This new snapshot of our retirement indebtedness suggests this is a more deep-seated problem than our failure to tax capital gains.
A large proportion of New Zealanders are irretrievably dependent on their property values to fund their retirement, which makes any tax reform politically fraught. Now there’s a new kicker: it turns out fewer and fewer of us will have even paid for those properties by the time we retire.
Fitch Ratings reports that this country has one of the world’s highest household debt levels, at 93% of GDP.
It’s estimated 70% of homeowners are mortgage-free, which sounds a solid number. But the trend is steeply in the wrong direction. Of those aged 50-64, only 38% are mortgage-free, according to the Commission for Financial Capability, which says the number entering retirement with freehold homes has been declining for two decades, with no sign of a turnaround.
Factor in the stalling market, with Auckland’s prices down 0.9% in the past year, and we may have to add negative equity into the near horizon.
The heart of the problem seems to be the idea that took hold in the late 1980s and 90s that you could “ride” your mortgage up and down, using it to fund consumption spending along the way – rather as governments “ride” the budget deficit to avert austerity and slumps. We’ve felt freer to upgrade the car, have a holiday or renovate using debt rather than savings. “Put it on the house” and capital gains would take care of it over time.
For some, it did. Mortgage interest and the price of consumer goods have plummeted over time. A bit of judicious extra borrowing, if well timed, might have done some borrowers little long-term financial damage. But the statistics suggest otherwise. Loans have seemed so affordable, and consumer goods so increasingly accessible, that the “on-the-house” habit has done further structural damage to the economy. It has three highly undesirable features: low to stalled productivity, very low income growth and consumptive spending bounding ahead.
This new snapshot of our retirement indebtedness suggests this is a more deep-seated problem than our failure to tax capital gains. It’s about how we’re spending – and perhaps more importantly, why we’re spending. The internet has made every product imaginable deliverable to our doors – amped up by such marketing constructs as Black Friday – and ambient anxiety-fuelling over “not missing out” at Easter, Christmas, Halloween and the like have stoked our spending to ever-higher records. Popular TV home-renovation contests and “property porn” create a chronic sense of FOMO, with faddy edicts: one must refit one’s kitchen and bathroom every five years; last year’s wallpaper is now dated.
The growing trend towards consumer “fasting” – buy-nothing months and decluttering – shows a dawning recognition that consumptive spending isn’t making us as happy as we once thought, and could be a destructive habit. Social media’s clever algorithms stalking us with personally tailored advertising may have had the welcome perverse effect of making us more aware of how susceptible we are to media manipulation.
Although those pushing back are still very much in the minority, there are signs of resistance going mainstream. Consumers increasingly resent and avoid disposable plastic. The UK Government is actively canvassing ways to penalise “fast fashion” – super-cheap clothing that is mostly added to landfill within a year of purchase. Camping grounds and festival grounds here this summer deplored the mass-jettisoning of cheap camping gear. Even media-darling My Food Bag’s promotional beach balls were widely criticised in the media for littering.
In time, it may become a social faux pas to buy cheap and disposable if one can possibly afford a durable item. And, as tiresome as the virtue-signalling of those going “shop-free” for a month or “second-hand for a year” may seem, it’s still a worthy thing that they’re signalling.
The fact that charity shops are being hopelessly overloaded with unsaleable dumpings from nouveau declutterers, thanks to TV’s Tidying Up with Marie Kondo, suggests we’ve reached Peak Stuff. The underlying phenomenon of people failing to pay off their mortgages within their working lives shows the true cost of that stuff.
This editorial was first published in the March 16, 2019 issue of the New Zealand Listener.