November 5th, 2024

Combating New Zealand's economic woes through prudent policy and informed consumer choices

To ease housing affordability and construction cost pressures, government initiatives should include funding affordable housing projects, streamlining construction regulations, and addressing labour shortages through skills development and training programmes.

With rents increasing by 4.3% in the 12 months to March 2023, these policies would provide much-needed relief for many households.
With rents increasing by 4.3% in the 12 months to March 2023, these policies would provide much-needed relief for many households.

New Zealand is grappling with a series of interconnected economic challenges, including soaring inflation, increased debt servicing costs, and sector-specific pressures.

Inflation in New Zealand has surged to levels unseen since the 1990s, with the consumers price index rising by 6.7% in the 12 months to March 2023. Food has been the largest contributor, with a 22% increase in vegetable prices, 9.7% in ready-to-eat food, and 15% in milk, cheese, and eggs. Housing and household utilities follow closely, with new house construction costs rising by 11% in the same period. These figures underscore the urgency of implementing targeted policies and promoting responsible consumer behaviour.

The government must focus on supporting industries under strain, such as agriculture, where debt servicing costs have risen from $0.50 per kgMS in mid-2021 to $1.20 per kgMS. Tax incentives or low-interest loans for struggling businesses can help alleviate these pressures.

In the commercial property sector, which has experienced a 10 percentage point increase in closely monitored lending since mid-2021, the government should introduce measures to address falling land values and high debt servicing costs.

To ease housing affordability and construction cost pressures, government initiatives should include funding affordable housing projects, streamlining construction regulations, and addressing labour shortages through skills development and training programs. With rents increasing by 4.3% in the 12 months to March 2023, these policies would provide much-needed relief for many households.

The Reserve Bank of New Zealand must continue to balance its monetary policy, taking into account both the need to combat inflation and the potential impact on households and businesses. Around 25% of the current stock of mortgage lending originated during 2021, and about a fifth of this was to first home buyers, who might struggle to meet repayment obligations as they reprice onto higher rates. The central bank must tread carefully to maintain financial stability.

Consumers also play a crucial role in tackling New Zealand's economic challenges. By making informed choices and adapting their spending habits, they can contribute to a more resilient economy. Given that early-stage arrears have increased in recent months, financial literacy programmes and public information campaigns can empower consumers to make better-informed decisions and understand the broader implications of their choices.

Supporting local businesses and industries is another critical aspect of consumer responsibility. With the average interest costs per unit of production for the agriculture sector having more than doubled since mid-2021, buying from local farmers, retailers, and service providers can help sustain these businesses and promote economic recovery.

The economic challenges facing New Zealand require a multifaceted approach, incorporating both government intervention and individual action. By adopting data-driven policies, investing in infrastructure, and promoting informed consumer choices, the nation can overcome these difficulties and build a more sustainable and prosperous future. It is essential that all stakeholders – from policymakers to everyday consumers – recognise their role in this process and work together to address the economic issues at hand.