Recession, interest rates and the cost of living. Are boomers affected more?
New Zealanders are spending more of their money on essentials and less on luxuries. But one group of Kiwis has really gone backwards.
There’s plenty of talk regarding inflation figures, GDP growth and GDP per capita, but these are not what matter to most Kiwis.
One Herald reader commented on a GDP story on Thursday: “I don’t care what the figures say, it feels like a recession when even with a pay rise, I’m going backwards. I’ve cancelled/cut back on streaming, eating out (including takeaways), got a weekend/after-hours job mowing lawns, steak/fish is a rarity, mince is my new best friend... but I’m still worse off than I was three years ago.”
Stats NZ releases a survey of household spending every three years (or four, with Covid disruption). This data paints a broad picture of how Kiwis are responding to the economic situation.
In the last four years, average household spending has increased 18.4 per cent while average incomes increased 18.6 per cent. Inflation for the roughly comparable period was 19.3 per cent.
These top-level numbers don’t say much, but the spending categories start to paint a picture.
Spending on food increased by 28 per cent - much more than the overall increase in spending - while spending on recreation and culture essentially did not change. Inflation between June 2019 and June 2023 was 19.3 per cent. This means, loosely speaking, a spending increase of less than 20 per cent is going backwards.
Spending in the “other expenditure” category increased by 32 per cent. This category is mostly interest payments and savings. Contributions to savings increased by a massive 64 per cent. Happily, the average household spend on fines remained at essentially zero.
In 2019, on average food made up 17.3 per cent of Kiwi households’ spending. In 2023, this has risen 1.4 percentage points to 18.7 per cent. Stats NZ wealth and poverty statistics senior manager Victoria Treliving, whose teams produce the data from the Household Economic Survey, noted this was a “statistically significant” change that hadn’t previously been observed.
Other expenditure - also took more of Kiwi households’ money, while spending on recreation and culture dropped from 9.6 per cent of the total spend to 8.3 per cent.
The “housing and household utilities” category includes both the cost of rent and the cost of home ownership, and only about a third of New Zealand households have a mortgage. So how does the picture change when we look at rental households, homeowners with mortgages and homeowners without mortgages?
Stats NZ provided the Herald with spending data for these three groups. Treliving said, “What we’re seeing in the data is that between 2019 and 2023, for households that own their dwelling (including holding it in a trust), those that pay a mortgage saw a 21.2 per cent increase in total net household expenditure, whereas there was no significant change for those not paying a mortgage.” Rental households’ spending increased by 29.6 per cent.
About a third of households are mortgage-free. Very broadly speaking, these are households with one or two residents who are either near or at retirement age - the baby boomer generation.
Increases in spending for mortgage-free households are all less than inflation, and spending on recreation and culture dropped by a massive 20.7 per cent. This is closer to 40 per cent once inflation is taken into account.
Renting and mortgage-paying households increased their spending in all the major categories by levels similar to, or more than, inflation. Renters faced a 44 per cent increase in spending on food alongside a 31 per cent increase in transport costs. The housing and household utilities category, which includes rent, increased by 21 per cent for renters.
Mortgage-paying households’ biggest spending increase was a 44 per cent increase in “other expenditure”. Infometrics chief executive and principal economist Brad Olsen noted the survey period includes “enough of the interest rates changes to see the adjustment over time”, but doesn’t include the full impact of recent interest rate increases.
Spending on recreation and culture for both renting and mortgage-paying households essentially tracked inflation, suggesting these groups didn’t cut back on recreation, and certainly not by the amount mortgage-free households did.
Mortgage-free households, many of them owned by baby boomers, did not increase their spending between 2019 and 2023. Mortgage-paying households’ spending increased by 21.3 per cent, slightly more than inflation. Rental households’ spending increased 29.6 per cent, much more than inflation.
No change in the amount spent by mortgage-free households between June 2019 and June 2023 equates to a 16 per cent reduction in purchasing power. Olsen noted that raised an interesting question: “Were they forced to do that, or did they choose to do that?”
Income data from the same survey showed mortgage-free households’ income increased by 14 per cent between 2019 and 2023, rental households’ income rose by 21.7 per cent, and mortgage-paying households earned 19.6 per cent more.
Incomes for both rental and mortgage-paying households increased by more than inflation. Mortgage-free households’ income fell behind inflation. But rental households’ spending increased by more than their income increased. So who has the economy hit hardest?
Liam Dann takes a deeper dive into the week's economic news