Roy Davidson, 4 May 2021

Over the past three decades, which region has seen the strongest increase in median house prices? It must be Auckland, right?

While it’s true Auckland has the highest median house price today, in excess of $1 million, between 1991 and 2020, the region which saw the largest increase in property prices was in fact Hawke’s Bay. According to REINZ data, Hawke’s Bay saw a whopping 719 percent growth between 1991 and 2020, or 7.5 per cent growth annually.

Otago/Central Otago comes in second with Northland pipping Auckland for the bronze medal.

How do these returns compare to shares?

Has this return been superior to shares? According to REINZ, between 1991 and 2020, the median value of a New Zealand house increased 606 per cent, or just shy of 7 per cent annually.

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Since March 1992, NZ shares have risen 358 per cent excluding dividends, an annual growth rate of 5.4 per cent. Since January 1991, Australian shares similarly returned 315 per cent, or 5 per cent annually while the S&P 500, in NZ dollars, has returned 577 per cent over this time frame, or 6.8 per cent per annum.

This means the return of property has in fact exceeded New Zealand, Australian and US shares over the past three decades.

However, there’s a big caveat. Looking at returns from property and shares is not comparing apples with apples. Costs associated with owning a property are impossible to quantify, whether its maintenance or improvements. Not many houses in New Zealand have not had extra investment made in them – say a new kitchen, deck or driveway. All of that increases the value of a house (or in the case of maintenance prevents it from falling), but is not accounted for when comparing prices from two points in time. For shares – these costs are a part of normal business operations and captured in the share price.

Additionally, in comparing price gains we haven’t included income (in the form of rents and dividends) or mortgage payment costs. One other point - looking at median house prices also needs to be done with a grain of salt, especially when comparing between regions.

So, while returns in property have been sublime, so too have returns form shares. In fact, across three decades of falling interest rates, the value of most things have risen strongly – not just property and shares, but bonds, art, wine, classic cars and so on.