Consumers felt more confident too, and were willing to spend. Population pressure and supply constraints meant that despite a high level of construction activity, house prices doubled. The boom in rural land (and growth in lending to farmers) was even bigger (Figure 4).
When credit is growing rapidly, asset prices are rising, and turnover is high, businesses servicing the domestic economy find themselves doing well. They, in turn, invest to take advantage of what look then like sustainably better opportunities. Sustained booms also generate surprising amounts of tax revenue. In New Zealand’s case, as the boom went on, fiscal policy shifted to a substantially looser stance.