House Prices

Dispelling those inflated expectations

Q. In all the discussions in your column on investment in residential property, no one has really assessed the effect of inflation on property prices.

I am in a somewhat unique position to do this, through living in the same house for some 36 years, in what is best described as a "leafy outer Auckland suburb".

I bought the house in 1968 for $19,000 - an apparent ba

Monday, March 29th 2004

rgain when set against today's values.

But what many don't realise is that since then inflation has been over 1000 per cent. So when the consumer price index is applied to that $19,000, it translates into about $230,000 in 2004 dollars.

The present value of the house is about $300,000, which means that in real (inflation-adjusted) terms the compound capital gain over the 36 years has been less than 1 per cent a year.

The conclusion is that those now leaping into the housing market expecting massive capital gain are unlikely to get it.

It is true that in inflationary times, borrowing heavily and waiting for inflation to reduce the real cost of debt was a great way to make money. But this doesn't apply now when low inflation removes that cushioning effect.

Instead, we have a situation where the downside risk can well outweigh the perceived benefits, which are based on a distorted view of the past history of residential property investment.

Read More - Opens in a new window
Heartland Bank - Online 6.69
SBS FirstHome Combo 6.74
Wairarapa Building Society 6.95
Unity 6.99
Co-operative Bank - First Home Special 7.04
ICBC 7.05
China Construction Bank 7.09
BNZ - Classic 7.24
ASB Bank 7.24
ANZ Special 7.24
TSB Special 7.24
Unity First Home Buyer special 6.45
Heartland Bank - Online 6.45
China Construction Bank 6.75
TSB Special 6.75
ICBC 6.75
ANZ Special 6.79
ASB Bank 6.79
AIA - Go Home Loans 6.79
Kiwibank Special 6.79
BNZ - Classic 6.79
Unity 6.79
Westpac Special 6.39
China Construction Bank 6.40
ICBC 6.49
SBS Bank Special 6.55
Kiwibank Special 6.55
BNZ - Classic 6.55
Co-operative Bank - Owner Occ 6.55
ASB Bank 6.55
AIA - Go Home Loans 6.55
TSB Special 6.59
Kainga Ora 6.99
SBS FirstHome Combo 6.19
AIA - Back My Build 6.19
ANZ Blueprint to Build 7.39
Credit Union Auckland 7.70
ICBC 7.85
Heartland Bank - Online 7.99
Pepper Money Essential 8.29
Co-operative Bank - Owner Occ 8.40
Co-operative Bank - Standard 8.40
First Credit Union Standard 8.50
Kiwibank 8.50

More Stories

Support for regulation

Monday, March 18th 2024

Support for regulation

REINZ has emphasised the need for property management regulation to Parliament’s Social Services and Community Committee.

A better investment market

Thursday, March 14th 2024

A better investment market

“Reinstatement of interest deductibility starting from the new tax year on 1 April brings property investors back in line with every other business in the country, where interest costs are a legitimate deductible expense," Tim Horsbrugh, New Zealand Property Investors Federation (NZPIF) executive committee member says.

[OPINION] Recessionary times

Thursday, March 14th 2024

[OPINION] Recessionary times

It is not the best out there for many businesses and property sector people. Sales are down across the board, our clients’ confidence is falling, and there is a lot of uncertainty.

Interest rate expectations: It’s not over yet

Thursday, March 07th 2024

Interest rate expectations: It’s not over yet

Most Kiwis think interest rate increases have peaked.