Exploring past and possible future investor housing performance in 19 Auckland City suburbs
International Journal of Housing Markets and Analysis
ISSN: 1753-8270
Article publication date: 31 May 2011
Abstract
Purpose
Private sector residential property investors aiming to achieve optimal total returns need to be able to identify the best performing suburbs in a city. The purpose of this paper is to analyse the risk‐adjusted investment performance of 19 suburbs within Auckland City and provide some insight into the likely future performance of some of these suburbs.
Design/methodology/approach
The annual pre‐tax and unleveraged investment performance of a residential property is a function of the changes in the value of the property plus the net yield. House price data for the suburbs were taken from the Real Estate Institute of New Zealand. Rental information was obtained from the Department of Building and Housing.
Findings
Surprisingly, the suburb showing the highest average yields was also the suburb recording the greatest increase in house prices. This result appears to be a consequence of government intervention in the form of increased rental subsidies for renters, tax concessions for landlords and low‐deposit home loans aimed for first home buyers.
Research limitations/implications
It is all very well analysing the past performance of suburbs but investors are likely to be more interested in future performance, rather than past performance, when they make buying and selling decisions. In some cases, the characteristics of suburbs that have done well in the past can be useful in identifying suburbs likely to do well in the future.
Practical implications
The hypothesis advanced in this paper is that suburbs with lower than average household income to house price ratios and house income to rent ratios, combined with a trend for household incomes and rents to be increasing above the city‐wide average, are likely to be the best prospects for future residential investment.
Social implications
The main social implication appears to be the unintended consequences of rental subsidies increasing rents and house prices more than the average in the lower priced suburbs.
Originality/value
There has been very little published work comparing total returns on investor housing within a city, by suburb. This has been made possible by the combination of real estate sales information and a comprehensive rental database. In addition, census information on households' incomes at suburban level is also integrated into the study.The study also makes a novel contribution by suggesting variables likely to influence future total returns by suburb.
Keywords
Citation
Hargreaves, B. (2011), "Exploring past and possible future investor housing performance in 19 Auckland City suburbs", International Journal of Housing Markets and Analysis, Vol. 4 No. 2, pp. 130-143. https://doi.org/10.1108/17538271111137912
Publisher
:Emerald Group Publishing Limited
Copyright © 2011, Emerald Group Publishing Limited