Kiwi Wealth In Houses

Concentration of Kiwi wealth in houses may be concerning, but it has helped NZ stand out as the best deliverer of prosperity in the world in the past decade.

Previous Story: Follow The Money

World’s wealth was increasingly becoming concentrated in the hands of a few, thought Rosh.

A 2015 Credit Suisse report had found the richest 1% owning exactly 50% of the estimated global assets of USD 250 trillion.

Now, just 8 men owned as much combined wealth on earth, as half the human race.

The Global Wealth Pyramid in the Swiss bank reports made interesting reading. The 2014 UBS (Union Bank Of Switzerland) Ultra Wealth Report had also stated that only 30,000 (just 0.004% of the world) ‘Ultra high net worth individuals’, owners of 30 million USD+ of assets, (of whom maybe 1,000 lived in New Zealand) held an astoundingly disproportionate 13% share of global wealth.

Only 02 million people on earth, owned between 5-30 million USD of wealth.

Only 23 million people owned assets worth 1-5 million USD dollars.

So, only 25 million people (0.33% of the world’s 7.5 billion) had net assets of greater than 1 million USD. In New Zealand, many thousands of houses were worth more than USD 1 million.

According to the Credit Suisse Global Wealth Report 2016, Switzerland had the world's wealthiest citizens (USD 562,000 per adult), followed by Australia (USD 376,000), the United States (USD 345,000) and Norway (USD 312,000).

Interestingly, it calculated that New Zealanders were the fifth richest people on earth currently, with an average Kiwi adult owning USD 299,000 ($422,700). When revised for median wealth per adult, New Zealand moved up one spot to be placed fourth after Switzerland, Australia, and Belgium.

The report found that to be in the richest 10% of the world, a person needed only USD 71,600. Half of the world's adults owned less than USD 2,222, while those in the bottom 20% owned less than USD 248. Remarkably, that placed over a third of all Kiwi adults in the top 10% of the world’s richest people.

According to the Household Net Worth Statistics for the year to June 2015, median net worth of Kiwis was $87,000. European Kiwis (69% of NZ population) had an individual median net worth of $114,000; Asian Kiwis (9%) $33,000; Māori Kiwis (15%) $23,000; and Pacific Kiwis (7%) $12,000.

Had we suddenly catapulted into prosperity this year? Not according to the Legatum Prosperity Index, which said that for the past decade, NZ has stood out as the best deliverer of prosperity, because of its ‘unrivalled ability to turn its wealth into prosperity’ - a broader measure than just money.

The recent capital market appreciation and exchange rate improvements had helped sustain prosperity in New Zealand as a whole, and not just limit it to a select few.

Still, inequality also existed, since the top 10% of Kiwi households had around half of total New Zealand net worth.

But this wealth pattern was consistent with OECD average. Our richest 1% households had 18% of total net worth, again same as the OECD average, but slightly higher than in Australia (where the top 1% owned 13%).

In his recent weekly newsletter, Chris Lee had noted that Kiwis who earned more than USD 28,000 (NZ$40,000) annually, were amongst the top 10% of salaried earners globally. Also, that any retired NZ household with tax-paid annual income of over NZ$72,000 was in the richest 3% of all retired households in New Zealand, and amongst the top 1% of superannuitants in the world.

Yet, almost a quarter of Kiwis were receiving financial help, with over a million (in a nation of 4.5 million) on a benefit (including the means tested Working for families, and the not-means tested NZ Super).

70% of these beneficiaries (718,000) were on NZ Super today, which entitled anyone 65 or over (currently) to between $15,000-20,000 annually, depending on their circumstances.

Only a tiny minority of NZ retired households owned shares, bonds, bank deposits or rental properties. The median retired household had around NZ$30,000 in bank deposits, shares, bonds or other non-household assets. But, the universal NZ pension entitled a retiree a government guaranteed pension that probably had a capital value of around $300,000.

So, where were the Kiwi wealth numbers leading him? Obviously to houses first. Over half (51%) of New Zealand households lived in owner-occupied dwellings (59% if dwellings owned via trust were included, as 12% of owner-occupied dwellings were held by trusts). As expected, richer people owned more expensive houses, and owned them more through family trusts.

56% of New Zealand households living in their own home had a mortgage, and the median mortgage was $172,000. For every dollar of assets, New Zealand households had 12 cents of debt in 2014/15, which was for owner-occupier residence mortgages (60%+), loans for ‘other real estate’ (24%), education loans, and loans for items like furniture and cars.

Holiday homes, timeshares, commercial and residential investment properties, and land made up the ‘other real estate’ category. This accounted for only 16% of the total non-financial assets held by New Zealand households, and only 8% of their total household asset value. Still, more than 1 in 10 (14%) of New Zealand households owned real estate other than the home they lived in.

Almost a fifth of Kiwi households (19 percent) were involved in a trust. This meant that at least one household member in 322,000 households (those who were only independent trustees excluded) was involved as a settlor, beneficiary, trustee, or had another type of involvement in a Kiwi Trust.

For households with assets in their trust, the median value of those assets was around $700,000. For households that had liabilities in their trust, the median value of those liabilities was close to $300,000. These values were comparatively quite large, as a big proportion of trust assets and liabilities related to farms and owner-occupied dwellings.

If your net worth was over $815,000 in 2014/2015, you were in the richest 20% Kiwi households (top quintile). This top quintile had more cash and deposits, shares, equity in trusts and businesses, and other financial investments, and less debt relative to lower quintile households.

So, not all the Kiwi wealth was stored in houses. The question now was, how much of it was diversified overseas?

Next Story: Let Them Grow Roots