Where the problem starts: a narrow, fragile economy
New Zealand's prosperity has been built on a surprisingly narrow base. Around 60 percent of goods exports come from a handful of primary products, many of them minimally processed before they leave the country. That concentration creates vulnerability.
High value, high tech exports are tiny by comparison. High tech makes up around 13 percent of manufactured exports, and New Zealand ranks well below the OECD average on the economic complexity index, sitting around 50th in the world. That means the country sells simpler, less processed goods and misses out on the higher wages, deeper innovation ecosystems and resilience that come from value added industries.
Environmental limits - land and water can only be pushed so hard before productivity drops or regulations tighten.
Climate risk - weather shifts hit agriculture, forestry and fisheries first: droughts, warming seas and storms lower yields and incomes.
Geopolitical and demand risk - heavy reliance on a few products and a few markets means a slowdown in a major buyer or a trade dispute hits national income hard.
The property obsession and the illusion of wealth
Much of New Zealand's domestic investment has flowed into property and construction. Real estate services account for roughly 11 percent of GDP and construction another 5 to 6 percent. House prices grew about 130 percent in the last decade, creating paper wealth for many homeowners. But that wealth is largely illiquid and not tied to export-generating, productivity-raising assets.
The affordability problem is stark. The median house now costs about 8.8 times household income. By contrast, OECD guidance puts a comfortable range around three to five times income. When homes get that overpriced, younger generations are locked out or forced into massive debt, and older owners have less incentive to invest in productive businesses.
The mortgage reset cliff
Many mortgages were taken out at record low rates during 2020 and 2021. About 40 percent of loans were written then. With interest rates low, people bought and prices rose. Now those mortgages are resetting at much higher rates. For many households monthly repayments have doubled. Higher mortgage costs cut consumer spending and increase the risk of defaults and forced sales, which can push prices down and sap confidence further.
Innovation deficit and stagnant productivity
Underinvestment in research and development is a long-running problem. New Zealand spends significantly less on R&D than the benchmark needed to build high-value industries. The consequences show in productivity numbers: from 2012 to 2022 labour productivity grew by just 0.3 percent per year, compared with an OECD average near 1.5 percent. Productivity is the engine of sustainable wage growth and public revenue. Without it, incomes stall while costs keep rising.
"It is like owning a gold mine, but without refining it and letting someone else getting the biggest payday."
Talent on the move — the great Kiwi exodus
Skilled people are leaving in record numbers. In 2023 around 40,000 skilled New Zealanders moved overseas. In 2024 total departures hit record levels with about 128,700 people leaving. Many move to Australia where wages can be 26 percent higher and day-to-day costs feel lighter in some sectors. New immigrants arriving tend to fill lower paid roles and do not replace the mid to high skill workers who leave.
Losing engineers, doctors, IT professionals, scientists and entrepreneurs drains the country's capacity to innovate and scale high-value businesses. When investment in R&D is low and opportunities are limited, talent chooses greener pastures.
Policy missteps and an engineered recession
Policy choices during and after the pandemic played a major role. Massive fiscal stimulus, border closures and very low interest rates protected households and businesses in the short term. But they also fuelled housing demand, pushed up prices and stoked inflation. When the Reserve Bank raised rates sharply to cool demand, the economy tipped into contraction.
By mid 2024 the economy had officially contracted, unemployment rose to its highest level in over a decade and recovery was slow. Rapid swings in policy created uncertainty for businesses and for innovators who need stable signals to invest long term.
Demographics, health and infrastructure — a fiscal time bomb
The age structure of the population is shifting. Around 18 percent of the population are already older, and projections put that near 21 percent by 2034. Lower fertility and an ageing population mean fewer workers and more pensioners. Healthcare pressures are rising too; New Zealand has among the higher obesity rates in the OECD which drives long term health costs. Mental health demand is increasing as well.
At the same time the physical infrastructure deficit is huge. Estimates range from $200 billion to $400 billion needed to repair and upgrade roads, water systems, hospitals and schools. Delay only pushes costs higher for future generations.
The social consequences
Growing inequality and rising welfare dependence are already visible. Around 400,000 people rely on welfare—almost 10 percent of the population—the highest figure since the 1990s. Home ownership rates among young people are falling and many households feel squeezed by mortgages and living costs.
How New Zealand can rebuild resilience and prosperity
There is no single quick fix. Reversing these trends will require coordinated effort across policy, business and education. Practical priorities include:
The current picture is worrying: a narrow export base, an economy leaning heavily on property, low productivity growth, talent leaving, and rising demographic and infrastructure pressures. Left unchecked these forces can push a prosperous country into long term stagnation.
But these are solvable problems. With consistent, forward looking policy, stronger investment in innovation and a deliberate push to diversify and add value to exports, New Zealand can rebuild a more resilient and higher productivity economy. The choice is between short term fixes that kick problems down the road and long term reform that restores genuine prosperity
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