Podcast: Inequality: A Tale of 2 Suburbs | Ep. 246

Posted by Ed McKnight on 18/05/20
Inequality A Tale of 2 Suburbs 001
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Show Notes

What's Covered in the Show?

In this episode, we discuss inequality and the difference between how different suburbs appreciate in value. Even if different suburbs appreciate at the same rate, if there were small differences in their initial starting values, one suburb can become more expensive than others within the same city.

This means that homeowners in one suburb can see their wealth increase at a much faster rate than homeowners in a neighbouring (slower growth) suburb.

We also discuss the inequality within investing between men and women, along with what we are doing to try to change the status quo.

Finally, we discuss our upcoming property investment webinar, which you are most welcome to attend, next Tuesday at 7pm.


Transcript of the Podcast

Ed McKnight:
Hello and welcome along to the Property Academy podcast. I'm your host, Ed McKnight, and I'm Andrew Nicol, and today on the show, we're going to give you a bit of a tale of two suburbs.

We're going to be talking about inequality in terms of property prices and what do I really mean that? Well, when I'm looking at my graphs, which I tend to do lovingly every night before I go to bed, no, I'm not that quite nerdy, but my partner does talk to me about how much I talk about graphs.

One thing I notice is that more expensive suburbs tend to grow in value a lot over time and into dollar terms as opposed to percentage terms, whereas cheaper suburbs, not so much. And, what I'm really saying is that I'm talking about the power of compounding growth.

So if you've got more expensive suburbs like a Remuera in Auckland or Fendalton in Christchurch, over time, even if they grow at the same rate, property prices grow at the same percentage rate as cheaper suburb, over time the prices get really out of whack.

And the lines start to diverge. And I will just want to give some data around this before we talk about some broader themes around inequality in terms of finances.

So, at the turn of the century, I'm going to take you back to January, 2000, Phillipstown, which is a Christchurch suburb, one of the cheaper suburbs in Christchurch, it's property price, median property, price or value, I should say, is a 100,600, so about 101 K. Now over 20 years, that grew to 295,000. So it increased by about 195 K the median Phillipstown property owner or homeowner, their wealth increased by 195 K.

Now that's still a relatively good percentage growth because I note that Phillipstown house prices over that period, increased by 5.46% every year.

So reasonable growth over that period. But that percentage growth, 5.46% only resulted in $200,000 worth of wealth. Now, that's still not something to be sniffed at. It's still 200 K, but I just want to compare that to the other side of Hagley Park if I can down in Christchurch, and talk about Fendalton.

So the most expensive suburb, or it was up until recently, the most expensive suburb and Christchurch, that only grew by 5.76% every year. So only a little bit more in terms of the capital growth rate, but house prices, they're over that same 20 year period grew from 368,000 to 1.15 million. So a total of 775,000.

So I just want to compare those two. Phillipstown average home owner, their wealth grew by 195 K over in Fendalton, 775 K and so even though the percentages were relatively similar because of compounding growth of the initial investment or the initial purchase price, we see massive changes in terms of the wealth 20 years on, a difference of about 575 K, 580 K difference just because of where somebody bought.

Now of course, you could say, well, why not just buy three homes and Phillipstown and you'd get the same growth and wealth as you would if you bought one property in Fendalton. That's not always achievable within this, and if you're going to buy a house, say it's an owner occupy, this just shows the difference based on one decision that can have about a 550 K difference down the track.

And it's interesting to say that the absolute growth, you know, that 775 K versus the 195 K you got about 3.8, seven times more, increase in wealth over that period in Fendalton as opposed to in Phillipstown sound just in terms of dollar terms and I know increases, and percentage comparing percentage returns is important, but sometimes when it comes down to buying one property, you've actually just got to look at absolute and not discount that as well.

Andrew, what are your kind of thoughts around this? What are you, what are you thinking when you look at this data?

Andrew Nicol: So, one of the things that jumped out to me, I immediately thought, this is probably a case of the rich get richer sometimes. And, unfortunately as it might not seem that fair, but that is the case often, particularly in those rich suburbs of Christchurch or Wellington or Auckland, those people's properties go up at maybe the, let's say the same percentage.

