New Zealand Real Estate Investors Have Earned $511 Billion over 30 years

New Zealand real estate investors have made an impressive $511 billion since 1991, highlighting their significant role in the real estate market. Keep reading to explore the factors contributing to this remarkable financial achievement and its implications for future investments.

New Zealand real estate investors have reportedly amassed a staggering $511 billion since 1991, according to the estimations of economist Ed McKnight from Opes Partners. This figure was derived from the Reserve Bank's valuation of housing stock, meticulously adjusted by Stats NZ's home ownership rates. Over the span of three decades, the cumulative value of residential property in New Zealand has surged by an impressive $1.5 trillion, with investors reaping the benefits of approximately one-third of this growth.

McKnight draws parallels between New Zealand real estate market and that of Australia, suggesting that both nations have experienced similar long-term property value increases alongside comparable home ownership and investment rates. However, he posits that New Zealand's growth trajectory likely outpaces that of the UK and the USA, where, despite similar home ownership and rental rates, house prices have not escalated at the same pace. Consequently, the wealth generated through real estate investment in New Zealanddwarfs that of its overseas counterparts.

While McKnight acknowledges that his estimates are rough, he emphasizes the magnitude of wealth created through long-term real estate investment, confidently asserting, "It's safe to say that it's in the multi-hundreds of billions." The sheer scale of value appreciation over the past 33 years is nothing short of staggering. The fact that investors have enjoyed a third of this growth is not entirely surprising; rather, it serves as a testament to the remarkable expansion of the property market during this period, with investors playing a pivotal role.

The allure of real estate investment for New Zealanders can be attributed to its relative simplicity and the structural trend of declining interest rates, which have historically correlated with rising house prices. However, the current landscape reveals a stretch in affordability measures, prompting ANZ to predict limited price growth this year, followed by an anticipated 4% increase in 2025 and 5% in 2026.

Interestingly, Australia exhibits a greater propensity for real estate investment, with approximately double the share of new lending allocated to investors compared to New Zealand. The ability to leverage real estate investments—borrowing a significant portion of the purchase price from financial institutions—distinguishes this asset class from others.

Despite tightening policies aimed at investors over the years, it is essential to recognize that these investors provide a vital service to individuals who either cannot afford to purchase a home or prefer not to. An increase in rental supply could potentially lead to lower rental prices, yet affordability concerns persist. For first-time home buyers, the stark contrast in housing costs between now and the 1980s is glaring, particularly when viewed through the lens of inter-generational equity.

Post-1980s market crash, many have perceived real estate investment as a safer alternative to shares. However, New Zealand's heavy reliance on property investment is becoming increasingly anomalous on the global stage. Many countries are exploring the implementation of property taxes to level the playing field with other investment avenues. Critics argue that property investment does not contribute meaningfully to economic growth or productivity enhancement, raising questions about the sustainability of this investment trend in the long run.