Next generation unlikely to get repeat of Covid wealth boom

New Zealand’s 2021 surge in wealth has created a “generational divide” of the sort that may never be seen again, economists say.

Stats NZ data last week showed New Zealand households were marginally better off in the first three months of this year.

It said total household assets increased $10.3 billion or 0.4 percent in the March quarter. Net worth – which is the value of assets minus liabilities such as debt – rose 0.3 percent or $7.8b, to $2.34 trillion.

Stats NZ said pension assets, such as KiwiSaver, helped push up the increase.

The total value of insurance and pension assets of households rose $8.3b or 5.5 percent compared to December 2023, following a $6.2b increase the previous quarter.

Independent economist Shamubeel Eaqub said there had been a permanent wealth divide created by the run-up of wealth during the Covid period. Household wealth rose from $1.82 trillion in June 2020 to $2.49 trillion in December 2021.

“That’s where the landed gentry comes in – those who have it have it and their children benefit. But if you’re locked out it becomes a generational lockout.”

ANZ senior economist Miles Workman said it was unlikely there would be such a sharp increase in wealth for households again, as was seen in 2021. But a repeat would require a significant economic shock, he said.

“Be careful what you wish for…. the peak was very much consistent with a market that was out of balance and not sustainable.”

The bulk of New Zealanders’ household wealth tends to come from house prices and Workman said there was limited scope for them to drive sustained increases in the near-term.

Whether the strength in equity markets persisted to improve KiwiSaver balances was yet to be seen. “Particularly in the US it’s been driven by tech stocks recently but we are on the verge of some potentially game-changing technologies so who’s to say whether those valuations are appropriate?”

The same data showed household net disposable income increased by 6.2 percent during the year, while household spending rose at a slower rate of 5.6 percent in current price terms.

Westpac said the average mortgage rate that households were paying had risen from 3.2 percent in 2021 to 6.3 percent.

“That’s drained a lot of money out of households’ wallets. For example, if you have an average priced home with an 80 percent mortgage, that change would add around $290 a week to your mortgage bill.”

ASB senior economist Mark Smith said he expected wealth accumulation at a more sedate pace from here, particularly with regards to house prices.

“Over a period of time, the value of an asset should grow in line with its income, essentially.”

He said some people who had seen the value of their properties fall would see a silver lining in the performance of their KiwiSaver balances, but that effect also would not be evenly spread.

“With Covid, in 2020 there was a huge transfer of income from the government sector to firms and households [through the wage subsidy and other supports] that really helped households out, what we’ve seen now is various challenges in the household sector, things like the cost of living, eroding the incomes of households.

“Households in general built up considerable amounts of savings in the early Covid years, the lockdown period… there was a huge transfer of income from government to them but then the past couple of years, households have been steadily running down savings. Now they’re running into spending more than they are earning.”

Households had $243.7b in deposits with registered banks and almost $300b in total loans of which $268b is home loans.

According to the news on Radio New Zealand

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