But like Ed says in absolute numbers, they've become a whole lot wealthier and so that helps them leverage and have more usable equity and do it time and time again.

One thing that I thought about as we're looking through this is that if you were looking to be living in one of these really affluent areas probably the sooner you can get in there, the better because, it just becomes harder and harder at an exponential rate to be able to exist and buy a property in these areas because again, you know, if you look at the multiplier of income, I'm guessing that it becomes significantly more challenging to get a mortgage to sustain a Fendalton property versus a Phillipstown property, obviously, because you know, incomes, might not necessarily reflect that sort of level of percentage or increase.

One other thing I thought about is just the fact that, you know, if you were ever only going to buy one rental property, and then you might actually push yourself to buy in one of those are larger, sort of more expensive, more affluent areas, so that your end wealth goal was met based on that higher purchase price. Certainly it's not the model that I use personally. I prefer a mid-range property and lots of them. But again, if you're just wanting to buy one, maybe you do that.

Ed McKnight: There definitely are horses for courses there. Now, the other reason that I wanted to talk about broadly about inequality, and I just want to pivot here as well, is we were checking out the podcast stats just a couple of, about a week ago, I think, and there was a new report available, which showed me that, up there about of our listenership, 28% are women and the rest broadly are men.

So, I think we've got 72% men. And it just took me back to one of the previous episodes with Di Foster, which was about episode 70 to 75, where we talked about females investing. Because what we do know is that, around the world, financial literacy for women is lower than it is within men, with the stats I've got in front of me, about 30% of women around the world are financially literate as about 35% for men.

So there is a bit of a gap there. And what we do know is there are differences in terms of how men and women invest. And I think this actually comes down to, I've seen studies that compare how men and women are marketed to in terms of financial products.

What we do know is that in women's magazines, you'd probably see not that I've read a lot of them, but this is what I read, is that there are more, just had to correct that there not everybody needs to know, is that it tends to be more around budgeting and saving, whereas men's magazines tend to have more topics about investments.

And so there's a bit of a gap there. And, that just kind of was brought home when I looked at those stats. And so I called Di and I said, Di, how can we get more women listening to the show? Cause I really want to even that up. I want to be part of trying to solve this level of financial inequality within there. Because first of all, if women have tend to have lower incomes than men, then obviously they don't have as much to invest.

But then if they are investing in financial products that don't give the same returns that perhaps have lower risk, but then on the flip side also have lower returns, then they're kind of taking a double hit. And so we are looking at things that we can do as well to reach more women and increase the listenership specifically on that. Whether that's doing guest podcasts and we had some really great ideas come out from some people I think on Instagram when I was posting on this people who listened to the show.

I think that was Liv, thanks for listening Liv. That was a great situation there and we are going to try and even that up there because we see, inequality at this sense that we've talked about today in terms of rich suburbs versus poor suburbs, and it's not necessarily the rich getting richer, poor, getting poorer.

It's the rich getting richer and the poor getting richer at a slower rate, in that case. And, well, not slower rate, but in smaller amounts, I guess we'd say. And so we are cognisant of that and just want to fix that in the areas that we can, and just kind of address that as well and kind of give you some thoughts around this.

But hey, let's wrap up the show there, of course, please don't forget to rate review and subscribe to the podcast. It really does help us get the message out to more people. And hey, if you want to learn about property more with Andrew and I, then why not check out some of our previously recorded webinars. Now, these are all available on our website at Opespartners.co.nz. But also I'm going to link those to those in the show notes. So tap or swipe over that cover art, you'll find them right there. And of course, please don't forget to share them with all of the women in your lives as well.

They make great for great listening and great watching.

Thanks for listening to the Property Academy podcast. I'm your host Ed McKnight, and I'm Andrew Nicol, and we're going to be back again tomorrow with even more daily strategies, tactics, and insights to help you get the most out of the New Zealand property market.

Until next time.