Modelling done by a Treasury analyst concludes that while house price growth increases the divide between people who do and don’t own houses, it decreases inequality overall.
The research "surprisingly" found a 10% increase in house prices decreases wealth inequality across the population.
This is because the wealth of the wealthiest is mostly comprised of non-housing assets. For most other homeowners, housing makes up most their wealth (see graph below).
So, a house price rise gives the homeowning middle class a chance to catch up with the wealthy.
Because the majority of households (around 64%) are homeowners, the narrowing of wealth inequality within this group is large enough for inequality across the population to fall a little.
But, when house prices rise, the wealth gap between homeowners and non-homeowners widens.
The modelling didn’t consider how changes in the prices of other assets, like shares or commercial property, affect inequality. It isolated house price inflation and considered its effects alone.
Impact of 10% price hike relatively small
The Treasury analyst concluded the decrease in inequality across the population is slightly larger than the increase in inequality between owners and non-owners. But the change is small in both instances.
The analyst used the Gini coefficient, which measures wealth inequality as the ratio of the mean wealth gap to twice the mean wealth. It ranges from 0% for complete equality to 100% for complete inequality.
A 10% rise in house prices saw the Gini coefficient across the population fall by 0.7 percentage points from 70.8% to 70.1%. Whereas it saw the Gini coefficient between owners and non-owners rise by 0.3 percentages points from 86.4% to 86.7%.
Larger price hikes = larger divide between haves and have-nots
The analyst said, “All our results look similar in direction when we simulate larger house price increases…
“The total population Gini coefficient moves towards a lower bound of 66.4%... Meanwhile, inequality between homeowners and non-owners moves slowly towards 100%...
“Our results also look similar if we increase housing and shares at the same time, or if we include commercial property with housing. In each case, we find that the relative gap between asset owners and non-owners widens.”
The bigger picture
The analyst recognised the importance of looking at the bigger picture.
They noted the generational divide between homeowners and non-homeowners, and the fact older people have become proportionally wealthier than younger people in recent years.
The analyst also recognised there is a strong correlation between non-homeownership and being in material hardship.
While around 6% of non-ownership households are in material hardship, only 1% of households that own homes are in material hardship.
Furthermore, non-owners are almost twice as likely as owners to have high housing costs.
The analyst concluded that recognising these factors is “relevant to any discussion on how increasing house prices may be making it harder for non-owners to get onto the first rung of the wealth ladder in New Zealand”.
Limitations
An important caveat is that this research used 2018 data, as this is the latest Household Economic Survey data available.
So, it isn’t yet possible to directly measure the impact of recent rampant house price inflation.
The analyst said, “This Insight thus takes a “scenario” approach - where the effect of scenarios for house price growth on the 2018 wealth distribution and, in turn, wealth inequality, is modelled while holding all else constant.
“Note that this is a highly stylised exercise and changes in the return to other assets (such as financial assets) will also have an important effect on inequality. It is thus useful to consider the findings of this work alongside other relevant research…”
104 Comments
- This "research" uses 2018 data
- The increase in "Non-Housing Wealth" in 2018 could reflect large home-deposit-savings
- Houses have at least doubled since 2018, has "Non-Housing Wealth"?
This is a bazar report to release in late 2021. To borrow a term; "Clown World".
Please NOTE:
MOST people in NZ DO NOT own a house, rather MOST people in NZ live in a 'household' that is owner-occupier.
This report is unbelievable nonsense. Can't believe Treasury spends money on such rubbish. So inequality is now comparing the Uber rich against to mildly rich. Must be time for Treasury to employ some B+ students not the current bunch of highly intelligent fools. Ditto for the RBNZ.
Considering 40% of NZers live paycheck to paycheck,
How do you get to 40%? ASB research shows only 1/3 of customers had at least $10,000 in savings and nearly half of customers have less than $1000 in savings.
So I think its fair to say that up to 65% are living paycheck to paycheck. All depends on your definitions.
Sure, the majority of people are "wealthier", but the people who don't have a house just got significantly poorer AND entrenches that wealth inequality as the poor spend (and therefore are taxed) a very high percentage of their wages. And that isn't a good thing when 40% of those are now intergenerationally poor, having no hope for their children to ever own. Because if you keep going down that road, they will, quite rightly, revolt.
All this shows is that there is a problem when looking at averages, or averages of averages, i.e. the limitations of the measuring stick.
If we had 10 people in the country that had 1 trillion each while everyone else had $2, then average wealth across everyone would be $2m, which is awesome and would make us a rich country. Right? RIGHT?
