Former prime minister John Key expressed it succinctly earlier this year<\/a>. \u201cIf you want to get things going, the core of what\u2019s wrong is the housing market. The guts of what\u2019s wrong is that the housing market is going down, not up.\u201d He was expressing the view that all economic malaises are ultimately a verdict on the housing market, and that the only way out of the current slump was by bending that line up. That\u2019s why this current nascent recovery is so rare: it\u2019s the first in decades which might not be heralded by a rebounding property market.<\/p>\n The obsession with property is actually a collective immune response to the trauma of 1987. After a few years of extraordinary sharemarket returns in the mid-80s, thousands of New Zealanders poured everything they could into the NZSE (now NZX), only to have that obliterated during the post-Black Monday recession. The NZ Herald\u2019s Liam Dann documented the response vividly in The Crash<\/a>, writing that \u201ca generation of investors \u2013 the baby boomers \u2013 turned away from capital markets and put their savings into property and property focused finance companies.\u201d<\/p>\n 1987 was not a major downturn globally, but it was prolonged and painful in New Zealand \u2013 our markets slumped and unemployment rose sharply, ultimately leading to the \u201ctough medicine\u201d documented in the first few episodes of the second season of Juggernaut<\/a>. As a country, we grew distrustful of shares, preferring the perceived solidity of property.\u00a0<\/p>\n As Ben Thomas pointed out in the most recent episode of Gone by Lunchtime<\/a>, the passage of the Resource Management Act followed not long after the crash \u2013 well-intentioned legislation that had the unfortunate byproduct of making housebuilding far harder. The supply constraints it induced set off a 40-year boom in property prices. Which means every graph charting New Zealand\u2019s median house price over time has a familiar shape.<\/p>\n It was not causation, but it was not entirely uncorrelated that the same period saw an endless drift for the local sharemarket. There were few sustained growth stocks, with the top end dominated by dutiful utilities and lumbering near-monopolies. Some of our biggest stocks \u2013 think The Warehouse, Fletcher Building, Sky TV, even Spark \u2013 have endured a rough decade. It means many who did put their money into local markets saw their money stagnate, while their neighbours who bought a unit in Kelston enjoyed outsized returns. The narrative became well understood politically, and because around two thirds of us lived in houses we owned, we saw our net worth increase along with the property market \u2013 while coming to view capital markets as places money went to, if not die, then to drift aimlessly.<\/p>\n The only world we\u2019ve ever known<\/p>\n Almost half of NZ\u2019s population \u2013 our median age is 38, meaning they were born the year of the \u201887 crash \u2013 has only ever known that reality. It\u2019s little wonder that they assumed it was all there ever was or would be.<\/p>\n But change seems to have finally come. Dileepa Fonseka wrote an adroit piece of analysis<\/a> for BusinessDesk yesterday that posited that the generational fear of markets and devotion to housing is coming to an end. He puts it down to a variety of factors. First, the debut of KiwiSaver made us far more exposed to sharemarkets than ever before. Then reforms created a huge increase in the amount of land that could be developed in our main centres. Finally, the rise of direct investment platforms like Sharesies, Stake and Hatch has made some of our working age population far more interested in markets.\u00a0<\/p>\n It means there is a much greater level of exposure to sharemarkets beyond our own. It also means the opportunity to buy into sexier companies \u2013 it\u2019s more exciting to own shares in Apple or Nvidia than Skellerup or Mainfreight \u2013 but in recent years it has also meant far more profound increases in value. The \u201cmagnificent seven\u201d stocks have provided eye-popping returns in recent years. That means that after decades of shareholders watching property investors\u2019 returns leaving theirs for dead, the past few years have seen both KiwiSavers with index funds and retail investors into US companies earning far greater returns.\u00a0<\/p>\n A generational change<\/p>\n Millennials and gen Z have been particularly exposed to this switch in fortunes. While baby boomers carried lifelong scars from the 87 crash, younger people have had a very different experience. Many came out of high school into a world of unsustainably high house prices, which crashed post-Covid and haven\u2019t yet recovered. They also grew up with the narrative that housing was out of reach, so many turned to both index investing, through the likes of Simplicity, and stock picking in significantly greater numbers<\/a> than Boomers and Gen Xers.\u00a0<\/p>\n Despite regular coverage of the \u201cyoung property investor\u201d<\/a>, it\u2019s much more likely that the younger half of our population views investing in housing as out of reach and a place of indifferent returns. Instead, they view houses as \u2013 how novel \u2013 a place to live.\u00a0<\/p>\nAll the graphs look pretty much like this<\/p>\n