Yes we have borrowed a lot to buy houses – but if people in New Zealand have been borrowing to buy houses off each other, why does that increase our net international debt position? Someone must have been paid a good sum for their properties – what has happened to them?
This fact makes me nervous about claims that our current account deficit stems from “borrowing to buy houses off each other”. I have heard this claim a lot – and I don’t think it makes much sense.
In the US they borrowed to build “too many” houses – but we didn’t even do that here in New Zealand. So what have we done with our borrowing:
- Invested in a lot of plant and machinery goods which increases our productive capacity,
- Purchased consumption imports which are tasty.
Ok, we can have opinions about those things and whether we believe they are good (I do, outside of the possibility that households mistook recent house price gains for wealth – which was unfortunate but impossible to prevent in an appropriate way). And the housing bubble could have contributed to higher consumption imports by making home owners feel wealthier, sure. But I don’t see how borrowing to pay other New Zealander’s for their existing houses increases our national debt level …