Middle to high spending households are now feeling the pain of inflation once suffered by those on lower incomes, with interest payments now the sharpest hurt
Soaring interest rates have leapt to the fore as the biggest contributor to household inflation, alongside petrol.
Fresh figures from Stats NZ reveal the rising costs for homeowners, with heavy impacts on low-income groups and people with big mortgages.
Unlike the oft-cited consumer price index (CPI), the household living-costs price indexes (HLPIs) factor interest payments into the equation, meaning they can more accurately depict how the people’s lives and livelihoods stand to be affected by inflation.
Katrina Dewbury, manager of pricing at Stats NZ, said the HLPI is used as an indicator that can provide more information about specific groups in the population, rather than CPI’s function of revealing more about New Zealand as a whole.
“Every household spends money differently, so the way that a household experiences inflation will be different,” she said. “A household with a mortgage will be more impacted by increases in mortgage rates, whereas if a household is renting, rent will be a lot more – and that goes for everything people spend money on.”
The HLPI release breaks the country down into groups, allowing researchers to see which groups will be most affected by the rising cost of living. This quarter’s figures show disproportionately larger increases in inflation experienced by high-expenditure households and Māori, with the average household experiencing a jump of 6.6 percent since March of last year.
For the average spending household, about 5.2 percent of their expenditure goes on petrol and 4.6 percent on interest payments.
But for higher-spending households, petrol is 4.0 percent, and interest payments are the biggest chunk on 7.3 percent of their expenditure.
Beneficiary households’ cost of living increase is mainly influenced by increasing prices for rental housing – but that too is driven by higher interest rates paid by landlords.
“It’s a perfect storm of real struggle, and we are seeing fewer and fewer people being able to afford the dream of home ownership.” – Lesley Harris, First Home Buyers Club
“Beneficiary households typically spend a smaller proportion of their expenditure on petrol and interest payments, when compared with the average household, so are impacted less by these increases,” said Stats NZ consumer prices manager Matthew Stansfield.
“However, rising rent prices impact beneficiary households more as they typically spend almost a third of their expenditure on rent.”
Lesley Harris, media director of the First Home Buyers Club, said she wasn’t surprised to see the rises in cost of living.
“People like first home buyers are not only having to wear the increased costs of living, but also save a deposit and get lending from banks," she said.
And with the average property in New Zealand now worth 8.8 times the average household income according to CoreLogic, low-income families trying to get a place of their own to call home have reason to be pessimistic. It now takes an average of 11.7 years for families to save enough for a deposit.
“It’s a perfect storm of real struggle, and we are seeing fewer and fewer people being able to afford the dream of home ownership,” Harris said. “If you look at the stats of who is buying property, the first home buyer area is shrinking – which isn’t surprising as we aren’t seeing wages increase, and people are being left behind.”
She has also seen debt preventing people from entering the housing market. A survey of first home buyers last year found an average debt of $9,000, which didn’t include student loans. This amount of debt would cut down the amount of money prospective buyers can borrow from the bank by about $75,000 – and with Auckland house prices soaring, it puts more and more people below the price line of suitable housing.
There are other groups that stand to feel the sharp edge of rising costs most keenly.
The Greens want more support for low-income families who have less financial buffer to weather the storm of inflation in the wake of the new figures.
Greens social development spokesperson Ricardo Menéndez March said the burden of high inflation was felt most by those on the lowest incomes, particularly beneficiaries.
“When incomes are low, even a small increase in costs of food and other essentials can be the difference between making ends meet and not – and these are huge increases in costs."
He pointed towards recently released figures from the Ministry of Social Development showing increases in the number of special needs grants over the last year as a sign of a time when low-income households are already doing it tough.
And not all the debt is mortgages: Half a million Kiwis are in debt to MSD for benefit advances and recoverable payments, which are often used to cover situations like rent arrears or funeral costs. The total debt adds up to almost a billion dollars – money Menéndez March argued could be absorbed by the Crown in order to allow these low-income households to get their heads above the water.
“The repayments, which are higher for women and Māori on average, are currently reducing their weekly income to feed their families and put a roof over their heads,’ he said. “Wiping debt to MSD would be a cost-effective way to quickly boost incomes and provide relief in this inflated economy.”
