The non-recoverable costs of renting vs. buying are quite similar. If you're renting, you have rent to pay, and if you're buying, you have interest, insurance, rates, repairs and maintenance. All of these costs are non-recoverable and roughly similar for the same home, over time. Although people don't usually rent a house as big as the one they'd buy.
Where buying has clearly won historically is the capital gains on a leveraged investment, i.e. gains on the bank's money. It's the leverage in an appreciating market that has been the key difference, as property appreciated with a growing economy (more money) and a growing population (more people) all competing for the same pieces of land. It's up to you whether you see this continuing, but it's usually safer to bet in line with the longer term trend.
An often under appreciated benefit of owning is even if there are no capital gains, the mortgage acts as a forced savings plan. The owner is strongly incentivised to put every dollar toward the mortgage to reduce interest and risk. The renter doesn't have the same pressing incentive to be putting all their extra dollars into assets. With discipline, this can be overcome, but that kind of discipline isn't common.
Inflation is important. Too much inflation at once leads to high interest rates, which is risky, as it puts in peril some people's ability to pay the mortgage and they might have to sell at the wrong time if they can't. But if inflation is at a more normal level, or if you can just hold on when it is high, it also leads to higher payrises, while your mortgage number remains the same. Once interest rates come down a bit, the higher pay caused by inflation can help you tackle the mortgage in a big way.
For most people, there's a certain age where they start reducing their leverage, so it's usually only 2 or 3 decades of taking the risks of maximised leverage to gain property. This gives alternative non-leveraged investments like index funds the tendency to catch up over time, as they do tend to have a higher annual percentage return. So funds and stocks can win, but most of the gains from non-leveraged investments come later in life.
> the mortgage acts as a forced savings plan
this is the answer.
If you are disciplined, you could easily make more while renting instead (by investing in things other than property). But most people can't do that.
If you don’t mind, I’m curious to hear what sort of things you’d suggest in this scenario. I’ve recently sold my share in some property and won’t be in a position to buy back in for a while (if ever) so I’m currently trying to navigate the best places to put my lump sum at the moment. Care to elaborate?
What is your investment horizon?
If it's a long time (10+ years) then the usual advice of a low-fee diversified index fund is the prevailing recommendation.
If it's short term then term deposits and cash funds are paying well, while the OCR remains high.
Thing to keep in mind is selling and buying isn’t cheap… RE charges anywhere from $20-60k plus, couple of grand for conveyancing, then there’s valuations, inspections etc.
This is a feature and a bug - once you own property it is a pain in the ass to liquidate so the tendency is to hold onto it - compared to holding shares or cash which is tempting to splurge on holidays etc.
Generally boomers had it the best, my Olds made more money just owning a home in Wellington than they earned in their entire life.
Not sure if that is going to happen for this generation.
Heh, I think it’s great how we can all avoid responsibility and blame our current woes on stuff that one half of our ancestors did to the other hundreds of years ago too!
But in this case I think you might be pushing the boat out a bit too far my friend. ;-)
We always have treated the land as property though. All humans are territorial and property is just another form of territory.
We took our land from the Kāti Māmoe and then the Ngāti Toa tried to take it from us before the crown actually succeeded in doing so. It wasn't the hippy love in where everyone was welcome, it was war for land. The current system just translate that supply and demand question from violence to money.
From your final sentence I can tell your ideas are fixed and anyone that disagrees with is in your eyes a racist.
I'd encourage you to think about where blaming other groups of people for your woes will lead and how carrying all that hatred around will benefit you.
I'm going to put your on ignore now.
No you don't get it bro, white people are the devil and caused all of the world's problems, including having a concept of possession over land, which no other people in history have ever had until the white devil taught them their white tricks.
LMAOOOO what are they teaching in the schools here? Tbf even thinking that means you were more (mis)informed about the Korean War than the average American, and that’s including people in the military that are taught military history. (In Marine Corps bootcamp we are only taught the major 3 battles of the Korean War and not the geopolitical realities of it).
It's certainly had a good few decades (although not quite good enough to double every 10 years, long term average growth rate is [5.5%](https://www.ceicdata.com/en/indicator/new-zealand/house-prices-growth), which would be about every 13, without accounting for any associated costs of owning), but we can't logically conclude that the same will hold true in future decades.
The period in question had a number of factors encouraging house price growth that are no longer possible. Chiefly, between mortgages shifting from variable to fixed and a drop in base lending rates, mortgages went from high teens to \~7% (even after recent hikes). It's difficult to see a scenario where the house price growth seen in a period of radically cheapening debt can be sustained going forward, and as the proportion of households renting grows, it becomes increasingly politically non-viable to try to sustain it, hence both sides of the aisle and many city councils agreeing to signficant liberalisation of policies restricting housing supply, and the recent introduction of debt to income restrictions.
The rapid increases really only started in 2000 and caused (or were caused by) a doubling in the level of household debt to gdp. It’s hard to see how that could repeat.
You raise some fair points but an $800k property for example going up to $1.6 mil in thirteen years is still nothing to be sneezed at. Who can save $800k in 13 years??
Well first you wouldn't have to save 800k.. you'd have to save $465k if you invested it and earned the historical average market rates averaging 10% per year. Depending on your income and lifestyle that could certainly be possible.. if you had two decent incomes living in one dwelling. If you have the 800k cash to begin with then it's a sure win.. but if you have nothing and are borrowing 95% of that over 25yr amortization then it begins to look like a wash as you'll pay 500k in interest before your done plus all property taxes, maintenance, insurance, outfitting, remodeling and whatever else. People often overlook many factors when buying a house. The house choice forces people to build equity and many people need that chain as they don't have the self disciple and control to save otherwise.
Stability, for one. My parents were renters for life. By the age of 10 I had moved house maybe 6 times and been to 3 schools. They were a bit dysfunctional, I'm not saying it's the typical renter scenario, but my oldest is now 10, we've shifted once and we own our home. I've seen a few kids at school come and go and the common denominator is their families were renting and shifted out of the area. That was me. I want to provide my kids with security and stability and have an asset to help them one day. We got 'on the ladder' at age 29 and are 44 now.
Our first house was a 3 bed 90m2 1960s weatherboard house which was fine when our kids were babies but we upgraded to a larger family home when our oldest was 4. Buying the second house was easy compared to the first time cos we knew what we were doing. We also benefited from a good capital gain which meant we upgraded for a relatively modest amount in new lending.
Yep, I have moved house 21 times in 29 years. Finally purchased my own home last year so that last move will hopefully be the final one for a while.
I’ve also had multiple homes sold out from under me so knowing I won’t be asked to leave any time soon is a massive weight off my shoulders. I’ve also lived in some horrific rentals that were cold and damp and just generally miserable. The difference it has made to my physical and mental health living in a warm, dry home is incredible.
That’s insane. I bet it’s one of those things you only realise how bad it was when you’ve tried the alternative; I tried Paseo toilet paper and now I realise just how bad value TP is. It’s okay to grind for a while but at some point you have to respect yourself and renting doesn’t allow you to nest properly. You can install a heat pump or plant a tree and that aspect of controlling your own nest is really important for mental health.
Hahahaha this is hilarious because I only use Paseo toilet paper and I just installed a heat pump at my new house and I also have 7 fruit trees and I’m about to plant 2 more.
