Households losing wealth as debt keeps going up
New Zealanders have become poorer over the past year.
But it is no cause for alarm just yet, at least for the country's stability, even as household debt keeps going up.
A report from the Treasury on Monday says household debt relative to income has this year gone above the level it was just before and during the global financial crisis, to 165 per cent.
This figure has steadily increased since early 2012, but because the value of household assets had been growing at a quicker rate, overall financial wealth had also increased.
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The increases in wealth were mostly driven by house price increases.
But the Treasury said Reserve Bank statistics released last month showed the net financial wealth of households, measured as household assets less liabilities, had been declining over the past year.
A decrease in the value of investments in things such as businesses has driven the decrease in household wealth, the report says.
This is of little concern at the moment, however, the risks will increase if the decline in wealth continues or accelerates.
"At an aggregate level there are reasons to believe that debt levels remain manageable, albeit with debt levels being influenced by house price developments," the report says.
"At an individual level there are likely to be subgroups of households that are more exposed, with high debt levels increasing households' vulnerability to shocks in income, employment and interest rates."
Overall net wealth, measured as net financial wealth plus the value of housing and land, is still going up.
The report says any risk to those who are more exposed is largely offset because it is unlikely interest rates will increase over the next few years.
In July, economists warned surging household debt levels would create a lengthy debt hangover which could hit growth for years to come.
Westpac senior economist Satish Ranchhod said New Zealand's debt levels were climbing rapidly, while independent economist Shamubeel Eaqub said households were building up major debt piles with the help of "complicit" retail banks.
"There is no precedent that New Zealand has [for debt] relative to the size of our economy, relative to our incomes, you name it," Eaqub said.
"So the risk is bigger of a longer hangover."