Associated with this buoyancy in the housing market has been a strong tendency among many households to ‘unlock' housing equity builtup through capital gains to fund consumption. This often involves borrowing more against the equity in the home. Rising house prices have boosted the perceived wealth of home-owners and, along with an increased access to debt, have underpinned very strong consumption spending.
Strong consumption spending has in turn fuelled much of the demand for imports that has led to a widening of New Zealand's trade deficit. In effect, we have seen a continued decline in the New Zealand household savings rate -- the proportion of current income that households put aside to invest for future consumption.