Executive Summary
This paper provides estimates for different New Zealand household types of their welfare changes between 2006/07 and 2009/10. This is an interesting period to study as it includes the 2008/09 recession. The metrics used to measure welfare are income, expenditure and equivalent variation. The equivalent variation measures the welfare change owing to price changes.
Households are divided into 12 types (or 'clusters') based on applying the K-harmonic means clustering technique to the 2006/07 Household Economic Survey (HES). Our clustering aims to group households in the same cluster that are more similar to each other than they are to households in different clusters on a number of dimensions. We use 9 different demographic and economic dimensions. Owing to the absence of longitudinal data, 'similar' households were then found in the 2009/10 HES dataset by clustering the 2009/10 dataset using the 2006/07 cluster centres.
Our key findings are as follows. First, the estimated welfare lost owing to price changes is substantially higher for households in the low income groups, households with children and households who rent. Second, those in the low income groups had strong increases in their expenditure; further these expenditure welfare gains were larger than the welfare lost owing to price changes.
Other interesting results are there was a shift towards renting from home ownership in younger age groups. This could reflect a reluctance to take on debt in the face of increased uncertainty by younger households, or alternatively, the tightening of lending standards by banks. Second, highly geared households and households with large mortgage payments relative to income have reduced their durable expenditure. This may indicate a desire to reduce debt given falling house prices and less certain labour market prospects. Consistent with the Household Labour Force Survey we find older households increased their participation in the workforce. Further our analysis found that working or working part-time older households had much stronger disposable income growth than those that have fully retired.
