3.2 Ownership of investment property
Table 2 shows that one in six New Zealand households have some form of investment property, while around 8% report ownership of rental property. The ownership rate of rental property increases with age, at around 12% in the pre-retirement age groups (Appendix Table2). Amongst the highest income quintile, almost one in five own a rental property (Appendix Table 3).
| Investment type | Ownership rate (%) | Mean value | Median value |
|---|---|---|---|
| Holiday homes in NZ | 2.8 | 220,200 | 169,300 |
| Rental property in NZ | 7.9 | 305,800 | 224,000 |
| Other property in NZ | 5.0 | 216,000 | 140,100 |
| Timeshares in NZ | 1.0 | 13,100 | 5,000 |
| Overseas property | 1.0 | 392,700 | 150,000 |
| Any investment property | 15.4 | 255,400 | 172,000 |
Note: Values of property have been adjusted for the household's share when a property is owned by multiple households.
An international comparison of the ownership pattern is provided in Figure 3. The high rates observed in the HSS data are again mostly attributable to the difference in the sampling design. With the exception of the under-25 group, the rates of ownership of investment property amongst New Zealand households are largely similar to those recorded for Australia. The rates in the USA are typically lower, reflecting the higher proportion of financial assets in investment portfolios of US households.
- Figure 3 – Ownership of investment property by age: New Zealand in comparison with Australia and USA
-
Note: New Zealand HSS data refer to couples, while other data pertain to households.
3.3 Gearing
Gearing is defined as the ratio of mortgage debt to gross value of property holdings. As explained in Appendix A.2, SOFIE data do not break down the total value of mortgages into various types of property. As a consequence, we are only able to present the gearing ratio for the aggregate holding of property.
As evident from Table 3, close to one half of property-owning households have no mortgage debt and about half of those with mortgage debt have a gearing ratio of under 50%. Gearing ratios decline with age and the `typical' households above 55 own their property outright, as indicated by the medians in Appendix Table 4.
| Level of gearing | Population share (%) |
|---|---|
| 0 | 43.1 |
| 0.00 - 0.25 | 16.9 |
| 0.25 - 0.50 | 19.4 |
| 0.50 - 0.75 | 14.7 |
| 0.75 - 1.00 | 4.2 |
| 1.00 - 1.25 | 0.8 |
| 1.25+ | 0.9 |
| Total | 100.0 |
3.4 Net equity
In this section, we examine the relationship between net equity in property and total net worth.[5] Across the population, the median share of property equity in total net worth is 56%, whereas among property owners, typically over 80% of total net worth is held in residential property (Table 4).
| Age | All households | Property owners only |
|---|---|---|
| 18-24 | 0 | 0.85 |
| 25-34 | 0 | 0.81 |
| 35-44 | 0.59 | 0.84 |
| 45-54 | 0.65 | 0.77 |
| 55-64 | 0.64 | 0.77 |
| 65-74 | 0.76 | 0.85 |
| 75+ | 0.82 | 0.88 |
| Total | 0.56 | 0.82 |
Note: Entries in are medians of ratio of net equity in property to total net worth.
A finer breakdown of net equity is given in Appendix Table 5 for couples in the pre-retirement age groups. This table contains the average value of net wealth for each of the major categories: housing, pension, New Zealand Superannuation (NZS) and other. This last category includes all other forms of net equity, including household assets, financial assets and investment in property other than the owner-occupied house. The value of NZS is computed as the present value of the future expected streams of payments assuming that the current policy parameters are retained.
We calculate the share of housing in the average household portfolio as the ratio of mean housing wealth to mean total wealth. On average, housing accounts for 38% in total net worth (Table 5). This ratio falls to one quarter when NZS is added to the wealth portfolio. These estimates serve to emphasise the important role that NZS plays in the total wealth of New Zealand households, particularly among the lowest quintile of the wealth distribution.
| Wealth quintile | Couples aged 45-54 | Couples aged 55-64 | ||
|---|---|---|---|---|
| Incl. NZS | Excl. NZS | Incl. NZS | Excl. NZS | |
| 1 | 0.07 | 0.98 | 0.08 | 0.57 |
| 2 | 0.22 | 0.64 | 0.21 | 0.57 |
| 3 | 0.28 | 0.57 | 0.30 | 0.58 |
| 4 | 0.31 | 0.50 | 0.32 | 0.49 |
| 5 | 0.23 | 0.28 | 0.21 | 0.25 |
| Total | 0.24 | 0.38 | 0.24 | 0.37 |
Note: Entries are ratios of mean housing wealth to mean total wealth reported in Appendix Table 5.
3.5 Household portfolio composition
We can again draw on the Luxembourg Wealth Study to make cross-country comparisons of the composition of household wealth. As reported in Table 6, between 2001 and 2004 there was a rise in the share of property assets in total investment assets of New Zealand households, reflecting increases in house prices over this period.[6] But even with this rise, the composition of household portfolios in New Zealand is not dramatically different from those in the selected comparator countries. The USA emerges as an outlier, with households investing relatively more in financial instruments than in real estate.
| Canadaa | Finlanda | Italya | Swedena | USAa | NZb | NZc | NZd | |
|---|---|---|---|---|---|---|---|---|
| 1999 | 1998 | 2002 | 2002 | 2001 | 2001 | 2001 | 2004 | |
| Financial assetse | 22 | 16 | 16 | 28 | 41 | 21 | 22 | 15 |
| Deposit accountsf | 42 | 59 | 56 | 40 | 24 | 46 | 59 | 50 |
| Mutual fundsf | 21 | 4 | 18 | 31 | 34 | 25 | 18 | 22 |
| Stocksf | 30 | 34 | 8 | 21 | 34 | 29 | 23 | }28 |
| Bondsf | 6 | 3 | 17 | 7 | 8 | - | - | }28 |
| Real estate assetse | 78 | 84 | 84 | 72 | 59 | 79 | 78 | 85 |
| Principal residencef | 83 | 77 | 80 | 85 | 73 | 81 | 81 | 80 |
| Investment propertyf | 17 | 23 | 20 | 15 | 27 | 19 | 19 | 20 |
| Total debte | 26 | 16 | 3 | 35 | 20 | 30 | 26 | 24 |
| Home mortgagef | 83 | 68 | 80 | - | 82 | 60 | 57 | 61 |
Sources: [a] Luxembourg Wealth Study, these estimates are taken from the preliminary `beta' version, see www.lisproject.org/lws.htm. [b,c] HSS [d] SOFIE
Note: Entries are percentages [e] Share of total investment assets [f] Share of corresponding investment asset class [b] Couples [c] Non-partnered individuals. All other data refer to households.
Notes
- [5]Again, because SOFIE does not provide a breakdown of mortgage liability, the results presented here refer to all properties.
- [6]Table 6 covers investment assets, both real estate and financial, but ignores other household assets such as vehicles, collectibles, farms and business and pension schemes.
