7 Conclusion
This paper offers two contributions. One is to quantify welfare changes between 2006/07 and 2009/10 for different types of households in New Zealand; a period that included the 2008/09 recession. Given the data available, and given the effects of the recession are likely to be ongoing, we have only quantified some initial impacts. We highlighted one often overlooked channel through which there can be variations in welfare changes for different household types: price changes. We found those in the low income groups, those with children and/or those who rented had large welfare losses owing to price changes. The relatively large impact on low income groups and those with children reflects that goods that increased in price were generally a larger part of their expenditure bundle; whilst the larger welfare impact on renters versus homeowners reflects rents rising relative to mortgage rates. For those in lower income groups, these welfare losses owing to price changes were more than offset by strong expenditure growth. However it is intuitively clear that these groups are still worse off than if there had been no recession.
The second contribution of this paper is the application of clustering to form the household types. The advantage of clustering techniques is it allows us to follow household types through time that are more 'similar' on a number of dimensions than can be achieved with groups split on one hard dimension. This allows us to pick up differences within certain groups that may otherwise be missed. For example we created three older clusters – crudely one that is working, one that is working part-time and one were people are retired – and showed that in the time period studied the older working and part-time working clusters grew in number and experienced strong income growth, whilst the non-working one did not. By differentiating the younger age group by home ownership status, qualification and income level, our clusters showed that over the recession there was, first, a shift towards renting from home ownership in the younger age group – perhaps reflecting a reluctance to take on debt or tightening of lending standards by banks. Second, it was harder for younger qualified people to find high paying jobs. Third, we were able to show, by differentiating households on their exposure to the housing market, that highly geared households and households with large mortgage payments relative to income reduced their durable expenditure, perhaps, indicating a desire to reduce debt. WP13/05