One of their conclusions is that the bubble helps mid-level wealth h'holds catch up to high-level wealth h'holds because HLW hold more non-housing assets. The logic doesn't hold with me.
Not sure how they come to this conclusion because non-housing assets have also been 'increasing in price'.
"The modelling didn’t consider how changes in the prices of other assets, like shares or commercial property, affect inequality. It isolated house price inflation and considered its effects alone."
Purely an intellectual exercise. Personally I'm skeptical that reducing inequality between the rich and the very rich makes up for increasing inequality between the poor and the rest. Hard to argue that more expensive houses leads to a better society overall.
Yes, I called for this right from the start. The RBNZ and finance minister thought they knew better than every other country doing the same and made a massive fiscal hole for us to back fill with higher taxes - which disproportionately effect the poor. And where did they put money instead? They handed it on a platter to the already wealthy. Plus with the added benefit of a financial system that is now incredibly fragile and even more over exposed to a housing downturn.
But there is no accountability and they enriched all their property owning mates, so they will actually feel proud of themselves for such fecklessness.
ok - I see how they measure it...
If I have $1 and you have $10, that's pretty unequal - I own 10% of what you have
If we are both given an extra $1 the inequality gap has reduced
In fact I only got $1 extra and you got an extra $9 ($2 versus $19) they would say the inequality gap has reduced - even though the $ gap between us has gone from $9 to $17 ...I am supposedly 'catching up' on you because I own more that 10% of what you have
And this is because $billionaires don't buy $billion dollar houses
If we were in foot race from Wellington to Auckland - and I had barely started, and you were already in Hamilton. If I were given a bicycle and you were given a car - luckily for me I would be seen to be catching up on you by this measure.
I stand 100% by the call to publish Treasury's analysis. It gives you an insight into what one of the most powerful agencies in the public sector is advising the Government. Publishing work completed by the public sector also gives the public a chance to scrutinise it and hold it to account.
I think publishing this tripe is valuable. It shows just how well Treasury live up to their reputation of being out of touch with reality, and why politicians do well to ignore the reports they produce. They are consistently wrong, academically thirty years out of step with the discipline. Only the most ardent Rogernomes need apply. Like having the Ministry of Health advised by medieval bloodletters...
Jeene it implies how government receiving advise is faulty as coming with vested biased agenda
OR
Is it that government is seeking advise that they want to hear.
Just see how Empathy Queen Jacinda and her knights use this report as gospel truth.
Corruption of different type and you did a great job in publishing the report as it highlights and exposes the entire system.
I suspect that it was meant to demonstrate that the government’s preferred measure of inequality “the Goni coefficient” is not fit for purpose. The pitfall demonstrated by treasury’s analysis will be common to all relative measures of inequality. Perhaps we should instead focus on material hardship instead of equality?
I just searched for that website, doesn't exist... :)
If you mean this website, what problem do you have with the article? I thought it was fine, it was concise and relayed some of the key findings and rationale.
I appreciated reading about it, otherwise I might not have known about the nonsense that it spouts.
When it comes to the puerile drivel that comes out of Wellington, nothing surprises me. This is getting close though.
What is really disturbing is that this will not be some random opinion published by a rogue staff member of Treasury. We can safely assume that it will have the full blessing of Treasury senior management and represent one of the main planks of their thinking. This is an absolutely clear demonstration that our government and departments are actively and deliberately encouraging the property ponzie that we have been experiencing for decades. It has been fairly obvious that this has been the case, based on the fact that it has gone on so long without any meaningful effort on behalf of our elected representatives to change the situation. But this is a clear declaration that this is what they are doing.
What the hell can the public do to peacefully bring change to this situation. Electing different governments makes absolutely no difference to the situation. It is sad to say but I am often reminded of the JF Kennedy quote "those that make peaceful change impossible, make violent revolution inevitable" The rise of gangs, alt-right and the anti-vaxers may well be the start of something like this.
The inevitable conclusion is that we need to introduce a 40 year mortgage term to assist those with difficulty hopping on to the property ladder. Doing so will help those segments of "have-nots" to partake in the prosperity of this country- leaving no one behind.
NZ prides itself being first in many things; the time has come again for NZ to shine- think win-win.
Higher house prices is not prosperity, its an increase in the cost of living.
More could share in the pleasure of owning houses if we turn the power of the RBNZ and government towards reducing house prices, with the happy side effect of reducing the cost of living. Now that would be something different to be proud of, rather than pouring more fuel onto a fire.
