"Property love affair" may not be so strong

New Zealanders may not be as heavily reliant on property investment as we have been led to believe.

Tuesday, February 19th 2013, 12:00AM 1 Comment

by The Landlord

Politicians have often said that Kiwis’ “love affair” with housing has driven up house prices over recent years.

But a Retirement Policy Research Centre report says the amount of money invested in housing, both owner-occupied and rental property, might have been overstated.

Each year, the Reserve Bank publishes information about households’ assets and liabilities. But the numbers miss some of the household wealth, including equity in unincorporated businesses and unlisted companies, currency holdings and unfunded equity in public sector superannuation schemes.

The Retirement Policy Research Centre’s co-director Michael Littlewood says the previously-missing assets lift households’ gross assets by almost 20% and reduced the percentage tied up in housing substantially. Without the extra assets, households looked to have almost 70% of their wealth tied up in housing but adding them in reduces the percentage to well below 60%.

He said borrowing equated to about one-fifth of gross assets, which he did not think was high.

Adding more to the assets side of the household balance sheets also reduced the impact of property assets.

He said: “Looking at all households, total net housing holdings, including rentals and holiday homes, range between 54% and 58% of total net worth across the five years from 2007 until 2011. Many might be surprised that it’s such a low percentage.”

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Comments from our readers

On 19 February 2013 at 3:34 pm Miles said:

Fifty four percent in houses is still a very high asset allocation to residential property. Many such investors may well be 100% of their personal investment allocation. Although NZ housing seems to be in a controlled financial environment under banks, real estate interests, and government, there still remains a risk e.g. if Europe scuttles in some way with international reverberation. Could house prices fall notwithstanding the controlled environment? If so, at least the national allocation to housing will fall to more appropriate levels. If they go low enough, perhaps commercial operators will enter the residential housing sector. That will be the true test of fair value.

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