The first decade of the 21st century was a good period for the New Zealand economy even though it ended with a long recession.

The country’s gross domestic product (GDP) grew by 29.7 per cent during the 10-year period, compared with 25.9 per cent in the 1990s, and there was a 22.0 per cent increase in the number of jobs compared with a 16.1 per cent rise in the previous decade.

However, Australia’s performance was superior and, in economic terms, we continue to drop further and further behind our next door neighbour.

The other feature of the 2000s was the huge increase in property prices and the low level of investment in the productive sector, as reflected by the small size of the domestic sharemarket.

Investors will have to decide whether residential property will continue to be the best investment in the 2010s or is it time to look more closely at the sharemarket, both here and overseas, or at some other form of investment?

New Zealand’s population growth was slightly lower during the decade – 12.3 per cent compared with 13.2 per cent in the 1990s – mainly because of a large increase in permanent and long-term migration departures.

A total of 694,300 individuals left New Zealand on a permanent basis in the past 10 years compared with 512,700 in the previous decade. The economy created 388,000 additional jobs in the 2000s – and average weekly earnings increased by 45.7 per cent – but the gap between Australia and New Zealand continues to widen.

At the end of last year average weekly earnings in New Zealand were $810 compared with A$1250 ($1582) across the Tasman. At the end of 1999 the figures were $556 and A$787 respectively.

Thus the gap between average New Zealand and Australian weekly earnings has widened from $434 to $765 over the past 10 years. We are successful at creating new jobs, but not high paying ones.

Residential property was the biggest game in town in the 2000s. House prices surged by 109.2 per cent and the total value of the country’s housing stock increased by an estimated $376 billion. At the end of 2009 the value of all domestic shares listed on the NZX was a paltry $49 billion compared with an estimated housing stock value of $604 billion.

By comparison Australia had a much better balance between housing and equities and at the end of the decade the total value of all ASX companies was A$1403 billion and Australia’s housing stock A$3530 billion.

Thus the total value of our residential housing was 12.3 times the value of the NZX compared with a housing/ASX ratio of 2.5 times in Australia. Ten years ago these ratios were 4.3 times and 2.1 times respectively.

Our obsession with housing creates a number of problems, including:

* A large percentage of the money invested in housing has been borrowed from overseas, through the banks, and New Zealand now has far too much overseas debt.

* The demand for mortgage finance has reduced the amount of money available for lending to the business sector.

* We are allocating a huge amount of resources to the housing sector, where wages and salaries are relatively low, and are not investing enough in high-paying sectors.

The big challenge facing New Zealand is to keep our highly qualified individuals from leaving through the creation of high-paying jobs.

But the response to the Capital Markets Taskforce and the Tax Working Group shows that our politicians are world leaders at initiating high-powered studies but are reluctant to implement their recommendations.

There was huge publicity over the Capital Markets Taskforce before Christmas but this has now been replaced by yet another report, this time by the Tax Working Group.

But the muted response to the latter report by Finance Minister Bill English indicates that little or any of its recommendations will be implemented.

How will we ever make progress if our politicians are unwilling to implement the recommendations of these high-powered studies?

The decade ahead could be dominated by a more restrictive borrowing environment, the repayment of debt and the retirement of the baby-boomer generation. These will have significant implications for investors.

One of the main characteristics of the 2000s was the aggressive lending policies of the banks and the huge increase in household or personal debt. This was one of the main reasons for the worldwide housing boom and subsequent recession.

New Zealand was no exception, with household debt surging by $111 billion in the past decade compared with $45 billion in the 1990s. Governments were reasonably disciplined in the 2000s but have had to borrow heavily in the past two years to support their economies.

Thus we enter the 2010s with far too much household and government debt. In addition, the banks are under pressure because of funding problems, the threat of more regulation and the requirement to hold more capital.

As a result credit will be less plentiful in the 2010s and sectors that are heavily dependent on bank borrowings, particularly property, will face less buoyant conditions.

Another dominant feature of the next decade will be the retirement of the baby-boomers, those born between 1946 and 1964. The first baby-boomers reach the 65 retirement age in 2011 and by the end of the decade nearly half of the generation will be 65 or over.

This will have huge implications for the economy in terms of retirement benefits, healthcare requirements, property ownership and consumer spending patterns.

Retirees normally put their feet up, reduce their consumption and spend their declining years in relative tranquillity.

The post World War II baby-boomer generation is expected to be different. This generation will be active and will travel extensively, overseas and domestically. To fund this many will sell the family home and move into apartments or retirement villages, which will be easier to maintain than a suburban home. This strategy will also release capital to fund travel.

Thus the 2010s could be the decade of the apartment, with residential housing prices lagging well behind.

The next decade is also expected to see a big shift from property assets to financial assets, both shares and fixed interest securities, particularly in New Zealand.

There are a number of reasons for this including KiwiSaver, a less attractive environment for property and the desire by retired baby-boomers to have an investment portfolio that they can partly liquidate to fund travel, whereas a big family home has no liquidity features unless it is sold.

However, this doesn’t mean that we are going to have a bull market in shares, bonds and other financial assets throughout the 2010s. There will be opportunities in these areas but a buy and hold strategy, which has been very popular over the past two decades, is no longer appropriate.

Asset allocation, which is the mix between growth assets (shares) and income assets (bonds), will be extremely important, as will the selection of individual securities in both the growth and income portions of a portfolio.

Investors will have to take an active approach towards financial assets. Those who make astute decisions regarding asset allocation and individual securities should generate good investment returns over the next decade.