Capital gains vs wages: where has property 'earned' the most?

Date: 31 October 2018

Over the past 6-7 years, it’s been possible for property owners to ‘earn’ more from their property’s increasing value than through employment. Of course, it’s only a cash profit if they actually sell their property and either relocate to a cheaper area, downgrade to a lesser value home, or exit the market altogether (choosing instead to rent, or to apply their previous property investment fund into a different asset class).  Looking ahead to 2019 however, it’s likely that far fewer suburbs will generate value gains in excess of wages - thanks to brakes on the housing market from factors such as the ring-fencing of rental losses.
CoreLogic research analyst Kelvin Davidson writes:
The big picture value changes for NZ’s property market over the past decade or so is well-known: weakness during the GFC, then an Auckland boom which has subsequently tailed off, with other parts of the country (e.g. Dunedin) now growing strongly, as shown in the first chart. But for a different view of the cycle, we recently compared the year-on-year changes in the median value of properties at a suburb level to that year’s median individual wages (currently about $52,000). 
As chart two shows, 2008-11 was a prolonged lull for NZ’s housing market. Over that four-year period there were only 24 suburbs where the growth in the median property value in any of those years was higher than the corresponding median national salary: and all 24 were in Auckland. However, from 2012-15, the market began to heat up, and the number of suburbs where the growth in the median property value was higher than wages spiked to 87 in 2012 and 202 by 2015. Back then, Auckland accounted for 80-90% of suburbs with property values rising by more than wages.
Annual % change in average property values (Source: CoreLogic)
Outside Auckland, suburbs in Christchurch, Hamilton and Tauranga came to the fore from 2012 to 2015. In the year to September 2013, for example, 29 suburbs outside Auckland had value growth in excess of wages and all were in Christchurch. That was clearly a response to earthquake-induced shortages of property. In 2015, there were 46 suburbs with high value growth, and 38 were either in Hamilton or Tauranga, as people from Auckland began to look further afield.
Suburbs with median value growth above national individual median wage
(Sources: CoreLogic, Statistics NZ)
The peak for the market was 2016. That year, nearly 400 suburbs (out of the 661 that we’ve included in this analysis) saw median values rise by more than the level of the national median wage. Auckland suburbs again featured strongly but there were plenty around the rest of the North Island (e.g. Whangarei, Hamilton, Napier, Hastings, Wellington region) and South Island (e.g. Queenstown-Lakes, Dunedin, Nelson, Tasman) too. Since 2016, the prevalence of suburbs with value growth above wages dropped to 200 in the year to September 2017 (29 in Auckland) and just 45 (only one in Auckland) in the past 12 months.
It’s important to note that we’ve compared property value growth to “national, individual wages” and clearly, these differ by region, plus combined household incomes are also much higher than individual salaries. In addition, value growth is only ‘on paper’ until the property is sold, and people often need to buy and sell in the same market, where everything has changed in value by similar amounts. It’s only a cash profit if the owner actually sells and perhaps moves from an expensive area to a cheaper location (or a big house to a small house, or exits the market altogether - perhaps renting or invest property funds into alternate asset classes).
Suburbs with largest gain in median property value each year and national wage
(Sources: CoreLogic, Statistics NZ)
Even so, the fact remains that “earning” more from owning a property than going to a day-job has been pretty common across the country over the past 6-7 years. There’ll likely continue to be a selection of localised areas that deliver property value growth in excess of wages in 2019. But with many headwinds facing the property market – such as the ring-fencing of rental losses and the foreign buyer ban – it wouldn’t be a surprise to see a general pattern across the country of property value growth falling short of the typical wage.

Tags: NZ Property Market , Auckland property, NZ realestate