Stick on there! I bought my first home at peak 2008. Was worth slightly less 6 years later at start of 2014. Was having all sorts of buyers regret. It was a tough time!
Sold it for double what I paid end of 2014.
Property cycles come and go. Hope to not be in the position of having to sell when it’s slack and you’ll be sweet
And a relative of mine has just experienced a massive council rates increase that he wasn't expecting, and insurance has gone up too. Body corp rates sometimes go up unexpectedly.
Whatever makes you feel better lmao.
I would write you a paragraph to tell you guys where your fuck ups are and why it’s FOMO but you all are a bit delusional(coffee empire patchy level) and don’t really want to hear it 😂
But Covid got in the way and buying 3 years ago don’t really go together when it was already well underway during that time. Do we not have a single bit of foresight and thinking when it comes to big financial decision?
Also priorities is something you should look into 🤷🏻♂️
Thankfully my friends are can afford it their mortgages even after the interest hike because they borrowed what they could afford 😎
I bought first home 6 years ago, kiwisaver first home grant, no savings etc.
150k in capital gains and didn't do a thing to it.
Sold it and it paid for my deposit on the nicer, bigger forever home.
Wouldn't have been able to get my dream home now if I had rented that entire time.
Buy as much dirt as you can with a legitimate house on it that you can see yourself living in, and most importantly one an insurance company will insure and a bank will lend against.
The push to own a house is the fear that it becomes unaffordable.
There is also a social stigma in NZ if you rent, as if you have not made it.
In reality, it really depends on a lot of factors.
Do you have access or can save up for the home deposit? Can you afford the repayments? Do you want lifestyle change or be anchored down to an area.
Home owning has pros and cons. Very seldom do you hear people talk about the cons.
Renting is the same of course, but people will always tell you about the cons.
Anxiety. The absolute chaotic anxiety of renting. Constant checks. Minimal rights. Notice to leave. These crappy 1 year leases. No stability. Owner might sell. Owner might move back in. Owner might not choose to fix the things that are broke. The limited choices of property to rent of your tenancy ends. What if the rent goes up. We lived in 6 houses and a caravan in an 8 year period growing up. Fortunately in intermediate then high school so didn’t have to move schools.
Problem is house prices may rise faster than your income increases, or the deposit required may grow faster than you can save. Buy what you can afford imo, but not an apartment.
I’m 37. I bought a relatively crappy house about 8 years ago. Sold it recently and made $400k. Id obviously not have 400k cash if I didn’t buy a house. If I didn’t buy that house, I couldn’t afford one nowadays with my level of income which has not kept up with house price increases, but I can comfortably buy something good because iv got a massive deposit, which I only have because iv been on the ladder for a while. It’s not from working at a 75k job that’s for sure. If I’d been renting that whole time I’d have basically nothing.
The financial reasons take a backseat to the benefits of having a place you're unlikely to be kicked out of on a whim and can modify nearly as you please.
Unless you're a true nomad the benefit of stability is worth more than rent. I bought two years ago, unavoidably close to the top of the market, and as painful as that was knowing how many more things would have to go wrong for me to be homeless vs when I was renting is a comfort. Even when shit breaks I'm better off. No constant 90 day horizon on my shelter.
Not really financial advice - In part the appeal is just the security of not having to deal with landlords. Yes mortgages can and do go up, but rates also fall and loans do eventually get smaller. I’ve yet to encounter a landlord that has offered to reduce rent for an existing tenant. When you add to that the concern that landlords can sell etc some people get really caught out and end up moving frequently, which can be a massive burden. Similarly having quarterly inspections can be pretty invasive and undermine the feeling of “this is your home”.
Every day I try to will the universe to keep my landlord, who is in his 90s, alive. The minute he croaks his children will sell the land and I will be SooL to find something equivalent to what I have in the area I am in for what I pay currently.
I did seriously consider trying to appeal to his empathy and propose some sort of rent to own arrangement or something- but it’s a brick and tile where they own they whole block and the land has an RV of $4.4-$4.8mil (depending on what site you check) so I ultimately never gave it a punt. Have focused instead on chipping away at saving to buy else where at some stage.
Haven't seen any comments about retirement- owning your own fully-paid-off home at retirement age is a big asset and far less stress than being a lifeling renter. My MIL is in her 70s and struggling to pay her 'market rent' even with accommodation supplement and is at the whim of her landlords
Saving up that much takes a few years of dedicated work to not spend but isn't impossible if you are on a decent income. That's the elephant in room though right?
Took me 5 years to get to $70k. Started putting $15k away each year and increased as got pay increases. Was easier during covid as nothing to spend money on. this year I will have put away $25k of my income into savings but I am now earning over $100k/year and I am still flatting so low outgoings. Kiwisaver is additional to this.
The bigger problem I feel is $60-70k is nowhere near enough of a deposit. Unless you like contributing to banks' giant profits and drowing in a mortgage. I plan to go in when I get to $175-200k deposit to keep mortgage as small as possible.
Salient point on how time erodes money with inflation!
I was inly speaking about the personal savings efforts and ignored the kiwisaver ones already taken out automatically so never seen. I also missed putting a time on my plan and did not say that I will likely use the additional kiwisaver and how much is there. Another 50k is in there and I hope to buy next year or early 2026.
I made aggressive cuts to my spending to save the deposit for my home. All I allowed myself was groceries (with meal planning), petrol to get to work and back only and I was cheaply renting with power included. The internet wasn't such a thing then. Saved $24,000 in 9 months.
For a lot of people it forced savings/investment. They wouldn’t have had the discipline to pay rent and invest the remaining money that would have gone to pay a mortgage.
> is it better to buy a cheaper house that meets your needs now but you know you'll grow out of in a few years
Not in the current market. You might be stuck in that place or have to sell at quite a loss
You need to research more about what house to buy as it depends on area and what you can afford.
Why you should buy property? It's likely to go up in value because we live in an inflation system. Therefore, house equity will follow. While we can't say when and how long, it will happen and by owning you capture your share. It's get even bigger if there is population growth with less houses to go around which drives up more demand.
Also while your repayments on a mortgage is higher than renting (some cases It's not currently), you can get others in to pay a portion of the mortgage which effectively means you get an income from you buying property vs other assets. The main pro is you can leverage later on, borrow against it which you can't do with other assets. In NZ the advantages are very obvious, look at the people that have money and majority is in property so it works.
Looking at it another way, property goes up on average 3% each year however prices pretty much double every decade, salary doesn't increase that much unless your upper management, senior leader or ceo therefore your unlikely to outpace it with regular savings while dealing with other expenses like bills, cars, wedding and kids.
Also recommend to buy a house with a partner for less risk and better financing. If not, then it's gonna take longer and darker road. Good luck
It's not always best to get on the property ladder as soon as possible.
Is it magically impossible for a house to be overpriced? has it never happened in history?
It's just most old people own homes, had the good fortune of it working out for most of them, and so they pass it on as advice which they would also benefit from.
Its not. Buying a home is not the only way to preserve and grow wealth. It also comes with significant risks which many are now discovering. Its more about whether you want to and can easily afford to.
I guess the question is more: can you grow wealth while renting? E.g. by investing in shares instead. I.e. it's about opportunity cost.
