Housing investment has record high share

Annual national accounts show housing investment has record high share – Media release

19 December 2017

Investment in residential buildings, as a share of total investment, is at its highest point since records began in 1972, Stats NZ said today. At the same time, the plant, machinery, and equipment investment share is at a 45-year low.

National accounts (income and expenditure): Year ended March 2017 shows residential building investment made up 32 percent of total investment in 2017. This is the first time it has been above 30 percent since the series began in 1972.

In contrast, plant, machinery, and equipment investment had its smallest share of overall investment, dropping to 19 percent in 2017 – to be below 20 percent of total investment for the first time.

“Until 2004, plant, machinery, and equipment was the largest component of investment. While it regained that place in 2009, residential building overtook it in 2013 – the two asset types have followed different trends since then,” national accounts senior manager Gary Dunnet said.

“Many factors influence investment expenditure,” Mr Dunnet said. “We know that construction costs are rising, in particular for residential buildings. Meanwhile the prices for plant, machinery, and equipment haven’t changed much overall – in large part because computers keep getting cheaper.”

“The drop in plant, machinery, and equipment’s share of total investment also reflects the changing shape of New Zealand’s economy. Investment in software and other intangible assets, which aren’t part of this asset group, is increasing as all sectors of the economy make greater use of these digital tools.”

The impact of the surge in residential building investment can be seen by looking at the investment share of GDP. At 7.6 percent in 2017, residential building also had the greatest investment share across the full time series back to 1972.

The picture for business investment – the total of all investment types for all sectors, excluding residential building – is very different. Since dropping as a share of GDP in 2010, from 17.6 percent to 15.6 percent, it has shown little movement.

This shows that investment in fixed assets other than residential building has roughly kept pace with the rest of the economy in recent years. In contrast, residential building continued to make up an ever larger share.

“Business investment helps make the country more productive,” Mr Dunnet said.

"Businesses may replace old equipment that’s become rundown, worn-out, or out-of-date, or they may be making the most of the latest knowledge and technology.”

“It could be a farmer using new agritech equipment, or an office worker using a laptop and cellphone instead of a desktop PC and a fixed landline. Investment helps make New Zealanders more efficient at what they do.”

A country’s productivity is a key factor in its standard of living as workers share the fruits of their labour. As they produce more for each hour worked, their incomes may rise and the country becomes wealthier.

See also
• National accounts (income and expenditure): Year ended March 2017
• Business price indexes: September 2017 quarter
• Value of building work put in place: June 2017 quarter
• Productivity statistics: 1978–2016

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