New Zealand's big bet on China

To many particularly Northern Hemisphere analysts, New Zealand’s recent impressive rate of economic expansion has been led by a mixture of necessary earthquake reconstruction and what some tend to think of as being yet “another” housing market boom. Certainly, the unfortunately all-too-necessary Canterbury reconstruction effort is now approaching what will likely prove to be its peak rate and in so doing it is adding a significant amount to Gross Domestic Product, although as to whether it is adding much to Net National Product is less certain. 

Replacing a damaged capital stock will lift GDP but not necessarily a country’s “wealth” (although in this regard NZ is perhaps fortunate that many of its insurers were based “overseas”). 

Similarly, there is no doubt that several parts of the NZ property market have been very strong until recently (particularly Auckland and Christchurch) but even if we include the Canterbury rebuild, gross investment in the residential housing stock can only account for around a quarter of the 4% rise in total GDP that has occurred since June 2012.

Clearly, there has been a lot more to NZ’s recent growth spurt than simply construction activity and in our experience many residents have tended to view the rise in house prices that has occurred over recent years as representing an increase in their effective cost of living rather than an excuse to spend more in the shops. We have long been sceptical that “wealth effects” from house price gains matter as much in the 2010s as they did in the boom years of the 1990s.