Over the past three years the economy has been riding the wave of a booming housing market.
After going sideways for about four years, house prices on average rose about 47 per cent over 2002-04 and are still going up.
The number of sales peaked in late 2003 but after falling steadily for most of last year got a second wind from a mortgage rate price war among the banks towards the end of the year.
Several factors have been driving the boom.
One is that the move to a low inflation economy over the past 17 years has led to a structural shift down in interest rates generally, compared with the last boom in the mid-1990s. So a larger mortgage can be serviced from the same income.
Secondly, incomes have been rising - around 7 per cent over the past year - as a result of more jobs and higher wages. And people feel more secure in their jobs as a result of the tightest labour market in a generation.
Even so, ballooning mortgage debt means the interest bill is taking a bigger bite out of incomes than it has for many years, leaving at least some people vulnerable if interest rates keep climbing.
There was also a boost from net migration, influenced by returning expatriates and fewer new New Zealanders leaving.
That peaked two years ago, with a net inflow equivalent to about 1 per cent of the population.
Although net immigration has fallen steadily since then, it always takes time for the building industry to meet the extra demand for housing.
Not only has all this kept the building trades flat out and fattened the incomes of real estate agents, it has also turbocharged the domestic (non-export) economy through what economists call the "wealth effect".
Home owners who see the value of their properties rise are willing to spend a few cents in every dollar of increase, even if they have to borrow to do so.
But like any other form of inflation, rapidly rising house prices create losers as well as winners. Scraping together the deposit for a first home has been getting harder.
Home ownership has in any case been declining for years. At the last census in 2001, 32 per cent of households were renting, up from 29 per cent in 1996 and 26 per cent in 1991.
How much assistance can first home buyers expect from the Budget?
It won't be huge. However, Finance Minister Michael Cullen hopes the measures could be geared up over time. "I am quite concerned that expectations may be raised of large-scale assistance like the 3 per cent loans of the past. That is not going to happen," Dr Cullen said.
"The level of assistance required to assist many modest-income people into home ownership, especially in the Auckland area, would be high indeed and probably beyond what was affordable or wise."
The Government was wary of the risk of "chasing its own tail" by pushing up house prices, which would be counter-productive.
How will it be done?
Most likely through the workplace superannuation schemes which the Government is set to require employers (in all but the smallest firms) to offer.
Although the schemes are primarily intended for retirement income, they will be able to be drawn on for a first home deposit, attracting another "modest" top-up payment from the taxpayer on top of the up-front payment when people join such schemes.
Renting and buying
House prices
* 47 per cent increase in last three years.
Home ownership
* Declining. In 2001, 32 per cent of households were renting, up from 29 per cent in 1996 and 26 per cent in 1991.
<EM>State of the economy:</EM> Kiwis riding the property boom
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