Renters cut spending as housing costs outpace incomes
Expansionary monetary policy has helped drive up New Zealand house prices by 142% between 2005 and 2021, widening wellbeing gaps between renters and homeowners, according to new research from Motu Economic and Public Policy Research and Te Herenga Waka – Victoria University of Wellington.
The study links macroeconomic decisions – including low interest rates and quantitative easing – to growing disparities in financial and life satisfaction outcomes.
The research examines how property prices, rents, and tenure affect wellbeing. Using data from 84,732 households collected by Stats NZ between 2006 and 2024, the authors – Amelia Blamey, Arthur Grimes, and Norman Gemmell – found that inflationary macroeconomic policies have contributed to property price increases and, in turn, widened wellbeing differences between homeowners and renters.
Professor Arthur Grimes, Motu senior fellow and VUW academic, said that while rising property values can create a perceived wealth effect for those who own homes outright, they place other households at a disadvantage. “People who own their house outright, who don’t have a mortgage, to some extent they benefit a little bit from house prices at least in terms of a wealth effect. But relative to those people everyone else suffered,” he said in comments reported by RNZ.
The study shows that higher house prices are linked to lower non-housing expenditure among mortgaged homeowners and renters. A 10% rise in regional prices corresponds to spending declines of 1.3% for both mortgaged owners and private renters, and 3.9% for public renters, compared with outright owners. In contrast, outright homeowners’ non-housing spending increased 1.3%.
Researchers also found that renters’ subjective wellbeing dropped as prices rose. A 10% increase in house prices was associated with a 0.045-point decline in life satisfaction for both private and public renters, relative to homeowners. The study notes that this effect is roughly equivalent to a third of the reduction linked with being unemployed.
The authors identified expansionary monetary policy, including the Reserve Bank of New Zealand’s use of large-scale asset purchases and the Funding for Lending Programme during the COVID-19 period, as factors contributing to a 22% surge in house prices at the time.
According to Grimes, measures to improve wellbeing should include careful coordination between monetary and housing policy. “Good policy can ensure prosperity supports everyone, no matter their housing situation,” he said.
The paper concludes that property price increases, while beneficial to some, have contributed to uneven living standards, particularly affecting the 40% of New Zealanders who rent. The researchers said future policy decisions should account for the wellbeing effects of rising house prices and rents on households.