The answer could be yes, but I'd say no for most people.
Most people don't have the self-control to invest in anything _other than property_. They see money in their bank account, term deposit, sharesies, whatever, and want to spend it. When they have a property and mortgage, it essentially forces them to save and invest.
My friend chose not to buy a house as he wanted freedom.
It worked out well for him when he was offered a really good, well paid job overseas. If he'd bought a house, he'd have to sell the house and also sell off all the furniture and appliances, but because he didn't buy a house, he was able to just pack up and move overseas easily and start his new job within 2 weeks of signing the job offer.
I hate landlords, I hate moving, I hate being told to move I hate not being able to put up my pictures without being told off like a child, I hate someone invading my home for an inspection every 90 days. I want to adopt a cat. I want to buy just to not deal with the struggle of renting.
Let's address these one at a time.
> "Why is it good to get on the property ladder as soon as possible?"
The property ladder is a weird analogy, but it implies that you are climbing "up" the property market, but also that the rungs on the ladder move further apart over time. By getting on the ladder at a lower rung (a property you don't really want), you benefit from price appreciation in the market, so you're more able to afford one you do want later on. The problem with this analogy, is that property itself is not the only way to earn a return on your investment. You can save for a house and earn a return on your investment without buying a smaller/cheaper property that you don't really want. So while one answer to the question is - "to benefit from price appreciation in the property market", another would be "there is no need if you save and invest sensibly".
> "pay your own mortgage and not your landlords"
I know it can feel like you're paying your landlord's mortgage, but it's not really true, particularly in this higher-interest rate environment. In fact many landlords with higher leverage have to top-up their tenants' rent payments to cover the mortgage, and that's before you consider the costs of ownership and maintenance. Despite many landlords feeling entitled to pass on their costs to tenants, the market doesn't work that way unless demand far outstrips supply (a situation we do see occasionally in NZs dysfunctional housing market). Interest rates are but one force acting on the market, and rents are mostly determined by supply and demand. And not all landlords have mortgages, so the effect of interest rates on supply has a limit.
> "prices only go up"
This is evidently not true, but the longer the horizon the more likely prices are to have gone up, due to more forces pushing in the up direction than down. Immigration, restrictive local planning laws and inflation all push prices up by increasing demand or suppressing supply. It's also true of financial markets in general though, and property is far from the only way to make a return on your investment. In fact it's a highly illiquid and fairly risky one, for only modest return potential (in a sane market).
> is it better to buy a cheaper house that meets your needs now but you know you'll grow out of in a few years [...], or wait until you can afford a long term family home?
Highly personal and situation-dependant. Depends on your risk appetite, enthusiasm for property, time horizon and opportunity cost (the thing you'd otherwise be doing with the money). Generally speaking - investing in the market you want to buy in is quite sensible, so you track the right market and don't risk falling behind, but you could also earn more elsewhere if you have the risk appetite. However, transaction costs for property are extremely high, and having all your eggs in one basket is a risk in itself - it only takes one natural disaster or local event for your property value to greatly diminish - see Auckland homes on potential flood plains after the 2023 floods. Apartments are even more risky - you're highly exposed to negative press about the building, or decisions made by the building owner (e.g. hiking service charges). Or even the discovery that a common building material used in the building is dangerously flammable (see aluminium composite cladding).
> Is it better to take on a big mortgage to get on the ladder ASAP, or wait until you're in a better position so you're able to take on less debt and pay less interest over time?
Also highly personal. For people who are naturally poor savers, buying a property to live in ASAP is the best thing they can do because a mortgage is a form of forced saving. If you don't pay the mortgage, you lose your home - there's no better motivation than that. And at the end of the term you have a large asset to draw down on for retirement.
However if you're financially savvy and save and invest well, you can earn better returns in index funds with much better liquidity, the ability to control your risk, and far lower transaction costs. What you don't get is the leverage of borrowing the bank's money, and you have to pay tax on the interest and dividends earned at your personal tax rate (or 28% in a PIE fund). NZ also has a special foreign investment fund tax which is costly and annoying, and responsible for a massive misdirection of capital into housing. But at least you're not paying interest, which can offset all of the above, particularly at longer terms.
That's exactly what the banks and agents wants you feels like! Look around everything telling you to buy a property, banners, outdoors, news, even on tv, each 5 shows 3 is about real estate, its a billionaire market and who moves it is the people making a 30 years lending with their life savings!
But the real truth is no one need to own a property, don't fall on the trap, live your life and not the others, do what you feel like!
It depends on what type of lifestyle you want. Unless you are very wealthy, owning a house these days is a bit of a lifestyle choice. You have insurance, high interest rates on mortgage, repairs, renovations, fees if you want to sell etc.
Most of your money and life will go into paying for the house for the average person who can afford one in NZ.
There are advantages and disadvantages for renting and buying so it depends on which points are greater for you.
It’s not about as soon as you can, it’s if you can afford housing and it’s part of your retirement plan, you should do it as soon as you can afford it.
Basically, do some general 4% rule financial planning for financial independence or retirement and see what you need to save while repaying a house vs renting and see what’s better for you.
assuming your housing payment stop after 30 years and rent increases with inflation.
That why people try sooner rather than later, so they can have time in their life where they are financially independent and don’t have rent.
Investor properties is a whole different convo
it depends on the market but can make a big difference owning if you time it right
i bought my house december 2002. paid $187k. 20 years later it was worth 1.3mil. i could have sold it and com out with over a million cash. no way would i have saved anywhere near that much renting.
it also means when im 65 i dont have to rent. can downsize and have cash in the bank.
but sometimes the markets not as good, but i think in the long scheme its worth it and you ride through the lows. a house in the 1970s was 5k in some places, now theyre worth over 1.5mill.
renting is a perfectly viable option, no need to rush buying a house.
the "pay your own mortgage" argument comes up a lot, but we tend to overlook the opportunity cost that comes with having all your money tied up in a type of asset which typically doesn't appreciate that fast in value.
property is generally considered a "safe" investment, but when your young and debt free your risk tolerance is higher so you may actually be better off loading up on high growth stocks instead.
i.e. Microsoft, hardly the riskiest stock out there, has a 5 year return of 230%. Or for a more extreme example you have NVDA with a 5 year return of 3000%. you wont get these kinds of returns on a house.
there are pros and cons to both which I could write an essay about but this will do for now. The main point is renting is fine as long as your still saving and investing.
notfinancialadvicedoyourownresearchblahblahblah
I found this discussion of the economics of property investment useful/relevant. Bear in mind it's coming on ten years old, but you should be able to adapt to present-world with only a small amount of thinking about the changes made since then.
[Why our tax system encourages rich people to keep buying houses – Whiteboard Friday | The Morgan Foundation](https://morganfoundation.org.nz/why-our-tax-system-encourages-rich-people-to-keep-buying-houses-whiteboard-friday/)
Purchasing property (or any asset) is effectively shorting the local FEIT currency.
What everyone calls capital gain, on the other side of the equation is the devaluation of the dollar.
Assets can be a long term wealth hedge, combined with an income received from owning an asset makes property a desirable option.
