1. Economy—Household DebtGRANT ROBERTSON (Labour—Wellington Central) to the Minister of FinanceORAL QUESTIONSQUESTIONS TO MINISTERSEconomy—Household Debt1. GRANT ROBERTSON (Labour—Wellington Central) to the Minister of Finance: Is it correct that the household debt-to-income ratio is now 165 percent and does he agree with Westpac senior economist Satish Ranchhod's comment in response to this record high level you can't continue to grow an economy just using debt there needs to be more to prop up activity"?Hon BILL ENGLISH (Minister of Finance): The answer to the first question is yes and to the second question no. I would reiterate previous statements I have made. Households make their own decisions about how much debt to take on but those households that are taking on proportionately large amounts of debt at the moment should not rely on any assumption that interest rates will stay where they are for ever or that they will not increase.Grant Robertson: Can he confirm that a household debt to income ratio of 165 percent is higher than during the global financial crisis and has increased by 36 percent since his Government came to office and by nearly 8 percent in just the last year?Hon BILL ENGLISH: I think those numbers are probably right. The member needs to be reminded that the Government does not decide how much money households borrow. And one of the reasons for the ongoing increase is that interest rates have continued to drop in ways that neither households nor the Government nor economists expected would occur. But people who are borrowing large amounts of money right now should not be operating on the assumption that interest rates will stay low for ever.Brett Hudson: Does he agree with Westpac senior economist Satish Ranchhod's comment: "it's looking like the economy will keep trucking along for the next year or so with a range of economic indicators pointing towards continued momentum in activity."?Hon BILL ENGLISH: Yes I do. The economist who pointed out the relatively high level of household debt also pointed out that the economy is moving along pretty consistently and figures that came out in the last week or so show that the rate of growth of the New Zealand economy is among the higher growth rates in the developed world. Grant Robertson: Why is he claiming success for the economy when house prices have risen at seven times the rate of incomes across New Zealand under his watch?Hon BILL ENGLISH: It is not so much a matter of whether the Government is claiming success for the economy. The member should go out and have a look around the economy and see the confidence and investment that is going on. There has been extensive discussion of house prices and we will be keen to see the Opposition parties support Government measures both through the Resource Management Amendment Bill and further into next year which will help deal with the planning problems that underwrite the house price increases.Brett Hudson: Does he agree with Westpac senior economist Satish Ranchhod's comment: "The strengthening in economic conditions has been rippling through the household sector. Employment is up with business surveys showing a 2.8 percent increase in the number of full-time equivalent employees over the past year … Conditions in the housing and construction sectors are very strong."?Hon BILL ENGLISH: I do agree with the economist's comments.Grant Robertson: Why is he not being more urgent in addressing the housing crisis with housing debt estimated by Treasury to be more than $215 billion—Hon Member: How much?Grant Robertson: —$215 billion—given his own statement in 2012 that "high housing debt diverts money from more productive investments contributes to New Zealand's significant overall level of indebtedness and exposes taxpayers to growing demands for State assistance with housing costs."?Hon BILL ENGLISH: I do and that is why the Government has invested some time and energy over the last 3 or 4 years—a huge amount actually—in shifting the regulatory environment and in particular supporting the Auckland Council which has produced a unitary plan which is a very big step forward in mitigating these problems. I might just point out to the member that the cost of servicing this level of household debt is nearly 40 percent lower today than was the cost in 2008 when he left office. So households have more debt but the cost of servicing it is lower than it used to be.Brett Hudson: How does household borrowing compare with other measures of household wealth including bank deposits total financial assets and net worth?Hon BILL ENGLISH: At the same time as debt has been rising—and as I have said those who are borrowing large amounts at the moment are taking risks—household bank deposits have increased almost but not quite as fast; financial assets have increased quite significantly around about 40 percent over the last 6 or 7 years; and household wealth including the family home now exceeds $1 trillion. So yes debt has risen; so have financial assets and overall household wealth.Grant Robertson: Why does he think Satish Ranchhod is stating so clearly that the economy is built on debt rather than productive growth and could it be because he has been so complacent in terms of seeing debt pushed into unproductive housing speculation rather than raising productivity and growing and developing new businesses?Hon BILL ENGLISH: I think the economist overstates the position actually. In a growing economy you would expect more debt. You would also expect more debt when interest rates are so low but where we would agree with the economist is that at the margin households are borrowing large amounts of money at very low interest rates stretching their ability to service it and taking a risk and if that risk eventuates I do not think there would be much sympathy for people who borrow too much when the risks were obvious.Grant Robertson: Is it not correct that after 8 years the housing crisis is now so out of control that we have the lowest homeownership rates in more than 60 years we have more New Zealanders homeless than ever and we now have household debt to income ratios at record levels and all of that falls at the feet of a Government that has completely failed on housing?Mr SPEAKER: Order!Hon BILL ENGLISH: No that is not correct. As the member knows at the core of what is going on in house prices has been two or three decades of misguided planning which was intended to ration land and housing and that has meant that when there is strong demand because of a strong economy and low interest rates housing supply has not been flexible enough. That is why we are working with the councils and the Parliament to change the rules so we can get a better functioning housing market."