Property market
Property gains aren’t always
what they seem.
A rising sale price doesn’t necessarily mean an investor has made money. Once inflation and the real costs of property ownership are
taken into account, the picture can look very different.
That’s roughly how much CPI inflation increased over the past decade. It means a significant portion of what appears to be a
property gain may simply reflect the falling purchasing power of money.
What does breaking even actually look like?
Take a property purchased for $500,000 in 2016.
Based on inflation over the following ten years, that property would need to sell for around $695,000 in 2026 simply for the owner’s money to have retained the same purchasing power.
Purchase price in 2016
Approximate 2026 value needed to keep pace with inflation
Apparent gain, before allowing for inflation.Selling at $695,000 looks like a $195,000 capital gain. In real terms, though, the owner has merely kept pace with inflation.
And that is before adding mortgage interest, rates, insurance, maintenance, upgrades, legal fees and agent commissions.
Once those costs are included, the number of property owners who have achieved a genuine real return is likely to be considerably
lower than the headline resale figures suggest.
Then there’s the capital gains tax question
The same inflation effect raises an important issue with Labour’s proposed capital gains tax on investment property.
If a capital gains tax is calculated using the difference between the original purchase price and eventual sale price, without
adjusting the purchase price for inflation, an owner could be taxed on a gain that hasn’t actually increased their wealth.
A $54,600 tax bill on no real gain?
Using the same example, a $500,000 property sold ten years later for $695,000 produces a nominal gain of $195,000.
At a 28% capital gains tax rate, that could result in an approximate tax bill of:
Yet after inflation, the owner hasn’t made a real capital gain.
Should someone pay capital gains tax when there has been no real
capital gain?
This matters because New Zealand’s housing market today looks very different from the one that produced years of strong, almost
automatic capital growth.
Property owners increasingly have to look at the full equation: income, financing costs, rates, insurance, maintenance, inflation
and tax.A nominal gain on a sale price is only one part of that equation.
A more useful conversation about housing
Rather than assuming rising house prices automatically create wealth, policymakers need to look at what property owners are
actually earning after inflation and costs. Stable housing policy, sustainable supply and a functioning rental market matter far more
than another boom-and-bust cycle.
Based on NZPIF’s response to Cotality’s Pain & Gain Report, Q2 2026.
Related interview
Matt Ball joined Ryan Bridge on Newstalk ZB’s Early Edition to discuss the findings of the Cotality Pain & Gain Report and what they could mean for property investors.
Listen here: Newstalk ZB interview