Inside Economics: NZ’s missing mojo – did it ever exist (and was it just property prices)?

A: Fair point. When exactly did New Zealand last have mojo?

First let’s step back and clarify what the Prime Minister means by mojo?

I first tackled this in 2023 when Christopher Luxon started talking about the term on the campaign trail.

Mojo goes back to traditional West African magic (or hoodoo), often an amulet or charm, designed primarily to imbue the holder with strength, virility and sexual power.

By way of the African American slaves, the term mojo has made its way into popular culture via the music and language of blues musicians, then rock musicians and then popular culture.

While it definitely retains a bit of a sexual edge, it gets used in a much broader context these days – much like the modern usage of the word sexy.

So I think Luxon uses mojo more broadly to refer to confidence and swagger (I hope).

Putting to one side the fact that after two years as PM the nation still seems to have a mojo deficit, his assessment that New Zealand lacks the kind of confident swagger that would drive economic performance is pretty astute.

I reckon New Zealand had plenty of mojo through the early part of this century.

From the early 2000s, we seemed to find a bigger place on the international stage than we’d ever had before.

While we were always good at rugby and the America’s Cup made us all proud, there was suddenly Lord of the Rings mania, Flight of the Conchords, Lorde conquering the US.

Tourism boomed. We were popular with Americans who previously had never seemed to have heard of us.

We did a historic free trade deal with China in 2008, and suddenly commodity exports (which we’d long believed were taking us down an economic dead-end) took off.

People wanted to come here. Net migration turned positive under John Key and soared to record levels.

Even a major earthquake and a global financial crisis didn’t seem to kill our mojo.

There’s no question that 2009, 2010 and 2011 were difficult years, but the economy recovered from that relatively quickly.

By 2014, we had the Aussie HSBC economist Paul Bloxham calling us a rock star economy – a phrase we took to far more enthusiastically than he had anticipated.

HSBC chief economist for Australia and New Zealand Paul Bloxham.

The label was based on his view at the time that we were outperforming Australia.

But very quickly “rock star economy” was tinged with irony, it became a sarcastic reflection on a moment that had already passed (if it ever existed).

Did we lose something during Covid? I reckon there was a fair bit of mojo in New Zealand during the first year of the pandemic.

For a time we led the world at keeping the virus out and were making global headlines for having rock concerts and big sporting events and generally living our best lives.

All that stimulus money flowing through the economy in 2020 probably didn’t hurt.

The upbeat mood was reflected in Labour’s historically unprecedented election win that year. Under Jacinda Ardern the party won an outright majority (50.1%), the first time it had ever been done under MMP.

There’s no question that the next two years of the pandemic rapidly deflated New Zealand’s sense of mojo.

Extended lockdowns, an anti-Ardern backlash, rising inflation followed by an extended economic downturn that we still haven’t shaken off.

You could probably make the case that New Zealand’s mojo deficit is now the biggest it has been since glum stagflationary days of the early 1980s.

The (not so) secret ingredient

I reckon the take above is a fair cultural summary of New Zealand’s recent mojo track record. But cynics will probably call it a bit idealistic.

I have to admit, I’ve left out the magic ingredient that might – for better or worse – underpin New Zealand’s mojo more than anything else.

When we look back at those so-called rock star years, or the upbeat Jacindamania years of the pandemic – what’s changed?

Our export sector is still winning. Sharemarkets are at record highs. Lorde’s still topping the US charts.

The answer, I suspect, is rising property prices.

Nothing, it seems, makes Kiwis feel better about the world than watching the value of their house rise.

If you look at what’s really been missing in the economy for at least the past three years – that’s it.

Is that a good thing? Probably not. But that leads me to my next question …

Market merits

Q: Hi Liam,

Why do we always rely on the housing market for the economy to recover? When the housing market values are rising, we talk about how bad it is, I know my kids are going to need my help to buy. Over the last few years, the values have been stagnant, and we’re complaining and commentators seem to be saying that that’s the reason why the economy isn’t recovering. What gives?

Carey Schulz

A: Hi Carey,

I guess the answer is that two things can be true at once.

Rising property prices correlate all too neatly with the strength of New Zealand’s economic performance.

But they might also be a long-term source of our underperformance.

We can’t deny that they are a crucial part of the puzzle when we look at what drives growth.

In fact, a recent research paper by economic think tank Motu showed that between 2005 and 2021, house prices in Aotearoa New Zealand rose 142%.

Those are – more or less – the mojo years I talk about above.

But the research also found this surge had “deepened inequalities in New Zealanders’ wellbeing”.

