The case for buying yourself a house

Here are five arguments for home ownership, none of which hinge on property prices going up.

Kiwis are crazy for property. A big chunk of our net worth is tied up in houses, and it’s part of our national mythology.

Last week we covered five arguments against home ownership: lack of liquidity, high transaction costs, high ongoing costs, lack of diversification, and indebtedness.

These factors didn’t matter during the boom of the last decade, but the almost-religious belief that prices will keep going up forever is starting to conflict with reality.

From a narrow financial perspective, home ownership doesn’t look so hot anymore. So here are five strong arguments for buying a house, none of which has anything to do with property prices:

1. FORCED SAVINGS PLAN

There’s a substantial gap between the cost of renting, and the cost of home ownership. In theory, a savvy renter could save and invest the difference. In practice, most people tend to just spend more on other things, like cars and holidays.

The best thing about a mortgage is that it forces you to save for decades and doesn’t require ongoing voluntary effort. You make your repayment, and have no choice but to make do with whatever’s left over.

2. LACK OF LIQUIDITY

I put this down as a ‘‘cost’’ last week, but it’s also a benefit as one of the key factors to investing success is riding out the ups and downs, without trying to be clever. People who trade constantly almost always do terribly, compared to those who buy and hold for decades.

If you invest in shares or other liquid assets, you can trade them in a matter of seconds. It only takes one phone call, or clicking a button. By contrast, houses usually take weeks to buy or sell. You have to do a ton of due diligence, which makes it much harder to make a rash decision.

3. MOVING COSTS

The flexibility of renting is great when you don’t have pets or children or furniture.

If you’re on a periodic tenancy, the spectre of being turfed out with 90 days’ notice constantly hangs over you. This is disruptive and expensive. Whether you hire a professional moving company or rent a trailer, moving house is a gigantic pain in the butt.

4. RETIREMENT SECURITY

When you’re old and grey, the last thing you want to worry about is rent increases, or having to uproot your life. Home ownership is one of the single most important factors for wellbeing in retirement.

‘It’d be nice to settle into the suburb and generally put down some roots.’

5. THE FUZZY STUFF

Maybe you want to knock out some walls, or put in a garden, or paint the walls, or get a dog, without having to ask anyone’s permission. It’d be nice to settle into the suburb where your kid goes to school, and get to know your neighbours.

These intangibles have nothing to do with money, but they blow all the other factors out of the water. For most prospective buyers, this is what home ownership is all about.

The decision has such a huge impact on your finances that I think it still makes sense to give some careful thought to the cold, hard numbers. Ask yourself what would happen if you lost your job, or the market fell sharply.

So long as you have good answers to those questions, that’s the most important thing.

Even if it’s a questionable ‘‘investment’’, buying a home might be the best purchase you ever make.