Property investment is still one of the easiest pathways to wealth for many working middle-class Kiwis. Photo / Chris Tarpey
OPINION
Welcome to Inside Economics. Every week, I take a deeper dive into some of the more left-field economic news you may have missed. To sign up for my weekly newsletter, click here. If you have a burning question about the quirks or intricacies of economics send it to liam.dann@nzherald.co.nz or leave a message in the comments section.
Q: These days there is considerable discussion about moving ‘investors’ away from property to the ‘productive end of the economy’ However, I have no idea what an investment in the ‘productive end of the economy’ means.
We have tried shares with some success but also with some failures — like Brierley’s. It would be a great idea if you could write a financial article ‘naming’ maybe a dozen options for investing in ‘the productive end of the economy’ that we ‘mum and dad’ investors could then consider instead of property
Kind regards
David H
A: This a great question.
I need to start by saying that I’m no investment advisor. It wouldn’t be appropriate for me to give specific investment advice but I’d like to offer some thoughts and perhaps they will help frame up your decision-making in the future.
First of all, what do economists mean by: ‘the productive end of the economy’?
I think we’d broadly describe sectors that produce tangible goods and services as productive.
They create wealth by adding something new to the economy — hopefully improving it.
That’s in contrast to sectors that involve speculative investment where wealth is created simply by trading on a perceived market value.
There are plenty of speculative investments we could talk about, such as currency, gold, Bitcoin or shares in companies that don’t seem to produce anything or make any profits.
But, as you point out, property investment gets all the attention in New Zealand.
I know from experience that whenever economists or commentators describe property as non-productive it annoys a lot of people who work in that sector.
So it’s important to note that the construction sector is productive as are the manufacturing, retail and service sectors that contribute to it.
But investing in pre-existing property isn’t productive.
A house that was worth $100,000 in 1985, $500,000 in 2005 and $1 million in 2025 might have made an investor (or several investors) a lot of money over the years. But it still just houses one family.
It hasn’t added anything new and tangible to the economy.
Of course, any money the investor makes when they sell flows into other things and can boost GDP.
But where has the new wealth come from? Is it really a net gain for the economy?
For the investor to cash out somebody else had to pay 10 times what the house was worth 40 years ago.
More than likely the purchase will be funded with a loan from a bank, which means that the new buyer will have to pay a lot of interest above and beyond the initial price.
And if it’s an Australian bank a good percentage of that interest will head offshore as profits adding to the nation’s current account deficit.
So wouldn’t it be great if Kiwis invested in the productive end of the economy instead?
Before I look at the options (or lack of them) for doing that, there’s one more point I’d like to make to head off emails from angry property investors.
It’s not their fault.
Property investment remains one of the easiest and most straightforward pathways to wealth for many working middle-class Kiwis.
I think it is entirely reasonable for people to invest in the areas that offer the best return at the right level of risk for their personal circumstances.
Expecting people to invest in certain ways for the sake of the national interest is unrealistic.
The debate about encouraging more productive investment should be focused on Government policy, not individuals.
We need policymakers to step back and ensure that regulatory and tax policy is encouraging the kind of investment that best helps the economy.
Of course, that’s where it gets political. Those on the right typically don’t trust the Government to do this efficiently and want it to keep stepping back until it’s barely involved.
On the left, there are arguments for capital gains and wealth taxes.
I tend to prefer the idea of offering tax breaks and incentives for those investing in the productive end of the economy.
It seems less punitive and easier to introduce.
We do need to invest more in commercial research and development in this country. So why not incentivise more private investment with tax breaks rather than taking the risk directly with publically funding?
It is a bit of a chicken and egg scenario when it comes to investing and encouraging the development of enough good companies to invest in.
I’m sure my friends in the financial sector would like me to make the case for sharemarket investing.
But should point out that is a mixed bag when it comes to the productivity equation.
If a company needs capital to expand then sharemarkets can greatly help with productivity but there’s also plenty of speculation going on in the markets.
It’s also the case that some of the most productive investing involves helping commercialise new technology and start-ups. That can be too risky for most ordinary savers.
It sounds like you’ve dipped your toes into the sharemarket by buying into individual companies and have been burned.
You certainly are in good company as many Kiwis lost money on Brieley Investment.
I won’t offer specific advice but I would say that there are many managed funds which offer ways to get involved while spreading the risk.
Some big local players now have investment funds which allow ordinary savers to get exposure to unlisted companies, which would otherwise be only available to wealthy private equity and venture capital investors.
You can also directly invest in Exchange Traded Funds (ETFs) which track specific industry sectors — such as agriculture, forestry or technology.
I’d remind anyone keen to get involved that it’s important to do some research and get some advice from a qualified financial advisor.
It’s no revelation to say New Zealand has a productivity problem.
Research by the Productivity Commission (for the year to March 2020) showed New Zealanders work 34.2 hours a week, compared with 31.9 hours in other OECD countries. And New Zealanders produced less, achieving only $68 of output an hour, compared with $85 in other OECD countries.
According to the Treasury, that’s worsened since the pandemic and it’s making forecasts for the Crown accounts worse as the tax take is coming in lower than expected.
There are many possible reasons for this. Some people argue the Kiwi obsession with property (as per above) goes to the core. But the debate is far from settled.
