Opinion & Analysis
OPINION: If investing were a recipe, property would be lasagne. It's the dish everyone thinks they know how to make and its basic ingredients are standard, with numerous small variations.
Even so, most of us are probably not that good at it and success is often as much a matter of luck as judgment.
It's one thing to tap into soaring house prices, it's another to figure out when the soaring will stop, as it surely must. Or at least, it should.
Chalkie has been checking out some numbers and it looks like housing's role in the economy has risen significantly since the turn of the century.
At some point that trend must reach its limit, but when?
Here are the numbers.
Gross domestic product, a measure of economic activity, was $112 billion in the year to March 2000. In the year to March 2014 it was $227b, an increase of 100 per cent.
The figures are production-based and not adjusted for inflation.
Over the same period, the total assets of banks rose 158 per cent to $418b, according to figures from the Reserve Bank.
Those assets are mainly loans to people and businesses.
Looking at just the mortgage part of those assets, in March 2000 bank mortgage lending was $61b; in March 2014 it was $189b, an increase of 210 per cent.
Slicing the numbers another way, in 2000 mortgage loans totalled 54 per cent of GDP; in 2014 they were 83 per cent.
Chalkie reckons this is not necessarily a good thing.
Of course, it could be that our houses just got better. If we moved from houses made of straw to houses made of sticks, it's likely we'd be borrowing more to build them.
There may well be an element of that going on. Comparing the mortgage to GDP percentage in New Zealand with that in other countries suggests it is correlated with economic wealth to some extent. Some of the lowest percentages - below 10 per cent - are in former Soviet Union countries or the third world.
The data compiled by Helgi Library from OECD figures are only up to 2012, but they show the highest percentages out of 49 countries were in the Netherlands, Denmark, Australia and New Zealand, in that order.
The United States had a ratio of 60 per cent, down from its financial crisis-driven peak of about 74 per cent.
Does that mean New Zealand is the fourth-richest country in the world and richer than the US? It can sometimes feel better than that on a good day, but Chalkie reckons the correlation is not so close.
However, what it probably does mean is that we collectively spend more of our money on housing than most, and a lot more than we were spending a decade ago.
This has been great for banks.
The more we borrow to buy houses the more money they make. Over the last 14 years, banks have grown their net profits by an average of 12 per cent a year.
Chalkie has no problem with banks making money - they provide a valuable service after all. Nor can they be blamed for taking advantage of our willingness to pay ever-higher prices for property.
Or at least, not completely.
As economist Shamubeel Eaqub remarked to Chalkie the other day, the banks have been making full use of the huge amount of money being pumped into the world by central banks, but they can lend money only if people want to borrow it.
"It's a chicken and egg situation," he says. "Which came first?"
Another way to look at it is that it takes two to tango.
If we want to waste increasing amounts of our money pumping up bank profits, more fool us. They are only too happy to help.
In Australia this week, economist Jeremy Lawson, former senior economist at the Reserve Bank of Australia and now global chief economist of pensions giant Standard Life, reportedly estimated that country's house prices were 20 per cent to 30 per cent overvalued.
House prices had been pushed too high by low interest rates and a reluctance to use other policy tools to control lending, he said.
Here in New Zealand the Reserve Bank has been less coy, having placed limits on high loan-to-value loan ratios.
There has been some bleating about this but Chalkie reckons it was a good move. The dangers of allowing mortgage lending to outpace economic growth increase the longer the trend continues.
Lest we become too alarmed, the good news is the numbers appeared to be moving in a less risky direction recently.
The ratio of mortgage debt to GDP peaked at 87 per cent in 2010 and has since eased a tad.
In the last four years GDP growth has exceeded the growth in bank assets and mortgage debt, which Chalkie reckons is a much healthier state of affairs.
There is a way to go, but it will surely be better for both the banks and the economy to be less housing-focused.
Meanwhile the amount of cheap money that has been available for investment is causing concern in the sharemarket. Alive for the first signs of tighter money supplies, it seems the big international investment firms have been reducing their exposure to small companies in favour of big, liquid stocks.
One analyst told Chalkie last week: "They want to be quick on their feet for when the world explodes."
Sharemarket people often use colourful language like that, but it's still a scary thought.
One of these days the investment world should learn the difference between sustainable growth and an asset bubble fuelled by cheap money.
The best chefs rarely serve lasagne.
Chalkie is written by Tim Hunter, deputy editor of Fairfax Business Bureau.