“Our findings show rising property prices can make some people feel better off while leaving others struggling,” Motu senior fellow Arthur Grimes said.

“If we want to support wellbeing for everyone, we need to look closely at how monetary and other policies affect house prices and rents.”

There’s no shortage of economists and commentators – like myself – who’ll tell you that most property investment is non-productive.

That is to say we’re mostly just leveraging ourselves to Australian banks in a vicious cycle which inflates capital values and requires us to borrow even more.

But we get richer on paper and that makes us feel better about our financial position.

We go out and spend more. That’s good for the cities as retail, hospitality and entertainment sectors thrive.

These are very visible sectors that make people feel like everything is going well – even when powerhouse wealth creators like manufacturing and agriculture are in a downturn.

It is the frothy, fun part of the economy and it’s definitely the bit that’s been missing for the past couple of years at least.

But it’s not the part of the economy that will make New Zealand wealthier in the long run – especially if it’s underpinned by more borrowing from international banks.

So there’s a case to be made that the current property slump will be good for us in the long term.

Without property to rely on for easy growth the rest of the economy is being made to sweat.

When the topline economy finally starts to improve, sectors like manufacturing and construction should be leaner and more efficient than ever.

Meanwhile, the long property downturn is making house prices more affordable for our children.

A report in August from property researchers Cotality showed housing affordability is the best it has been since 2019.

As interest rates and property prices continue to fall that’s probably moving even further in favour of first-home buyers.

The latest research from the New Zealand Bankers Association report shows a quarter of all new loans are going to first-home buyers now.

This is good stuff for younger New Zealanders.

The long downturn since late 2021 has seen house prices in Auckland and Wellington fall by 20% and 30% respectively.

This slump might even be enough to break the traditional infatuation that Kiwis have with property as the investment of choice.

But if that happens, where will the investment money flow?

Hold that thought. I have another reader question lined up on that very topic …

Investment options

Q: Liam, we constantly hear on the news and via the media that as a country we must stop investing in housing and start investing in the ‘Productive Economy’.

My problem is that I do not know what this means

To the best of my knowledge, there only two ‘sectors’ that banks will lend you money to invest in: businesses or property. As a PAYE employee I am not sure I am prepared to take the risk to invest in a business directly so property seems my only option.

Banks will not lend me $750,000 to buy gold bullion, shares, art, a flash car etc regardless of my currently having around $150,000 in net assets.

Could you help by advising how I can leverage my $150,000 without investing in property?

Three or four ideas would be terrific.

Regards,

David Hollies

A: Cheers David. This is a very astute question but it’s also very difficult for me to answer.

The first reason for that is, as a journalist (and not a registered financial adviser) I’m not allowed to give specific financial advice.

So for the sake of my friends at the Financial Markets Authority none of what follows should be construed as advice. It’s just my opinion on the investment options that exist out there.

The other reason it’s hard to answer is because you’re right that there is nothing that compares to property when it comes to ordinary investors being able to leverage an investment.

The bank isn’t going to lend you a substantial sum to punt on gold or bitcoin, the sharemarket or anything else … except property.

There are platforms out there that will let you trade equities, currency or derivatives using margins which is effectively leveraging your money by exaggerating the scale of the risk you are taking.

They are inherently quite risky, in my view (at least they are unless you really know what you are doing).

So on that basis the odds remain stacked in property’s favour.

There are plenty of charts that prove sharemarkets (with dividends reinvested) outperform the residential property market.

But you’re going to have to slowly build your investment from whatever savings you have every week.

With property, a bank is going to stake you into a $1 million investment which really ratchets up the annual percentage returns.

The bank loan also forces you to be disciplined about paying down your loan – which we should be with savings, but we might not be if cashflow gets tight.

So all of that is an argument for Kiwis sticking with property as an investment.

That doesn’t mean it is good for the economy overall.

It would be great, for example, if New Zealand’s capital markets were deep enough that businesses like Fonterra Brands and Alliance (the meat company sold to the Irish this week) could remain in local ownership via the NZX.

When I complain about Kiwis being overly invested in the property market it is never a personal dig at property investors.

On an individual basis, people have to make the financial decisions that are best for them.

But we need structural change to enable more investment options. And it takes time to make that change.

I will keep pushing for politicians to do more. I think there is a broad consensus that something has to change. But it is a painfully slow process.

Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003. To sign up to his weekly newsletter, click on your user profile at nzherald.co.nz and select “My newsletters”. For a step-by-step guide, click here. If you have a burning question about the quirks or intricacies of economics send it to liam.dann@nzherald.co.nz or leave a message in the comments section.