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Institutional Sector Accounts and the Residential Property Boom

Chase O’Brien
Development Environment Satellites and Strategy
Statistics New Zealand
P O Box 2922, Wellington, New Zealand

info@stats.govt.nz 

Abstract

Institutional sector accounts (ISA) were officially released for the first time in New Zealand in December 2010. ISA for all sectors were released for 1999–2008 (March years). A further release in December 2011 updated the tables to 2009. The general government and household sectors were released up to the March 2011 year. These tables are part of the system of national accounts (SNA).

During the 2000s, there was an investment boom in residential property. This paper discusses how this boom is reflected in the ISA. The ISA include financial flows that are not included in other national accounts macro-economic series, and so provide a more complete economic picture of the impact of events such as a property boom. In the absence of comprehensive official balance sheets, the Reserve Bank estimates of residential housing value have been used to provide more complete analysis.

New Zealand’s residential property boom peaked in overall housing value in the March 2008 year. Associated with increased housing value was an increase in mortgage debt levels, leading to increased payments of mortgage interest by households and landlords. These increased mortgage payments contributed to weak household saving over the period.

Incorporating an upgraded housing interest series in the December 2010 ISA led to a revised allocation of mortgage interest between households and residential landlords. The revised allocation to residential property operators caused ‘negative income’ estimates for this activity in recent years. Similar negative income results were also found in independent IRD data. This negative income has been adjusted for in the ISA. This adjustment was not made in the previous unofficial household accounts, and the change is one of the reasons why revised household saving is at a higher level than in the previous unofficial estimates.

Under the SNA framework, residential property ownership has a negative impact on household saving, from mortgage payments, intermediate consumption and taxes on production. When there is a property boom, the impact on household saving will generally be negative due to higher mortgage payments in particular. The available data indicates that the residential property boom in the 2000s had a very positive impact on household net worth, more than offsetting the negative contribution towards saving.

pdf icon.  Institutional Sector Accounts and the Residential Property Boom (PDF, 15 pages, 227 kb)

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