and 604% by 2007; ie, even before the sharp rise in house prices, the overall balance sheet of households was stronger in 2002 than any time in the previous two decades, despite the increase in debt levels. Mortgages represented about 85% of total liabilities, the balance made up of credit card debt and student loans. Higher absolute debt levels amongst couples were associated with home ownership and higher levels of assets and income. Maori and Pacific Island couples recorded liabilities some $6,500 greater than European couples. The paper defines those as vulnerable as having debt servicing obligations exceeding 30 percent of their gross income. It is estimated that in 6.2% of non-partnered individuals and 8.1% of couples fell into this category in 2004. When the underlying levels of income, asset values and mortgage interest rates were adjusted to correspond to values in 2008, it is estimated that these proportions doubled. Those at risk were defined as having debt servicing obligations exceeding 30 percent of their gross income and, at the same time, recording negative net wealth. In part, negative net wealth arises because of lack of any assets that match the liability of student loans. Some 1.9% of individuals were deemed at risk, falling to 1.5% when student loans were excluded. Student loans distort the net wealth estimates of those holding them as only the liability with no corresponding asset is recorded. When this is allowed for, the share of nonpartnered individuals at risk drops further. The unit record data ended in 2004. However the paper makes projections to 2008. For non-partnered individuals; there was little or no change in our estimate of the proportion with negative net wealth who also had debt servicing costs exceeding 30% of their income (ie, at risk). However for couples our estimate of the proportion at risk rose from 0.8% to 1.1%, corresponding to an increase from about 6,000 to 8,000 families.Household debt; New Zealand; vulnerability

A Simple Model of Housing Rental and Ownership with Policy Simulations

The housing market is both large and complex. This paper develops a simple model that captures the essential features of the supply and demand for housing, and which is used to evaluate the impact of a range of policy interventions. Increases in the stock of housing would reduce rents and house prices. A reduction in tax concessions for landlords would raise rents and moderate house prices. Additional subsidies for owner-occupancy would tend to reduce rents and raise house prices. Significant reductions in rents and house prices would follow a fall in the cost of housing, through, for example lower regulatory and consent costs. Falling real interest rates result in lower rents, higher house prices and lower owner-occupancy rates. Despite the widespread attention owner-occupancy rates have attracted, the paper concludes that they are not a particularly helpful guide to the state of the housing market. Typically they are quite insensitive to policy interventions, a result that follows from the integrated view of both the rental and ownership market, adopted in this study.Housing markets; New Zealand; rental and owner-occupancy; elasticities; rents; house prices; policy simulations

Population Ageing and Social Expenditure in New Zealand: Stochastic Projections

It is widely recognised that as the population ages there will be potentially significant implications for a wide range of economic variables, including in particular the fiscal costs of social expenditures. Long term fiscal planning requires estimates of the possible future path of public spending. This paper presents projections for 14 categories of social spending. These projections are based on detailed demographic estimates covering fertility, migration and mortality disaggregated by single year of age and gender. Distributional parameters are incorporated for all of the major variables, and are used to build up probabilistic projections for social expenditure as a share of GDP using simulation. Attention is focussed on health expenditures which are disaggregated into seven broad classes. In addition we explore the impacts of alternative hypothesis about future health costs. While it can be predicted with some confidence that overall social expenditures will rise, the results suggest that long term planning would be enriched by recognising the distributions about point estimates of projected social costs.Population, projections, stochastic simulation, social expenditure, fiscal costs, New Zealand

Saving Rates of New Zealanders: A Net Wealth Approach

Reliable estimates of actual household saving rates in New Zealand have proved elusive as existing sources of data have in the past given disparate estimates, making it difficult to reach a consensus of the real rate of household saving. For the first time in New Zealand, however, longitudinal data on the assets and liabilities of households at the unit record level are becoming available from Statistics New Zealand’s multi-year national longitudinal Survey of Family Income and Employment (SoFIE). In this paper we first update estimates from the Reserve Bank’s aggregate data on the household sector (a stock approach) and those from Statistics New Zealand’s national accounts (a flow approach). These continue to give widely different estimates of the overall household saving rate, although both were negative in 2008 and both below their long-run trend values. We then present initial estimates derived from SoFIE by comparing individuals’ net wealth in 2004 with that in 2006 and computing the implied real saving rate on an annual basis. This yielded an overall median estimate of 16%. This is virtually the same as the long-run average annual saving rate measured from the aggregate household balance sheet from RBNZ. Furthermore, the estimated saving rates between 2004 and 2006 for the whole household sector in total are almost identical using RBNZ and SoFIE data. However, it must be stressed that median estimates should be complemented with a measure of dispersion. There is a strikingly wide distribution of saving rates. For example across many categories of individuals around 40% are estimated to have had a decline in net wealth, implying a negative rate of saving. Initial explorations into the reasons for this are undertaken in the paper, but as yet are not fully understood. Measurement errors in the data can account for some of the disparities but much remains for further research. Finally we demonstrate that over the period 2004 to 2006, passive saving in the form of the revaluation of house prices constituted a major part of the total change in net wealth. After removing owner-occupied property as an asset, the median saving rate remained positive at 5%, close to the long run average rate from the aggregate RBNZ data after correcting for changes in house prices.Net wealth; saving; saving rates; unit records; permanent wealth; transitory components; New Zealand