The case against homeownership

As the property market party comes to an end, it’s time for a sober look at whether buying a house still makes financial sense

cycling facilities. ‘‘When we asked members how they react when they come across cyclists, the most common response was ‘we don’t want to hurt them’,’’ he said.

‘‘They realise cyclists are vulnerable and have a right to be on the road, but if it’s car vs bike, the bike comes off worse.’’

The key is keeping cyclists and motorists apart, hence cycleways – but some cities do this better than others, he says.

Douglas points out Auckland’s connected cycleways as a great model, while Wellington’s Victoria St is less than ideal, because the cycle lane ends occasionally and throws motorists and cyclists back into the same stream of traffic. It is at those high-risk areas where conflict is likely to take place, he says.

Douglas also called out big groups of cyclists holding up traffic, whizzing past pedestrians on shared pathways , or, after a ride, popping up at a cafe and clogging up footpaths or outdoor areas with their bikes. Long story short: learn to share space.

McRedmond says cyclists out training need to think about where they ride.

Busy roads may appear risky, but can often be the safest due to large amounts of space to the side, and country roads, while thinner, are also good due to lower vehicle numbers.

Riders can also use their position to wave traffic through if they can see the road ahead is clear, he says.

‘‘It’s about trying to get the cars past you as quickly as possible. If we cannot resolve things easily, we just have to be courteous.’’

Genter thinks the more people get into cycling, the more attitudes will change.

She tells a story about a friend who moved to the US city of Portland where bicycle use tripled in seven years due to massive investment in cycleways.

The friend, who’d never ridden beforehand, became an avid cyclist after a decade of meeting people he liked who were also into cycling. ‘‘We have just got to tell the story about how everyone will benefit from it,’’ Genter says.

THE Kiwi property market has enjoyed a wild ride over the last decade and it’s hard to talk sensibly about the ins and outs of buying a house when prices are only ever going in one direction.

But as the main hotspots come off the boil. and the Reserve Bank expects historically low levels of house price inflation for the next few years, it’s time to take a more sober look at whether buying a home is actually a good idea.

From an investing point of view, a house has five very unusual attributes:

1. LACK OF LIQUIDITY

An asset you can free up immediately – say, the cash in your bank account – is liquid. By contrast, a house is one of the most illiquid investments out there. According to recent industry REINZ reports, it takes about 48 days to sell up after getting a property ready for market. That’s the median number – some properties languish for months or years without finding a buyer.

2. HIGH TRANSACTION COSTS

Buying or selling a property is unusually expensive. The real estate agent’s commission and any staging or touch-ups required can gobble up about 3 per cent of the sale price. For context, that’s roughly 10-times higher than the cost of trading shares.

3. LACK OF DIVERSIFICATION

The golden rule of investing is to spread your money between several uncorrelated assets, so that if any one of them fails, you won’t lose your shirt. A house is as undiversified as you can possibly get. It ties most (or all) of your fortunes to one single asset, in a market you’re already heavily exposed to, assuming you live and work in the same area.

4. HIGH ONGOING COSTS

There’s usually some overhead involved in holding assets. If you own a stake in a managed fund, for example, you’ll typically pay a bare minimum of 0.3 per cent in fees and expenses.

Again, houses are unusually expensive in this regard. Rates, insurance and the ravages of time mean you have to spend money just to keep them in the same condition.

5. HIGHLY LEVERAGED

You wouldn’t go to the bank and borrow half a million dollars to invest in the sharemarket. But it’s entirely routine to buy a house using money you don’t have.

Leverage is a beautiful thing in a rising market. You might only have to contribute 10 per cent of the purchase price, and you get to keep 100 per cent of the capital gains. In a falling market, it’s disastrous for the exact same reason. You have to eat all the losses, and might end up with negative equity.

WHETHER these factors matter depends entirely on what the market is doing. Over the last 10 years, it was actually good to be undiversified, up to your eyeballs in debt, and incurring all those ongoing costs.

But that’s only with the benefit of hindsight. Who knows what the next decade will look like? If you get the timing right, you win big. If you get it wrong, you lose.

So deciding whether to buy a home through a narrow financial lens kind of silly. It’s an unappealing investment on the face of it, but I suspect the many Kiwis sitting pretty on gigantic piles of capital gains might feel differently.

It also doesn’t make sense to ignore the non-financial benefits, which is the main driver for many buyers: having a secure roof over your head, and a place you can make into your own.

‘Deciding whether to buy a home through a narrow financial lens kind of silly.’