Property Investment

5 min read

Private property issue #22 - end of capital growth?

Giving you exclusive insights into the NZ property market. Sign up to receive this newsletter and it will be delivered to your inbox every Thursday. Issue #22


Copy to clipboard


Private Property – our weekly newsletter that gives you insights into what's happening in the NZ property market. Written by managing director Andrew Nicol. Sign up to receive this in your inbox every Thursday.

Is it the end of capital growth?

NZ house prices are down … and if you’ve been reading the news, you might think property values will never recover.

That’s led some readers of this newsletter to ask, “is there a ceiling on capital growth?”

And “shouldn't house price growth run out, eventually?”

The answer is no. Here’s why …

Argument #1 – Incomes increase over time

There’s no ceiling or limit to what property prices can reach – as inflation and people’s incomes grow over time.

In 2001 the average person in NZ earned $33.7k, according to Infometrics.

Today, the average person makes $65.9k.

Yup, the average income almost doubled in 20 years.

This gives people more money to spend on housing, pushing up prices.

Even if house prices increased at the rate of income growth (3.4%), by 2090, the average Kiwi would earn $670k per year, and the average house would be worth $10 million.

You might think that sounds hysterical. But, it’s easy to see past growth and very difficult to see the future.

In my mind, income growth acts as a de facto floor for how quickly house prices will increase in the future.

Argument #2 – House prices can increase without a lot of extra debt

When people think about how quickly house prices will increase in the future – they do what I just did.

They think about incomes vs house prices.

Right now, NZ’s house price to income ratio is 8.5x, depending on what data you look at.

This doesn’t actually matter.

Because house price growth doesn’t just come from new people getting into the market (i.e. first home buyers).

Since the average house price is over $1 million and the minimum deposit is 20% – it’s easy to think that everyone has a mortgage of $800k.

Not true.

The average mortgage is around $360k. And house prices can increase substantially without this debt increasing much further.

Here’s a scenario.

You bought a house 10 years ago when the median house price was $360k.

At the time, you took out an 80% mortgage for $295k. By the time we get to 2022:

  • Your house value has increased to around $860k.
  • Your mortgage has been paid down to around $240k
  • Your income has increased – the average household income increased by $34,000 over the last 10 years (around +42%).

These three factors allow you to borrow more.

So you decide to upgrade your (now) $860k property.

You find a new house and fall in love. And although it’s worth $950,000, you decide to bid it up to $1 million.

How much extra debt do you need to take on to buy this property?

$200k. And that’s after paying the real estate agent and lawyer’s fees.

That takes your mortgage to just over 425k. If you earned the average household income, your debt-to-income ratio is still considered low ­– only 3.6x.

So, you’ve pushed the market up without taking on a lot of debt.

These people (‘Movers’) are the most active property-buying group. They consistently buy more properties than first home buyers or investors using mortgages.

Yet, amazingly, this is the group that most often gets forgotten when discussing the property market and how values increase.

So… is it the end of capital growth?


There is still capacity for growth. There is less debt and more equity in the market than people think. And as household incomes increase, property prices will continue to climb.

It may not be at the exact same rate as before (7% p.a.) – I always run the numbers on 5 - 6% per year – but the market isn’t done yet.

Sign up here 👇

Opes Partners
Download 5

Andrew Nicol

Managing Director, 20+ Years' Experience Investing In Property, Author & Host

Andrew Nicol, Managing Director at Opes Partners, is a seasoned financial adviser and property investment expert with 20+ years of experience. With 40 investment properties, he hosts the Property Academy Podcast, co-authored 'Wealth Plan' with Ed Mcknight, and has helped 1,894 Kiwis achieve financial security through property investment.

View Profile

Related Private Property Newsletter