$100,000: It's not what it used to be

Thursday, 31 May 2018

In 1992, the median house price in New Zealand was $105,000.

You might think $100,000 a year is a lot of money.

The response to stories this week about families struggling on six-figure incomes has indicated that many people still see it as an exorbitant amount of money.

But economists say that view is outdated - and $100,000 definitely isn't what it once was.

So what's $100,000 worth in 2018?

Inflation erodes the purchasing power of money over time, which is why the Reserve Bank has a goal of keeping inflation low.

* High-paid families feeling the squeeze as costs pile up**

Based on the general rate of inflation, $100,000 in today's money would have bought $119,000 worth of stuff in 2008.

If you went back another 10 years, it would have paid for $149,000 of goods in 1998.

Housing costs

Your money doesn't go as far as it did 10 years ago.

The biggest driver of that loss of purchasing power is the cost of housing.

In 1992, the median house price across New Zealand was $105,000.

Now that might just be enough for a deposit on the median house price of $550,000.

In 2008, the median house price was $350,000 - just three-and-a-half times a $100,000-a-year salary.

Households on $100,000 no longer have anywhere near the same buying power in the property market.

Economist Cameron Bagrie said there was a 'middle income class of poor' who earned enough to borrow and buy a house but did not have much discretionary income left over to do much else. 'They are also being protected currently by low interest rates.'

Financial adviser Liz Koh said the cost of a mortgage had the biggest impact on how well-off a person was on a particular wage.

She said people who bought a house more than five years ago would benefit from low interest rates. 'They're pretty sweet actually.'

But those who had bought more recently would struggle even if they earnt more.

Food costs

Koh said food was the other thing that could put pressure on a person's budget.

Reserve Bank data shows it would cost $1.21 to buy this year what $1 bought in food in 2008. Transport costs have also lifted about 10 per cent.

ASB chief economist Nick Tuffley said food inflation was slightly ahead of general inflation but there had been increases in commodity prices over that time. 'We have had some periods where we have had quite strong price inflation in things like dairy products.'

What everyone else is paid

Wages have lifted about 35 per cent across the board in the last 10 years. A $100,000 income is not the standout it might once have been.

Stats NZ figures show a similar picture. In 2017, the median weekly earnings for people in paid work was $959 a week or just under $50,000 a year. A typical two-income household then, would earn about $100,000 between them.

In 2008, the median weekly earnings for salary and wage earners was $729 or just over $37,000 a year.

A $100,000 income this year is equal to an income of $174,000 in in 2000, Reserve Bank calculations show.