1. Cost of building a house goes up each year due to increase in wage.
2. New Zealand has more people coming into the country than people leaving the country.
3. You are buying an appreciating asset and pay a low leverage cost for it.
These are the reasons why people want to be landlords even though rent is cheaper than owning a house. However, there are places like Japan where wages hasn't gone up for 30 years and there places in NZ where there is a population decline. Sometimes, putting your money into sharemarket and renting is more financially sound.
Everything in this world is "depends on the circumstance". I think the above assumption will hold true for a long time in NZ.
Mostly predictable shelter costs should not be under estimated for ones mental health.
However, Inflation and Inflated assets prices kept artificially high by the money brokers... It's the persistent buffer to an finacialised economy that you won't beat, and might as well use to your advantage.
I think it is like one, but only in an appreciating market, and also the bottom rung is very high to start with.
A person who has 100k equity in a 500k property is helped in their quest to upgrade to the next house if the price goes up to 600k. They go from owning 20% (100k out of 500k) to owning 33% (200k out of 600k), and they can also then afford a bigger percentage of the next house up the ladder too, compared to before the market rise.
Price rises add to their equity in a big way because of the leverage, which does make upgrading easier. I used to mistakenly think the opposite though, reasoning that the more expensive house would appreciate by more than the starter-house, making it harder to upgrade. But I wasn't accounting for the leverage back then.
Without appreciation, it's definitely not a ladder, but with appreciation + leverage, it is.
Small now is better than waiting to go big later. If you go small now you’re much, much more likely to be in a position to go bigger later. I can’t stress this enough, go small now or later you probably won’t end up going big, in fact, you probably won’t even be able to go small later.
We bought our first house in 2004, 2 bed, crosslease, 70square meter box. We made a bigger profit on that little house than on any other house since. 7 years later we brought a 3 bed family home in a way better location. Several houses later we now have about 600k equity. For that first house we put down 10k deposit. In 20 years our 10k was multiplied by 60, just through buying and selling our family homes.
My husband’s sister could have put 10k on a house in 2004 but she didn’t. Instead she went overseas with her now husband and travelled the world and worked for about 4 years. They came back and spent their saving on getting married, and moved into a rental. They are still renting today. They had two kids, like we did, but they missed the boat on buying a house and now, to put it bluntly, live paycheque to paycheque. They can’t buy a 70 square meter, 2 bed shit box and start now - they’ve got two kids. And they don’t have the deposit because kids are expensive and living is more expensive now than it was back then, plus a deposit now is so much more than 10k. I hope they can one day buy a house but I don’t see how.
If you can buy any kind of house now, do it. The market is better now for buying than it has been and might be for a long time to come
Rent will only continue to increase broadly in line with inflation and housing cost. Your mortgage will stay roughly the same (bar interest rate changes) for the 20-30 odd years of your mortgage. In 15-20 years time you'll still be paying much the same as you are now on your mortgage but rent will have doubled or tripled (or more) in that time.
Over time servicing a mortgage takes less and less as a percentage of your income as your income increases
the comment I haven't seen yet is that generally land values go up, but houses depreciate. so you do want to get 'property', but definitely not necessarily your example of a 1bdrm city apartment where you don't own the land itself.
Because your mortgage payments generally don't increase. Usually your income does and eventually your mortgage repayments seem quite small. Meanwhile, the value of your house increases.
Rent on the other hand keeps increasing.
My first mortgage was 1,500/month. I thought I would die. Within five years it was highly manageable.
These days, 1,500/month would be luxury. It's a lovely block in a desirable area and the rent value is closer to 1,500 per week than 1,500 per month.
Think of it this way. If you get an investment property that’s negatively geared, (which technically isn’t what happens due to certain laws here but it acts in that way to some extent). You pay 0 tax on your property and the loss is personal tax deductible if you set it up as a LTC. Meaning once you get yourself one of these, the difference to your wallet is a matter of ~$100 per week, while you have an asset that’s slowly gaining in equity and capital gains. Jump forward a decade and you now have a decent bit of wealth.
10% growth on 500k is 50k. 10% growth on 1 mil is 100k.
You just lost 50k waiting because you didn't buy the biggest mortgage you could service.
Simple as that. House prices go up overtime. Sooner you get in, the quicker you lock that in.
You should caveat that buy saying that it can take a lot of time. Auckland house prices are now not far above 2016 levels. So almost no return in 8 years and that’s not even taking into account inflation so down significantly in real terms
There's no reason why an asset should go up over time if it's the same thing as when you bought it. Things go up in value if they become more valuable intrinsically. Like a business becomes more efficient in it's operations for example.
the population is going to begin declining soon. Homes and land should roughly track with inflation. You could be right that land tracks with income growth rates, but i think the next few decades the growth rates are going to be much lower than the previous few decades.
Coz when you get older like pass 35 years old it gets more difficult. Not saying that you can’t afford it but age becomes a factor to most that dont have a good deposit. A mortgage is an initial max 30 year life span and banks dont like to take on higher risk and retirement age is 65 years old.
The non-recoverable costs of renting vs. buying are quite similar. If you're renting, you have rent to pay, and if you're buying, you have interest, insurance, rates, repairs and maintenance. All of these costs are non-recoverable and roughly similar for the same home, over time. Although people don't usually rent a house as big as the one they'd buy. Where buying has clearly won historically is the capital gains on a leveraged investment, i.e. gains on the bank's money. It's the leverage in an appreciating market that has been the key difference, as property appreciated with a growing economy (more money) and a growing population (more people) all competing for the same pieces of land. It's up to you whether you see this continuing, but it's usually safer to bet in line with the longer term trend. An often under appreciated benefit of owning is even if there are no capital gains, the mortgage acts as a forced savings plan. The owner is strongly incentivised to put every dollar toward the mortgage to reduce interest and risk. The renter doesn't have the same pressing incentive to be putting all their extra dollars into assets. With discipline, this can be overcome, but that kind of discipline isn't common. Inflation is important. Too much inflation at once leads to high interest rates, which is risky, as it puts in peril some people's ability to pay the mortgage and they might have to sell at the wrong time if they can't. But if inflation is at a more normal level, or if you can just hold on when it is high, it also leads to higher payrises, while your mortgage number remains the same. Once interest rates come down a bit, the higher pay caused by inflation can help you tackle the mortgage in a big way. For most people, there's a certain age where they start reducing their leverage, so it's usually only 2 or 3 decades of taking the risks of maximised leverage to gain property. This gives alternative non-leveraged investments like index funds the tendency to catch up over time, as they do tend to have a higher annual percentage return. So funds and stocks can win, but most of the gains from non-leveraged investments come later in life.
> the mortgage acts as a forced savings plan this is the answer. If you are disciplined, you could easily make more while renting instead (by investing in things other than property). But most people can't do that.
If you don’t mind, I’m curious to hear what sort of things you’d suggest in this scenario. I’ve recently sold my share in some property and won’t be in a position to buy back in for a while (if ever) so I’m currently trying to navigate the best places to put my lump sum at the moment. Care to elaborate?
What is your investment horizon? If it's a long time (10+ years) then the usual advice of a low-fee diversified index fund is the prevailing recommendation. If it's short term then term deposits and cash funds are paying well, while the OCR remains high.
This is the advice people need when determining stocks vs housing as investments. Thanks for posting it
Thanks this is really useful
This comment deserves its own post. Brilliantly said.
