How Residential Real Estate Investment Has Measured Up Since 1965...

Research undertaken by the University of Auckland Real Estate Research Unit shows that, in a comparison of capital growth in housing versus investment returns during the period 1965 to December 1997, residential property (based on the Valuation New Zealand residential price index) outperformed the share market (based on the New Zealand Stock Exchange NZSE 40 index), 10 year Government bonds, and returns achievable by putting money in the bank.
For every dollar invested in the residential housing market in New Zealand in 1965, the value in 1997 was $20.92. This means that a $10,000 house purchased in 1965 would be worth $209,200 in December 1997. In other words, over 32 year period the residential property increased in value an average of just under 10% compounding every year.
By comparison, the Stock Exchange SE40 index indicated returns during this 32 year period of just over 7% compounding per annum (almost 3% behind the residential investment).
The $10,000 investment in 1965 would have resulted in a return of just $97,300 by 1997.
As yet another alternative investment had anyone invested this same $10,000 on deposit with their bank in 1965, reinvesting it six monthly until the end of 1997, they would now have $143,600 _ providing them with an 8.44% compounding return per annum.
Comparing the Real Estate market to the 10 year Government Bond market, bonds show a return during the same period of 9.25% compounding per annum which equates to an amount of $179,000 for the same $10,000 originally invested in 1965.
Inflation during this same period as indicated by the Consumer Price Index equates to 8.35% compounding per annum. That is, to be able to maintain the same$10,000 level of purchasing power in 1965 would require $30,100 by the end of 1997.
This is illustrated by the graph below.
During this period real estate has gone through a number of inflationary price cycles (the most recent during a period of low inflation). With all information in the market place regarding a drop in sales, none has manifest itself in any notable drop in the median price. So, while there may be no evidence to suggest that the more substantial rises in property prices of the last five years will continue at the same pace, there also seems little prospect that they should fall unduly.
This is borne out by the REINZ Median dwelling price comparisons for all New Zealand as at the following dates.
March '96 $155,000
March '97 $164,000
March '98 $165,000

So, to bring it all back into perspective what people are experiencing is just historically typical market forces and property cycle influences. If this is do then it would suggest that today's market is an opportunity for prudent investors and home buyers. Return to Home page