Some highlight issues with our education system, and our infrastructure and, some argue, a cultural outlook that doesn’t encourage entrepreneurship.
Others point out that social inequality is a big drain on New Zealand’s productivity. Consider how many people are excluded from contributing to economic growth because they are poor and lack opportunity.
We can debate big structural issues around productivity or we can take a look at the productivity of Kiwi workers on an individual basis.
Are men or women more productive?
In 2018 the Harvard Business Review published a survey that allowed people to rate their own productivity
It got answers from almost 20,000 respondents across six continents. Roughly half were residents of North America; another 21% were residents of Europe and 19% were residents of Asia. The remaining 10% was comprised of residents (in descending order) from Australia, South America, and Africa.
The survey found three general patterns.
First, working longer hours does not necessarily mean higher personal productivity.
We’ve seen that in New Zealand, where hours worked has risen over the decades but our productivity rate hasn’t.
We are all familiar with the saying: we need to work smarter, not harder.
A second and more surprising finding was that age and seniority were highly correlated with personal productivity.
Older and more senior professionals recorded higher scores than younger and more junior colleagues, the HBR reported.
That makes sense (although as an older worker, I would say that).
Those who’ve been in a job for a long time know the pathways (or shortcuts) to get things done quickly.
We might struggle with the latest IT upgrades but experience counts for something.
The third and most interesting finding was that while overall productivity scores of male and female professionals were almost the same, there “were gender differences on particular habits that promote personal productivity”.
“More specifically, we found that professionals with the highest productivity scores tended to do well on the same clusters of habits,” the HBR said.
Women scored higher when it came to running effective meetings.
“Women were more likely than men to send out an agenda in advance, keep meetings to less than 90 minutes, and finish meetings with an agreement on next steps,” the HBR said.
Women were also more likely to say that they prepared their calendars the night before and responded promptly to important emails.
By contrast, men did particularly well when it came to coping with high message volume — not looking at their emails too frequently and skipping over messages of low value.
Men were more likely than women to report keeping free slots in their daily schedules, getting quickly to the final product, and composing outlines before writing memos, the survey found.
Fascinating stuff, although I’m not sure what to make of all that without getting myself in trouble, so I’ll leave the productivity challenge there for this week.
The next piece of scheduled news on the economic calendar is the labour market data from Stats NZ due next Wednesday (Feb 5). Economists will be watching closely to see how the unemployment rate is tracking.
In a note on Monday, BNZ senior economist Doug Steel said he was expecting to see the rate push higher to 5.1%, “assuming the participation rate nudges a touch lower”.
Economists are picking it will peak at about 5.5% later this year. Let’s hope it doesn’t go any higher than that before the fair winds of lower interest rates and a return to economic growth come to the rescue.
But as Steel notes, the labour market tends to lag the rest of the economy so there will be bad news around job losses to come for several more months.
A week looks like a long time on the policy front with Donald Trump in full flight, shaking up the US economy.
Last week Trump said he’d slap a 10% tariff on China from February 1, but markets don’t seem to be taking that too seriously.
He’s also threatened 25% tariffs on Canada and Mexico.
But Trump has requested a full review of US trade policy and potential tariffs by April, which sounds a bit less dramatic than some of the stuff he says in speeches.
For now, Trump’s tariff plan looks less like a broad economic policy and more like a blunt diplomatic weapon.
We saw that over the weekend when the US threatened 25% tariffs on Colombia after it refused to take a plane full of illegal immigrants. There was a rapid backdown from Colombia and the tariffs were avoided.
All of this matters not just because trade wars could eventually involve New Zealand but because it has an impact on US inflation and interest rate expectations.
That flows around the world through currency values and could change the equations for our Reserve Bank (which makes its next OCR call on February 19).
Also what happens to US equity markets has a huge bearing on the value of our KiwiSaver accounts.
This week’s market panic about Chinese AI notwithstanding, Trump is doing everything he can to pump up the US tech sector, which has underpinned Wall Street’s growth in recent years.
NZ Herald tech editor Chris Keall summarised the flurry of policy changes here: Technology Insider
As ASB chief economist Nick Tuffley put it this week:
“Tracking Donald Trump’s initial days as President feels a bit like keeping a very active diary of a hyperexcited high-schooler.”
Meanwhile, the Senate has confirmed Trump’s pick for Treasury Secretary (effectively his Finance Minister).
Scott Bessent is a Wall Street hedge fund manager who worked as chief investment officer for George Soros until 2015. That’s a little ironic given Soros’ role as a leader of a liberal globalist conspiracy in the Maga narrative.
Bessent has made the right sort of pro-Trump, anti-establishment noises in recent years. But he’s still considered a more conventional pick than the likes of Robert Kennedy Jr and Peter Hegseth, in health and defence respectively. Here’s hoping.
Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003. To sign up to my weekly newsletter, click on your user profile at nzherald.co.nz and select “My newsletters”. For a step-by-step guide, click here. If you have a burning question about the quirks or intricacies of economics send it to liam.dann@nzherald.co.nz or leave a message in the comments section.
Biggest NZ Westfield mall got 12.7 million visits last year, down from 13 million in 2023.