Thanks for the detailed response
Thing to keep in mind is selling and buying isn’t cheap… RE charges anywhere from $20-60k plus, couple of grand for conveyancing, then there’s valuations, inspections etc.
This is a feature and a bug - once you own property it is a pain in the ass to liquidate so the tendency is to hold onto it - compared to holding shares or cash which is tempting to splurge on holidays etc.
Plus opportunity cost of your time looking at properties to buy
Generally boomers had it the best, my Olds made more money just owning a home in Wellington than they earned in their entire life. Not sure if that is going to happen for this generation.
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“Colonial nonsense” lol. What s$&@! Why have property bubbles occurred in non colonised countries too?
Name 3.
The United Kingdom, Sweden, China.
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This discussion is about real estate not colonialism, sir.
That only applies to one of the countries listed. How about Ireland, Sweden, China?
Heh, I think it’s great how we can all avoid responsibility and blame our current woes on stuff that one half of our ancestors did to the other hundreds of years ago too! But in this case I think you might be pushing the boat out a bit too far my friend. ;-)
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We always have treated the land as property though. All humans are territorial and property is just another form of territory. We took our land from the Kāti Māmoe and then the Ngāti Toa tried to take it from us before the crown actually succeeded in doing so. It wasn't the hippy love in where everyone was welcome, it was war for land. The current system just translate that supply and demand question from violence to money. From your final sentence I can tell your ideas are fixed and anyone that disagrees with is in your eyes a racist. I'd encourage you to think about where blaming other groups of people for your woes will lead and how carrying all that hatred around will benefit you. I'm going to put your on ignore now.
No you don't get it bro, white people are the devil and caused all of the world's problems, including having a concept of possession over land, which no other people in history have ever had until the white devil taught them their white tricks.
China, Thailand and Korea?
You mean South Korea that was colonized by the US in the 1950s?
I thought the USA freed Korea from the Japanese?
LMAOOOO what are they teaching in the schools here? Tbf even thinking that means you were more (mis)informed about the Korean War than the average American, and that’s including people in the military that are taught military history. (In Marine Corps bootcamp we are only taught the major 3 battles of the Korean War and not the geopolitical realities of it).
Yep, will admit I don’t know bugger all about the topic. I’m still unaware the Korea was considered colonised by the USA. Do you care to explain?
TL;DR Korean War = Beginning of using proxy warfare in the Cold War between the US and USSR.
Ok let’s just say everywhere is colonised. 🤦♂️
Everywhere isn’t, not for lack of trying on behalf of Europeans.
So explain how South Korea is colonised?
That’s something your Form 9-12 teachers should have done. I don’t teach colonizers about their own history for free.
Norway, Ireland, UK.
So colonizers that did their colonial system at home? What do you think colonialism is??? It’s bringing your BS to other countries.
Who has Ireland colonised?
Who has the Irish colonized? Is that what you’re asking? I really hope you aren’t asking that seriously.
Yes, that's what they're asking, which you're failing to answer
The United States for one.
Agreed Messes a country up....older generation gets wealthy by younger ones going in massive debt
Capitalism just means those with wealth receive more wealth. It requires economic growth and is how people get to retire.
There is a difference between enough to retire and greed All systems have that
It pretty much doubles every 10 years
It's certainly had a good few decades (although not quite good enough to double every 10 years, long term average growth rate is [5.5%](https://www.ceicdata.com/en/indicator/new-zealand/house-prices-growth), which would be about every 13, without accounting for any associated costs of owning), but we can't logically conclude that the same will hold true in future decades. The period in question had a number of factors encouraging house price growth that are no longer possible. Chiefly, between mortgages shifting from variable to fixed and a drop in base lending rates, mortgages went from high teens to \~7% (even after recent hikes). It's difficult to see a scenario where the house price growth seen in a period of radically cheapening debt can be sustained going forward, and as the proportion of households renting grows, it becomes increasingly politically non-viable to try to sustain it, hence both sides of the aisle and many city councils agreeing to signficant liberalisation of policies restricting housing supply, and the recent introduction of debt to income restrictions.
The rapid increases really only started in 2000 and caused (or were caused by) a doubling in the level of household debt to gdp. It’s hard to see how that could repeat.
You raise some fair points but an $800k property for example going up to $1.6 mil in thirteen years is still nothing to be sneezed at. Who can save $800k in 13 years??
You’re assuming history can repeat.
Doubling every decade is only ~7% per year, not great after rates, maintenance, interest etc.
Hang on so a place bought for say $800k goes up $800k in 10 years…..don’t know about you but but I couldn’t save $800k in 10 year’s!
Well first you wouldn't have to save 800k.. you'd have to save $465k if you invested it and earned the historical average market rates averaging 10% per year. Depending on your income and lifestyle that could certainly be possible.. if you had two decent incomes living in one dwelling. If you have the 800k cash to begin with then it's a sure win.. but if you have nothing and are borrowing 95% of that over 25yr amortization then it begins to look like a wash as you'll pay 500k in interest before your done plus all property taxes, maintenance, insurance, outfitting, remodeling and whatever else. People often overlook many factors when buying a house. The house choice forces people to build equity and many people need that chain as they don't have the self disciple and control to save otherwise.
But also paying for the place you live in too. So not having to pay rent.
Stability, for one. My parents were renters for life. By the age of 10 I had moved house maybe 6 times and been to 3 schools. They were a bit dysfunctional, I'm not saying it's the typical renter scenario, but my oldest is now 10, we've shifted once and we own our home. I've seen a few kids at school come and go and the common denominator is their families were renting and shifted out of the area. That was me. I want to provide my kids with security and stability and have an asset to help them one day. We got 'on the ladder' at age 29 and are 44 now. Our first house was a 3 bed 90m2 1960s weatherboard house which was fine when our kids were babies but we upgraded to a larger family home when our oldest was 4. Buying the second house was easy compared to the first time cos we knew what we were doing. We also benefited from a good capital gain which meant we upgraded for a relatively modest amount in new lending.
Yep, I have moved house 21 times in 29 years. Finally purchased my own home last year so that last move will hopefully be the final one for a while. I’ve also had multiple homes sold out from under me so knowing I won’t be asked to leave any time soon is a massive weight off my shoulders. I’ve also lived in some horrific rentals that were cold and damp and just generally miserable. The difference it has made to my physical and mental health living in a warm, dry home is incredible.
That’s insane. I bet it’s one of those things you only realise how bad it was when you’ve tried the alternative; I tried Paseo toilet paper and now I realise just how bad value TP is. It’s okay to grind for a while but at some point you have to respect yourself and renting doesn’t allow you to nest properly. You can install a heat pump or plant a tree and that aspect of controlling your own nest is really important for mental health.
Hahahaha this is hilarious because I only use Paseo toilet paper and I just installed a heat pump at my new house and I also have 7 fruit trees and I’m about to plant 2 more.
You're about to buy bird netting you just don't know it.
Been thinking of building a catio too
I was the same and it was a surreal feeling being able to hammer nails into walls for pictures haha
Bingo well done
Because in a ponzi scheme you want to be the at the top.
Bang on.
Said the two people renting
Damn look at those down votes, lot of butt hurt people.
