Households lift wealth by 2.5pc

By BRIAN FALLOW

Households' paper wealth rose 2.5 per cent in the September quarter, buoyed by a strong housing market, but their debt rose even faster - increasing the gearing of household balance sheets.

The Westpac Household Savings Indicators recorded a rise in household assets of $8 billion to $321 billion. A $6.4 billion lift in the value of the housing stock to $207 billion accounted for most of the increase.

Share portfolios rose $700 million in value as world sharemarkets rallied and households put an extra $885 million in the bank.

But while assets grew $8 billion or 2.5 per cent, household debt rose 3.5 per cent or $3.1 billion - 95 per cent of which was on mortgages.

Over the past year, too, debt has grown at a steeper pace than assets: 13.3 and 11 per cent respectively.

The result is an increase in gearing. Household debt is now equivalent to 38 per cent of net worth, up from 36.7 per cent a year ago.

The average net worth of New Zealand households is $171,000, up $14,000 or 9 per cent on a year ago.

For most people, most years, rises in the market value of their house represents an unrealised paper gain.

But if they are confident the rise is permanent they are inclined to spend some portion of it, even if they have to borrow to do so.

A study by Reserve Bank economist Dr Leslie Hull last year estimated the wealth effect from housing in New Zealand. For every $1 increase in housing wealth, people are willing to spend an extra 3c to 7c.

She also found the effect is strongest after a lag of about a year. Applying those results to the $27 billion increase in housing wealth over the past June suggests a boost to consumption in the year ahead of between $800 million and $1.9 billion.