But I suspect that the latter is a weaker effect, given that finance companies focused on consumer finance (rather than property) have done much better in the finance company debacle than the property focused finance companies.

The building cost argument has to be seen in the context of land prices… sure there has been inflation in building costs on a square meter basis, but the cost of land has been a far greater driver of house price inflation…

I have a feeling we’ve covered this before… you can increase net debt if you hold more leverage over the same assets. Which we did, because it was the tax-efficient thing to do in the 2000s.

If you’re suggesting over-investment in housing over the course of several decades though…. ehhhhh, maybe. The quality of New Zealand’s housing stock is pretty poor; you could just as well say that we came from a point of under-investment.

“And if we were simply trading existing houses amongst ourselves in the last few years of the boom, then it follows that we weren’t ‘demanding’ bigger houses.”

That is true, but … if we were simply trading houses it should have had an impact on our net debt position per see, only on our gross debt. The size of housing has pushed up substantially over the past two decades, and I have to wonder if there hasn’t been a mis-match in terms of residential investment over part of this period.

I suspect the answer is that we did one, then the other, in the last decade. OTOH, housing construction peaked in 2004, which made sense given that building costs were spiralling up as much as sale prices were by that stage. So the debt that we were racking up from then on was used to bid up the prices of existing houses more than to pay for new ones. And if we were simply trading existing houses amongst ourselves in the last few years of the boom, then it follows that we weren’t ‘demanding’ bigger houses.