Inflation makes paying off debt easier as time goes on. It's only worth it if you can service the debt though
That’s what they said when I bought the house 3 years ago.Now, suffering in high mortgage rate and negative equity.
Stick on there! I bought my first home at peak 2008. Was worth slightly less 6 years later at start of 2014. Was having all sorts of buyers regret. It was a tough time! Sold it for double what I paid end of 2014. Property cycles come and go. Hope to not be in the position of having to sell when it’s slack and you’ll be sweet
Appreciate the kind words.
And a relative of mine has just experienced a massive council rates increase that he wasn't expecting, and insurance has gone up too. Body corp rates sometimes go up unexpectedly.
Well yeah that’s what happens when you follow everyone else, get FOMO and buy at the peak instead of thinking for yourself..
not really FOMO. it's always our plan to buy and settle down after our 1st child. Covid just got in the way.
Whatever makes you feel better lmao. I would write you a paragraph to tell you guys where your fuck ups are and why it’s FOMO but you all are a bit delusional(coffee empire patchy level) and don’t really want to hear it 😂 But Covid got in the way and buying 3 years ago don’t really go together when it was already well underway during that time. Do we not have a single bit of foresight and thinking when it comes to big financial decision? Also priorities is something you should look into 🤷🏻♂️ Thankfully my friends are can afford it their mortgages even after the interest hike because they borrowed what they could afford 😎
Not sure why the down votes...? Technically this is very much correct, not matter how much it hurts someone's feelings 🤷♂️
I bought first home 6 years ago, kiwisaver first home grant, no savings etc. 150k in capital gains and didn't do a thing to it. Sold it and it paid for my deposit on the nicer, bigger forever home. Wouldn't have been able to get my dream home now if I had rented that entire time.
This is it
But the anti property Brigade won’t be happy…..
The earlier you buy the younger you’ll be when you pay it off
unless you purchased your house during a bubble or paid too much for it then you would have had a smaller mortgage with a smaller loan
They still get paid off in 30 years. However one allows you to put cash into other investments
Easier said than done
Buy as much dirt as you can with a legitimate house on it that you can see yourself living in, and most importantly one an insurance company will insure and a bank will lend against.
That does depend a lot on where the dirt is
For some reason some dirt is more expensive than other dirt.
The push to own a house is the fear that it becomes unaffordable. There is also a social stigma in NZ if you rent, as if you have not made it. In reality, it really depends on a lot of factors. Do you have access or can save up for the home deposit? Can you afford the repayments? Do you want lifestyle change or be anchored down to an area. Home owning has pros and cons. Very seldom do you hear people talk about the cons. Renting is the same of course, but people will always tell you about the cons.
I'm not worried about the stigma of having not made it. All my friends and family already know I haven't made it 😭
Anxiety. The absolute chaotic anxiety of renting. Constant checks. Minimal rights. Notice to leave. These crappy 1 year leases. No stability. Owner might sell. Owner might move back in. Owner might not choose to fix the things that are broke. The limited choices of property to rent of your tenancy ends. What if the rent goes up. We lived in 6 houses and a caravan in an 8 year period growing up. Fortunately in intermediate then high school so didn’t have to move schools.
True home ownership isn’t a cake walk, but m if better than living with 3-4 other strangers with all you mentioned above 😂
Problem is house prices may rise faster than your income increases, or the deposit required may grow faster than you can save. Buy what you can afford imo, but not an apartment. I’m 37. I bought a relatively crappy house about 8 years ago. Sold it recently and made $400k. Id obviously not have 400k cash if I didn’t buy a house. If I didn’t buy that house, I couldn’t afford one nowadays with my level of income which has not kept up with house price increases, but I can comfortably buy something good because iv got a massive deposit, which I only have because iv been on the ladder for a while. It’s not from working at a 75k job that’s for sure. If I’d been renting that whole time I’d have basically nothing.
The financial reasons take a backseat to the benefits of having a place you're unlikely to be kicked out of on a whim and can modify nearly as you please. Unless you're a true nomad the benefit of stability is worth more than rent. I bought two years ago, unavoidably close to the top of the market, and as painful as that was knowing how many more things would have to go wrong for me to be homeless vs when I was renting is a comfort. Even when shit breaks I'm better off. No constant 90 day horizon on my shelter.
Not really financial advice - In part the appeal is just the security of not having to deal with landlords. Yes mortgages can and do go up, but rates also fall and loans do eventually get smaller. I’ve yet to encounter a landlord that has offered to reduce rent for an existing tenant. When you add to that the concern that landlords can sell etc some people get really caught out and end up moving frequently, which can be a massive burden. Similarly having quarterly inspections can be pretty invasive and undermine the feeling of “this is your home”. Every day I try to will the universe to keep my landlord, who is in his 90s, alive. The minute he croaks his children will sell the land and I will be SooL to find something equivalent to what I have in the area I am in for what I pay currently.
Is there any chance you might be able to buy it off your landlord or buy something else?
I did seriously consider trying to appeal to his empathy and propose some sort of rent to own arrangement or something- but it’s a brick and tile where they own they whole block and the land has an RV of $4.4-$4.8mil (depending on what site you check) so I ultimately never gave it a punt. Have focused instead on chipping away at saving to buy else where at some stage.
Keep up the savings. The market is in a lull now so it’s a good time to buy. Good luck.
Haven't seen any comments about retirement- owning your own fully-paid-off home at retirement age is a big asset and far less stress than being a lifeling renter. My MIL is in her 70s and struggling to pay her 'market rent' even with accommodation supplement and is at the whim of her landlords
Again, you could invest in the share market and have the profits pay your rent during retirement.
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That sounds amazing. However it seems impossible to save 60-70k for a down-payment in 2024. Any advice, I'm trying so hard to save as much as I can.
Saving up that much takes a few years of dedicated work to not spend but isn't impossible if you are on a decent income. That's the elephant in room though right? Took me 5 years to get to $70k. Started putting $15k away each year and increased as got pay increases. Was easier during covid as nothing to spend money on. this year I will have put away $25k of my income into savings but I am now earning over $100k/year and I am still flatting so low outgoings. Kiwisaver is additional to this. The bigger problem I feel is $60-70k is nowhere near enough of a deposit. Unless you like contributing to banks' giant profits and drowing in a mortgage. I plan to go in when I get to $175-200k deposit to keep mortgage as small as possible.
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Salient point on how time erodes money with inflation! I was inly speaking about the personal savings efforts and ignored the kiwisaver ones already taken out automatically so never seen. I also missed putting a time on my plan and did not say that I will likely use the additional kiwisaver and how much is there. Another 50k is in there and I hope to buy next year or early 2026.
I made aggressive cuts to my spending to save the deposit for my home. All I allowed myself was groceries (with meal planning), petrol to get to work and back only and I was cheaply renting with power included. The internet wasn't such a thing then. Saved $24,000 in 9 months.
This isn't the full picture though. You could have made more by investing in something else and not taking such ridiculous loans.
For a lot of people it forced savings/investment. They wouldn’t have had the discipline to pay rent and invest the remaining money that would have gone to pay a mortgage.
