KEY POINTS:
The deep-rooted conviction that the best way to accumulate wealth for old age is not to save money but to borrow money and buy houses is taking an increasing toll on the economy.
By one measure the economy grew 4 per cent last year.
That was the increase in nominal gross domestic product.
Most of that was inflation, however. In real terms GDP grew 1.5 per cent.
But the population grew as well. In per capita terms real GDP grew only 0.5 per cent. That was almost the most anaemic increase for 7 years; only the 0.4 per cent recorded for the year ended September 2006 was weaker.
And it gets worse still if we look not at gross domestic product - what we produce - but gross national product or national disposable income as they now call it, which is the volume of goods and services New Zealand residents have command over.
Real gross national disposable income per capita actually shrank 0.4 per cent last year. By that measure we went backwards.
It reflects the fact that a large chunk of what we produce does not belong to us but to the foreign suppliers of capital and credit upon whom we utterly rely.
Real gross national disposable income starts with GDP but adjusts it for international transfers, changes in the terms of trade and, crucially, for the net investment income deficit.
It is that last one that does the damage.
It is the cost of servicing the country's international debt and the profits of foreign-owned companies, net of the returns to New Zealand investment overseas. Last year the net investment income deficit was more than $12 billion which essentially means an entire month's worth of the output of the economy belonged not to New Zealanders but to the foreign investors and savers who have funded the gap, year after year, between what we earn and what we spend overseas.
That gap, the current account deficit, is also the extent to which national investment exceeds national savings.
In 2006 the shortfall was $14.4 billion, or 9.2 per cent of GDP, continuing a string of deficits that are not so much gaps as chasms.
They can be laid squarely at the feet of the household sector.
The business sector and the Government have been making positive contributions to national savings, while households have been collectively "dis-saving", spending more than their incomes.
How much more is a matter of some dispute.
The official measure, based on Statistics New Zealand's household income and outlay account, puts the household savings rate at a jaw-dropping minus 17.5 per cent for the year to March 2006. In other words households spent $117.50 for every $100 of disposable income.
Such a measure faces the problem that it is the difference between two big numbers - household incomes and household spending. Any errors in calculating those big numbers, for example as the result of the increasing popularity of family trusts, accumulates in the difference between them.
An alternative measure based on household balance sheet data has been developed by Reserve Bank economists Bernard Hodgetts, Phil Briggs and Mark Smith. Basically it estimates savings as the flows into investment holdings minus increases in borrowing.
It is not as strongly negative as the official measure, but it also shows dis-saving in recent years and a deteriorating trend.
They offer several possible reasons for this trend.
They include easier access to credit and a trend towards smaller households increasing housing costs.
More benign labour market conditions have made people willing to carry more debt as they become less concerned about being out of work for very long.
Another factor behind the deteriorating savings rate is likely to be the housing boom.
Between 2003 and 2005 inclusive households' net worth rose steeply, by 65 per cent or $208 billion.
The increase was almost entirely explained ($187 billion) by an increase in the value of the housing stock, even after allowing for the increase in mortgage debt over the same three years.
Those strong capital gains for homeowners create a "wealth effect" encouraging them to spend more, whether that means borrowing to do so or just saving less than they otherwise would have.
But there are losers as well as winners in all this.
With the wealth effect turbocharging demand, inflation pressures have proven persistent, hurting consumers, borrowers (as the Reserve Bank raises interests rates) and exporters (as foreign investors buy New Zealand dollars to access those high interests rates).
As much of the borrowing underpinning higher house prices is funded overseas, from Japanese housewives and Belgian dentists, the country's international debt rises, from our necks to our chins to our nostrils.
Converting their yen and euros into New Zealand dollars puts upward pressure on the exchange rate, hammering exporters.
And the high level of international debt makes us vulnerable to higher world interest rates or to anything that hurts international investor sentiment towards New Zealand.
But the worst effects of this house price inflation may be the social ones.
As housing affordability deteriorates it raises questions about the long-term effects on birth rates and emigration rates. Does the first rung of the housing ladder start to look lower in some other countries?
And for couples who make it on to the ladder here, does the cost of servicing the mortgage and other expenses push back, or scale back, plans for children?
And in the long run if home ownership rates decline it would undermine one of the fundamental assumptions underpinning New Zealand Superannuation, the expectation that by the time people retire they at least own the roof over their heads.
Another concern is how sustainable in the long term are the demographic drivers behind the apparently inexorable rise in house prices.
Consider Southland, where house prices generally still begin with a "1". That is the effect of years, decades indeed, of slightly adverse demographics.
The ageing of the population may have a similar effect if the babyboomers who are now competing with each other to buy and bidding house prices up eventually want to release equity, trade down, and create a buyer's market on the way down.
