7  Concluding remarks

This paper examined household net wealth in New Zealand and other OECD countries. It was partly motivated by the limitations in the measurement of saving rates from the National Accounts.[22] The trend in the household saving rate from the National Accounts overall has been downward and negative over the last few years. The implied savings rate from households’ balance sheets appears to have shifted to a lower level following the deregulation of financial markets. However, it remains significantly higher than the flow measure. It also follows business cycle fluctuations more closely than the National Accounts measure, in line with consumption smoothing models of saving behaviour.

The flow measure of saving was cumulated in order to construct a proxy measure for household wealth. In recent years the flow measure has been negative, indicating that households were accumulating liabilities at a rate faster than their asset accumulation. The flow measure of saving understates the true household saving rate in part because of the manner in which consumption expenditures are defined. Focussing on changes in household net wealth as a measure of household saving has the advantage that it incorporates expected future earnings through asset prices. However, household net wealth, and hence the stock measure of saving, is also likely to be understated. This is because some loans by households are in effect loans to small businesses and should not appear on households’ balance sheets. Moreover, direct investment in forestry and farms and real assets other than housing are not captured in the household net wealth data.

The analysis in this paper showed that the ratio of real assets to disposable income in New Zealand is close to OECD levels. One difference, however, is that households’ financial net wealth as a proportion of disposable income has been falling in New Zealand since the late 1980s, whereas it has been rising in other OECD countries.

Residential property is an important component of households’ balance sheets, both on the asset side and the liability side. Housing markets differ across countries, in part because of variations in the degree of financial deregulation. The analysis showed that owner occupation and mortgage debt to household disposable income rates tend to be lower in countries where mortgage markets are less competitive than in countries where liberalisation has largely been completed.

The focus in this paper was on household net wealth, including individuals and unincorporated businesses, although it may actually be more accurate to assess private net wealth rather than household net wealth. The trend towards incorporation in many countries over recent years has meant that some of the saving that was previously measured as household saving would now be measured as business sector saving. For these reasons, the Australian Treasury recently constructed a measure of private net wealth that includes household and business net wealth (Department of the Treasury 2000). Such a measure of private net wealth is currently not available for New Zealand. Its construction and analysis is left for future work.