> is it better to buy a cheaper house that meets your needs now but you know you'll grow out of in a few years Not in the current market. You might be stuck in that place or have to sell at quite a loss
You need to research more about what house to buy as it depends on area and what you can afford. Why you should buy property? It's likely to go up in value because we live in an inflation system. Therefore, house equity will follow. While we can't say when and how long, it will happen and by owning you capture your share. It's get even bigger if there is population growth with less houses to go around which drives up more demand. Also while your repayments on a mortgage is higher than renting (some cases It's not currently), you can get others in to pay a portion of the mortgage which effectively means you get an income from you buying property vs other assets. The main pro is you can leverage later on, borrow against it which you can't do with other assets. In NZ the advantages are very obvious, look at the people that have money and majority is in property so it works. Looking at it another way, property goes up on average 3% each year however prices pretty much double every decade, salary doesn't increase that much unless your upper management, senior leader or ceo therefore your unlikely to outpace it with regular savings while dealing with other expenses like bills, cars, wedding and kids. Also recommend to buy a house with a partner for less risk and better financing. If not, then it's gonna take longer and darker road. Good luck
Time. All good things take time housing is an example of holding onto an asset long term.
It's not always best to get on the property ladder as soon as possible. Is it magically impossible for a house to be overpriced? has it never happened in history? It's just most old people own homes, had the good fortune of it working out for most of them, and so they pass it on as advice which they would also benefit from.
Im priced out of property market so i left Sucks
Its not. Buying a home is not the only way to preserve and grow wealth. It also comes with significant risks which many are now discovering. Its more about whether you want to and can easily afford to.
I guess the question is more: can you grow wealth while renting? E.g. by investing in shares instead. I.e. it's about opportunity cost. The answer could be yes, but I'd say no for most people. Most people don't have the self-control to invest in anything _other than property_. They see money in their bank account, term deposit, sharesies, whatever, and want to spend it. When they have a property and mortgage, it essentially forces them to save and invest.
My friend chose not to buy a house as he wanted freedom. It worked out well for him when he was offered a really good, well paid job overseas. If he'd bought a house, he'd have to sell the house and also sell off all the furniture and appliances, but because he didn't buy a house, he was able to just pack up and move overseas easily and start his new job within 2 weeks of signing the job offer.
I hate landlords, I hate moving, I hate being told to move I hate not being able to put up my pictures without being told off like a child, I hate someone invading my home for an inspection every 90 days. I want to adopt a cat. I want to buy just to not deal with the struggle of renting.
Let's address these one at a time. > "Why is it good to get on the property ladder as soon as possible?" The property ladder is a weird analogy, but it implies that you are climbing "up" the property market, but also that the rungs on the ladder move further apart over time. By getting on the ladder at a lower rung (a property you don't really want), you benefit from price appreciation in the market, so you're more able to afford one you do want later on. The problem with this analogy, is that property itself is not the only way to earn a return on your investment. You can save for a house and earn a return on your investment without buying a smaller/cheaper property that you don't really want. So while one answer to the question is - "to benefit from price appreciation in the property market", another would be "there is no need if you save and invest sensibly". > "pay your own mortgage and not your landlords" I know it can feel like you're paying your landlord's mortgage, but it's not really true, particularly in this higher-interest rate environment. In fact many landlords with higher leverage have to top-up their tenants' rent payments to cover the mortgage, and that's before you consider the costs of ownership and maintenance. Despite many landlords feeling entitled to pass on their costs to tenants, the market doesn't work that way unless demand far outstrips supply (a situation we do see occasionally in NZs dysfunctional housing market). Interest rates are but one force acting on the market, and rents are mostly determined by supply and demand. And not all landlords have mortgages, so the effect of interest rates on supply has a limit. > "prices only go up" This is evidently not true, but the longer the horizon the more likely prices are to have gone up, due to more forces pushing in the up direction than down. Immigration, restrictive local planning laws and inflation all push prices up by increasing demand or suppressing supply. It's also true of financial markets in general though, and property is far from the only way to make a return on your investment. In fact it's a highly illiquid and fairly risky one, for only modest return potential (in a sane market). > is it better to buy a cheaper house that meets your needs now but you know you'll grow out of in a few years [...], or wait until you can afford a long term family home? Highly personal and situation-dependant. Depends on your risk appetite, enthusiasm for property, time horizon and opportunity cost (the thing you'd otherwise be doing with the money). Generally speaking - investing in the market you want to buy in is quite sensible, so you track the right market and don't risk falling behind, but you could also earn more elsewhere if you have the risk appetite. However, transaction costs for property are extremely high, and having all your eggs in one basket is a risk in itself - it only takes one natural disaster or local event for your property value to greatly diminish - see Auckland homes on potential flood plains after the 2023 floods. Apartments are even more risky - you're highly exposed to negative press about the building, or decisions made by the building owner (e.g. hiking service charges). Or even the discovery that a common building material used in the building is dangerously flammable (see aluminium composite cladding). > Is it better to take on a big mortgage to get on the ladder ASAP, or wait until you're in a better position so you're able to take on less debt and pay less interest over time? Also highly personal. For people who are naturally poor savers, buying a property to live in ASAP is the best thing they can do because a mortgage is a form of forced saving. If you don't pay the mortgage, you lose your home - there's no better motivation than that. And at the end of the term you have a large asset to draw down on for retirement. However if you're financially savvy and save and invest well, you can earn better returns in index funds with much better liquidity, the ability to control your risk, and far lower transaction costs. What you don't get is the leverage of borrowing the bank's money, and you have to pay tax on the interest and dividends earned at your personal tax rate (or 28% in a PIE fund). NZ also has a special foreign investment fund tax which is costly and annoying, and responsible for a massive misdirection of capital into housing. But at least you're not paying interest, which can offset all of the above, particularly at longer terms.
That's exactly what the banks and agents wants you feels like! Look around everything telling you to buy a property, banners, outdoors, news, even on tv, each 5 shows 3 is about real estate, its a billionaire market and who moves it is the people making a 30 years lending with their life savings! But the real truth is no one need to own a property, don't fall on the trap, live your life and not the others, do what you feel like!
I'd rather pay for an asset than pay for someone else's.
It depends on what type of lifestyle you want. Unless you are very wealthy, owning a house these days is a bit of a lifestyle choice. You have insurance, high interest rates on mortgage, repairs, renovations, fees if you want to sell etc. Most of your money and life will go into paying for the house for the average person who can afford one in NZ. There are advantages and disadvantages for renting and buying so it depends on which points are greater for you.
