The house doesn’t always win

Research published last year by the University of Auckland found that the Auckland Unitary Plan, which upzoned around three-quarters of residential land, has helped reduce rent inflation by 22–35% since 2016. Other councils have followed, with sweeping changes to zoning rules recently approved for Wellington, which will enable the construction of tens of thousands of new townhouses and apartments. 

These structural changes do not necessarily infer that house prices will fall further or stop rising. Inflation, real improvements to housing stock and population growth are all expected to support prices going forward. Demand will also be sustained by the many non-monetary benefits of housing such as the ability to live in a safe environment close to work, schools, friends and family. However, significant changes to the macro environment do serve to highlight the wisdom of diversification. Some of the previous tailwinds for housing have now abated, and it can make sense to hedge your bets. 

One house on one street 

Rapid house price growth over the past 30 years means that New Zealanders now have almost 60% of their wealth concentrated in owner-occupied and rental housing. Given that only 64% of the population own homes, by nature, the average homeowner will have even more exposure to property. 

One house on one street in one city in one country is a very concentrated and illiquid portfolio. While concentrating your risk can be one of the fastest ways to grow your wealth, it can also be one of the fastest ways to lose it. 

For example, where one particular risk like a cyclone or interest rate hike can have an outsized impact on your total wealth. 

While the high cost of housing means that a large exposure to property is probably somewhat inevitable, you do have a choice with what you do with the remainder of your wealth. A good option for this can be a managed fund. MAS Investment Funds, for example, can give you exposure to over 2,000 different assets across various industries in more than 40 countries. The funds also provide you with easy access to your money. While you can’t sell the front room of your rental property to free up cash in an emergency, MAS Investment Funds let you withdraw money at your convenience. 

Risk is what you can’t see  

Many of the biggest risks in life are surprises. No one predicted the 9/11 terrorist attacks, the Global Financial Crisis or the Covid-19 pandemic. Nor could they. Yet these surprises shaped investment markets and the world. 

All you can do is prepare. Some investments can perform strongly for a long time, but not forever. While many remember the stock market crash of 1987, we forget the New Zealand housing market downturn of the 1970s. Such was the scale of the decline, it took 20 years for real (inflation-adjusted) house prices to recover. Other countries have faced similar events. Real house prices in Japan are well below what they were in the 1990s, while real house prices in both Italy and Ireland are still below their 2008 peaks. Volatility and periods of weakness are inevitable and can continue for years. 

Diversification remains one of the most effective ways to protect your wealth, enabling you to offset losses in one asset with gains in another. This is an area where MAS can help. Your personal MAS Adviser can work with you to understand your level of risk concentration and help you diversify your wealth accordingly. Please reach out for a coffee and a confidential conversation today by contacting us at investments@mas.co.nz or calling 0800 800 627. 

This article is of a general nature only and is not intended to constitute financial or legal advice. © Medical Assurance Society New Zealand Limited 2024. MAS is a licensed financial advice provider. Our financial advice disclosure statement is available by visiting mas.co.nz Medical Funds Management Limited is the issuer and manager of MAS Investment Funds. A PDS is available on our website.