Jeff Stibel, chief executive of Dun & Bradstreet Credibility Corp, wrote an interesting piece in the Harvard Business Review a year or so ago. Although he was talking about the US economy his thoughts apply equally to New Zealand today.
His basic thesis is that "we’re in an economic recovery, but it is a recovery characterized by asymmetry. Banks and major corporations are flush with capital — large businesses are recording record profits — but job growth is tepid, unemployment remains high and small businesses are struggling". In other words the economic largesse isn’t being equally spread.
Hence the reference to A Tale of Two Cities. To extend Stibel’s analogy, if Charles Dickens were to turn up in Herne Bay or Westmere today, he would understand what’s going on with soaring property prices.He would surmise that because the same upward price pressure isn’t applying in Otara he would realise it is a localised phenomenon, reflecting the widening gap between the 'haves' and the 'have nots'.
You can bet your bottom dollar that those snaffling the plum properties are white-collar professionals shuffling paper in the city, not blue-collar labourers grinding out an livelihood in a factory in East Tamaki. The country’s demography is polarising, with the middle class being squeezed. Obscene and unsustainable salaries are being paid in unproductive, service sectors while wages in the productive sector have hardly moved at all.
In 1985 the disparity between the average wage and the top corporate salary was a factor of 15 times. Today it’s a factor of 119 times. It’s not fair and it won’t last. The top quartile of income earners are getting too much and the bottom quartile not enough. The middle class is being squeezed and that means consumer spending is down and when the velocity of money slows down the whole economy suffers.
When there’s a contraction in service sector jobs because there’s not enough revenue generated in the productive sector to keep them employed and paying their mortgages in the trendy suburbs, the real estate bubble will burst again.