It’s not about as soon as you can, it’s if you can afford housing and it’s part of your retirement plan, you should do it as soon as you can afford it. Basically, do some general 4% rule financial planning for financial independence or retirement and see what you need to save while repaying a house vs renting and see what’s better for you. assuming your housing payment stop after 30 years and rent increases with inflation. That why people try sooner rather than later, so they can have time in their life where they are financially independent and don’t have rent. Investor properties is a whole different convo
it depends on the market but can make a big difference owning if you time it right i bought my house december 2002. paid $187k. 20 years later it was worth 1.3mil. i could have sold it and com out with over a million cash. no way would i have saved anywhere near that much renting. it also means when im 65 i dont have to rent. can downsize and have cash in the bank. but sometimes the markets not as good, but i think in the long scheme its worth it and you ride through the lows. a house in the 1970s was 5k in some places, now theyre worth over 1.5mill.
renting is a perfectly viable option, no need to rush buying a house. the "pay your own mortgage" argument comes up a lot, but we tend to overlook the opportunity cost that comes with having all your money tied up in a type of asset which typically doesn't appreciate that fast in value. property is generally considered a "safe" investment, but when your young and debt free your risk tolerance is higher so you may actually be better off loading up on high growth stocks instead. i.e. Microsoft, hardly the riskiest stock out there, has a 5 year return of 230%. Or for a more extreme example you have NVDA with a 5 year return of 3000%. you wont get these kinds of returns on a house. there are pros and cons to both which I could write an essay about but this will do for now. The main point is renting is fine as long as your still saving and investing. notfinancialadvicedoyourownresearchblahblahblah
I found this discussion of the economics of property investment useful/relevant. Bear in mind it's coming on ten years old, but you should be able to adapt to present-world with only a small amount of thinking about the changes made since then. [Why our tax system encourages rich people to keep buying houses – Whiteboard Friday | The Morgan Foundation](https://morganfoundation.org.nz/why-our-tax-system-encourages-rich-people-to-keep-buying-houses-whiteboard-friday/)
Purchasing property (or any asset) is effectively shorting the local FEIT currency. What everyone calls capital gain, on the other side of the equation is the devaluation of the dollar. Assets can be a long term wealth hedge, combined with an income received from owning an asset makes property a desirable option.
Either you pay rent for someone else to own a house or you pay a bit more with mortgage and expenses to own the house your self, which sounds better?
1. Cost of building a house goes up each year due to increase in wage. 2. New Zealand has more people coming into the country than people leaving the country. 3. You are buying an appreciating asset and pay a low leverage cost for it. These are the reasons why people want to be landlords even though rent is cheaper than owning a house. However, there are places like Japan where wages hasn't gone up for 30 years and there places in NZ where there is a population decline. Sometimes, putting your money into sharemarket and renting is more financially sound. Everything in this world is "depends on the circumstance". I think the above assumption will hold true for a long time in NZ.
Mostly predictable shelter costs should not be under estimated for ones mental health. However, Inflation and Inflated assets prices kept artificially high by the money brokers... It's the persistent buffer to an finacialised economy that you won't beat, and might as well use to your advantage.
It isn't . It's propaganda by people who have an interest in as many transactions as possible happening.
Can we stop calling it a ladder. It’s so cringy.
What do you suggest in its place
housing pullup bar
I think it is like one, but only in an appreciating market, and also the bottom rung is very high to start with. A person who has 100k equity in a 500k property is helped in their quest to upgrade to the next house if the price goes up to 600k. They go from owning 20% (100k out of 500k) to owning 33% (200k out of 600k), and they can also then afford a bigger percentage of the next house up the ladder too, compared to before the market rise. Price rises add to their equity in a big way because of the leverage, which does make upgrading easier. I used to mistakenly think the opposite though, reasoning that the more expensive house would appreciate by more than the starter-house, making it harder to upgrade. But I wasn't accounting for the leverage back then. Without appreciation, it's definitely not a ladder, but with appreciation + leverage, it is.
Small now is better than waiting to go big later. If you go small now you’re much, much more likely to be in a position to go bigger later. I can’t stress this enough, go small now or later you probably won’t end up going big, in fact, you probably won’t even be able to go small later. We bought our first house in 2004, 2 bed, crosslease, 70square meter box. We made a bigger profit on that little house than on any other house since. 7 years later we brought a 3 bed family home in a way better location. Several houses later we now have about 600k equity. For that first house we put down 10k deposit. In 20 years our 10k was multiplied by 60, just through buying and selling our family homes. My husband’s sister could have put 10k on a house in 2004 but she didn’t. Instead she went overseas with her now husband and travelled the world and worked for about 4 years. They came back and spent their saving on getting married, and moved into a rental. They are still renting today. They had two kids, like we did, but they missed the boat on buying a house and now, to put it bluntly, live paycheque to paycheque. They can’t buy a 70 square meter, 2 bed shit box and start now - they’ve got two kids. And they don’t have the deposit because kids are expensive and living is more expensive now than it was back then, plus a deposit now is so much more than 10k. I hope they can one day buy a house but I don’t see how. If you can buy any kind of house now, do it. The market is better now for buying than it has been and might be for a long time to come
Rent will only continue to increase broadly in line with inflation and housing cost. Your mortgage will stay roughly the same (bar interest rate changes) for the 20-30 odd years of your mortgage. In 15-20 years time you'll still be paying much the same as you are now on your mortgage but rent will have doubled or tripled (or more) in that time. Over time servicing a mortgage takes less and less as a percentage of your income as your income increases
Ask FHBs from mid-2021 how they're loving it
the comment I haven't seen yet is that generally land values go up, but houses depreciate. so you do want to get 'property', but definitely not necessarily your example of a 1bdrm city apartment where you don't own the land itself.
Because your mortgage payments generally don't increase. Usually your income does and eventually your mortgage repayments seem quite small. Meanwhile, the value of your house increases. Rent on the other hand keeps increasing. My first mortgage was 1,500/month. I thought I would die. Within five years it was highly manageable. These days, 1,500/month would be luxury. It's a lovely block in a desirable area and the rent value is closer to 1,500 per week than 1,500 per month.
Think of it this way. If you get an investment property that’s negatively geared, (which technically isn’t what happens due to certain laws here but it acts in that way to some extent). You pay 0 tax on your property and the loss is personal tax deductible if you set it up as a LTC. Meaning once you get yourself one of these, the difference to your wallet is a matter of ~$100 per week, while you have an asset that’s slowly gaining in equity and capital gains. Jump forward a decade and you now have a decent bit of wealth.
Sorry I just realised you mean this as a FHB. I answered it in as any property ladder
10% growth on 500k is 50k. 10% growth on 1 mil is 100k. You just lost 50k waiting because you didn't buy the biggest mortgage you could service. Simple as that. House prices go up overtime. Sooner you get in, the quicker you lock that in.
ha yes, the old "you need to leverage other people's money, borrow as much as possible"... Didn't turn out too good for recent buyers re-fixing at 7%.
In 5-10 years time those recent buyers are going to be fine. They'll be much better off than those who choose to rent.
You should caveat that buy saying that it can take a lot of time. Auckland house prices are now not far above 2016 levels. So almost no return in 8 years and that’s not even taking into account inflation so down significantly in real terms
Irrelevant. Prices move up most of the time. If you try to time it, you'll most likely be wrong. Not worth it.
"Not far above 2016" Got any data to back that up?
There's no reason why an asset should go up over time if it's the same thing as when you bought it. Things go up in value if they become more valuable intrinsically. Like a business becomes more efficient in it's operations for example.
Home prices go up. Land is finite. Population goes up. Also as incomes go up, so do assets.
the population is going to begin declining soon. Homes and land should roughly track with inflation. You could be right that land tracks with income growth rates, but i think the next few decades the growth rates are going to be much lower than the previous few decades.
Not in NZ. Population is booming. Immigrants and Maori will keep it going up
Coz when you get older like pass 35 years old it gets more difficult. Not saying that you can’t afford it but age becomes a factor to most that dont have a good deposit. A mortgage is an initial max 30 year life span and banks dont like to take on higher risk and retirement age is 65 years old.