The Question Nobody Is Asking
As New Zealand heads towards another General Election, Labour leader Chris Hipkins has challenged voters to ask a simple question:
"Are you better off than you were three years ago?"
It is a fair political question.
But perhaps it is not the most important one.
The question New Zealand should be asking is this:
If hundreds of billions of dollars of household wealth disappeared following the Covid housing boom, where did it go?
Money does not simply vanish.
It moves.
Understanding where it moved, who benefited, who paid the price, and whether future governments should learn from that experience may prove to be one of the defining economic debates of this generation.
The Biggest Housing Boom In Modern New Zealand
Between 2020 and late 2021 New Zealand experienced one of the largest housing booms in its history.
Property values surged.
Mortgage lending reached record levels.
Household balance sheets appeared stronger than ever.
For many homeowners it felt as though wealth was being created almost overnight.
The rapid appreciation of property became a source of confidence throughout the economy.
People borrowed against increasing equity.
Investors expanded portfolios.
Developers accelerated projects.
Banks wrote record volumes of mortgage lending.
Many New Zealanders believed prosperity had arrived.
It Started Long Before Covid
While Covid accelerated the boom, the foundations had been laid years earlier.
Following the Global Financial Crisis, central banks around the world adopted historically low interest rate policies designed to stimulate economic activity.
New Zealand followed that trend.
Borrowing costs steadily declined.
Cheap credit encouraged greater borrowing.
Housing increasingly became the destination for newly created credit.
When Covid arrived, governments and central banks responded with extraordinary measures.
The Reserve Bank introduced large-scale asset purchases and the Funding for Lending Programme while interest rates were reduced to historic lows.
At the same time, the Government introduced unprecedented fiscal support to protect businesses, workers and the wider economy.
These policies were designed to prevent economic collapse during an extraordinary public health emergency.
They also created conditions that contributed to exceptionally strong asset price growth.
Understanding Credit And Asset Inflation
Modern banking systems operate primarily through credit creation.
When banks extend new lending, they simultaneously create new deposits within the banking system. This expansion of credit increases purchasing power throughout the economy.
When borrowing is inexpensive and readily available, demand for assets often increases.
When demand consistently exceeds supply, prices rise.
Housing became one of the principal beneficiaries of this environment.
Existing homeowners experienced substantial increases in paper wealth.
Developers enjoyed rising land values.
Investors benefited from appreciating portfolios.
Financial institutions generated significant mortgage lending activity.
The cycle became self-reinforcing.
Higher prices encouraged further borrowing.
Further borrowing supported higher prices.
Then The Cycle Turned
Eventually inflation emerged across much of the developed world.
Central banks responded by increasing interest rates.
Borrowing costs rose sharply.
Mortgage repayments increased dramatically.
Housing affordability deteriorated.
Demand weakened.
House prices corrected.
Many homeowners who had purchased near the peak suddenly found themselves with reduced equity while continuing to service substantially larger mortgages.
The wealth that had appeared during the boom no longer existed on paper.
The debt, however, remained.
Following The Money
This is where the discussion becomes particularly important.
When property prices rose, many participants benefited.
Homeowners who sold during the peak realised substantial gains.
Property developers completed projects into an exceptionally strong market.
Banks expanded mortgage lending.
Governments benefited from stronger tax revenues associated with increased economic activity.
But when interest rates increased and property values declined, the outcomes became far more uneven.
Some households postponed retirement.
Others delayed investment decisions.
Some reduced discretionary spending to meet higher mortgage repayments.
Others sold assets or restructured debt.
In some cases, borrowers faced mortgagee sales.
The effects of the correction were not shared equally.
This does not necessarily mean anyone intended these outcomes.
It does, however, raise legitimate questions about how monetary policy, government policy and financial markets interact to redistribute wealth across an economy.
A Fundamental Change In Government
Long before Covid reshaped the economy, Prime Minister Jacinda Ardern outlined a significant shift in New Zealand's approach to public policy.
Speaking at the Bill & Melinda Gates Foundation Goalkeepers event in New York in 2019, she said:
"So to tackle these issues in New Zealand, the government I am proud to lead, is doing something not many other countries have tried."
She then stated:
"We have incorporated the principles of the 2030 Agenda into our domestic policy making, in a way that we hope will drive system level actions."
Ardern continued:
"And this is not just a new scorecard, it is about fundamentally changing how we make decisions, and therefore how we allocate resources."
These statements demonstrate that the Government intended to embed principles from the United Nations 2030 Agenda into domestic policymaking.
Supporters viewed this as an innovative wellbeing-focused approach to government.
Critics questioned how internationally developed policy frameworks should influence New Zealand's domestic policy and whether such significant changes received sufficient public discussion before being implemented.
Those differing perspectives remain part of an ongoing public debate.
Accountability Matters
Every major economic event deserves careful examination.
The Global Financial Crisis has been studied extensively.
Major banking failures have generated inquiries.
Natural disasters produce Royal Commissions.
Yet New Zealand's extraordinary housing boom and subsequent correction have received relatively little comprehensive public examination as a single economic cycle.
There are important questions that remain.
Did policymakers adequately consider the long-term effects of exceptionally low interest rates?
Were the distributional impacts of rapid asset inflation sufficiently understood?
What lessons should be learned before similar emergency interventions are used again?
Should Parliament commission an independent review into the long-term economic consequences of pandemic-era fiscal and monetary policy?
These are not partisan questions.
They are questions of public accountability.
My Thoughts
Whether viewed as an unavoidable consequence of extraordinary circumstances or as the predictable outcome of unprecedented policy decisions, the Covid years produced one of the largest redistributions of household wealth New Zealand has experienced in modern history.
Some households realised significant gains through rising property values and asset appreciation.
Others entered the market near its peak and have since faced declining equity, higher borrowing costs and years of increased financial pressure.
The outcomes were not evenly distributed. That alone deserves careful examination.
Who benefited most from the period of exceptionally cheap credit?
Who gained from one of the largest housing booms in New Zealand's history?
Who ultimately carried the burden when interest rates rose and property values fell?
These are not questions about assigning blame for a complex period in history.
They are questions about understanding how public policy, monetary policy and financial markets combined to reshape the financial position of millions of New Zealanders.
If future governments are to avoid repeating the same mistakes—or to preserve what worked while improving what did not—then the full economic legacy of the Covid years deserves open, evidence-based scrutiny.
Because before New Zealand decides where it is going next, it should fully understand how one of the greatest shifts in household wealth in modern history occurred, who benefited, who lost, and what lessons can be learned for the generations that follow.
Ask yourself - Who created the money during this period? And was Covid the patsy for the greatest wealth transfer upward in modern history?
Source
Speech quotations sourced from Prime Minister Jacinda Ardern's address to the Bill & Melinda Gates Foundation Goalkeepers event, New York, 2019.