"Treasury's 'surprising' finding: While house price growth widens the gap between owners and nonowners, it decreases inequality overall"
Seriously ....Jeene.....lol
THEY TOO KNOWS THE REALITY AND ARE TRYING TO SPIN AS IS OBVIOUS.
How can they get away. Arguments can be manipulated to reach end result and who better than this people.
THIS PROVES THAT THESE PEOPLE ARE SO USED TO SUCH BLATANT LIES THAT DO NO THINK TWICE BEFORE OPENING THER MOUTH AS THEY KNOW THAT AVERAGE KIWI WILL KEEP MUM AND WILL NOT QUESTION TO EXPOSE THEM.
When I hear of inequality I think of this quote, from one member of the 24th Battalion.
“If the old world ends now with this war, as well it may, I have had visions and dreamed dreams of another New Zealand that might grow into the future on the foundations of the old. This country would have more people to share it. There would be more children in the sands and sunshine, more small farms, gardens and cottages. Girls would wear bright dresses, men would talk quietly together. Few would be rich, none would be poor. They would fill the land and make it a nation.”
I wonder what the board members of the rbnz think of such an idea??
Yeah, ironically the bloke that wrote that just fought a war to get rid of all that "drivel".
I did a google search of that quote though and found this which is an interesting read:
https://aucklanduniversitypress.co.nz/content/9781869407827.pdf
The sentiments of almost all Kiwi soldiers back then would have been very positive toward the British Empire, imperialism and British colonialism in general. Attitudes would have been practically Victorian. More so in WW1 but in WW2 too.
It always makes me chuckle come remembrance days, ANZAC Day, that the soldiers being remembered would no doubt be appalled by the society of today. Of course they were much less sophisticated than us.
I think it's worth noting. I'm in my 30s, and I remember as a child thinking visible homelessness was only something that happened overseas. I mean, there were about 3 homeless people in central Auckland, that everyone knew by sight. And now look. It's an undeniable moral decline for our country, even if we're not Brazil just yet.
I actually thought it appeared spot on with some points.
The 0.7 point change in the index while appearing small if you then add the fact it related to 2018 figures is probably right and figures to 2021 will obviously push it quite a bit further out. The index already sat in the 70% so we appear pretty damn unequal before the covid push.
This research is a great example of the mindless stupidity that masquerades as a study these days. Back when people actually knew stuff - even the village idiot probably could have come to the same conclusions based on pattens in the clouds.
If this is truely considered ‘surprising’ then we are in deep shite.
Let’s really celebrate that the moderately rich got richer - thereby making it less important that the poor are still just as poor. yay go us!
Looks like we don't rate very well by world standards:
https://financialpost.com/investing/david-rosenberg-canada-second-froth…
Here are some other correlations Treasury have found:
Ridiculous article. True in a metric sense but terribly tone deaf when considering the applied meaning of inequality in today’s world.
Housing has made many rich on paper, increasing their access to debt and opportunity to move and realise gains. Those without housing have suffered increased inequality as a result.
It’s the poor and struggling (esp. with recent inflation) subset of those without assets that are often portrayed when referencing inequality.
I suspect that it was meant to demonstrate that the government’s preferred measure of inequality “the Goni coefficient” is not quite what people think it is. The pitfall demonstrated by treasury’s analysis will likely be common to all relative measures of inequality. Perhaps we should focus on material hardship instead of equality?
Jenee you started the article : Modelling done by a Treasury analyst......
It is correct as modelling can be molded to give any shape and colour and this is exactly what Treasury has done - Pleasing their political bosses for brownie points.
Let us see how Jacinda and Robertson use it to prove their point as to how they have helped in reducing inequality by supporting growing house price and though treasury says 10% (Which part of the world are they, if they are talking in current context, should it not be in 40% rise, if not more), with brains that are in government their logical brain will come out with theory that if 10% helps in reducing inequality (Which is absurd but still) imaging what 50% growth will do, it will finish ineqaulity :)
Jeene, will be interesting, if in your next interaction with government you ask them for their comment on what Treasury just released - Will like to see how they manipulate or avoid.
If a headline indicates the gist of an article, both the editorial headline as well as the article headline are both logically contradictory and absurd. The choice of double negatives (which equal a positive) are designed to play tricks on your brain.
Could have stated "increases equality".
And that type of warped logical is truely Orwellian in my view. We are really being screwed with on a serious level.
Steve Keen thinks that studying economics at university is a waste of time as everything that they teach is just B/S. I think that he has a point. Listen here. https://www.youtube.com/watch?v=N6LkCt6si6k
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