Renting or buying
The housing dilemma
If you live in one of New Zealand’s biggest cities, you’ve probably had this conversation with your friends.
Should you buy a house to live in or should you continue to rent and try to save more, so that you’re still provided for when you have to cover housing costs in retirement?
Economist Shamubeel Eaqub is one of the country’s most outspoken proponents of lifelong renting. He said it did not make sense to buy a house from a purely financial perspective.
In the biggest centres, it is significantly cheaper to rent a house than it is to buy one.
Barfoot and Thompson data shows the Auckland average for a three-bedroom rented property on its books is $515 a week.
That compares to an average sale price for the agency of $874,623, which would work out at $867 a week on current interest rates, over 30 years with a 20 per cent deposit.
Wellington prices have moved 13.7 per cent over the past year according to the Real Estate Institute, compared to rents that had only increased 5 per cent, by Trade Me rental data.
In Kelburn, the median rent is $450 compared to a median price of $740,500 - or $770 a week.
Nationwide, rents rose just 4.8 per cent over the past year, compared to prices which are up 8.6 per cent.
‘‘Can you invest that money better elsewhere,’’ Eaqub said. ‘‘It comes down to your personal preferences. How much debt you want to have, especially for an overvalued asset.’’
Eaqub has been saying he would not buy an Auckland house since he moved to the city four years ago.
But in that time, prices have risen 52 per cent. Eaqub said he did not regret missing out on those capital gains. ‘‘The share market has doubled over the last four years. I like to invest in things that create jobs and prosperity, not just a house.’’
Analyst Rodney Dickens said Eaqub was taking too short-term a focus. ’’From a lifestyle perspective the issue is very different.’’
He said people who kept renting would probably end up spending more on consumer items than those who had a mortgage, which would leave them with less in savings when they needed to pay for somewhere to live in retirement.
They would also find their rent payments increased over time.
‘‘Or option two: buy now and pay more upfront in total accommodation cost than renting, but you have fixed your debt level and over time you will pay it off while on average property prices will go up and further add to your equity,’’ he said.
‘‘Then after about 20 years you will have paid off you mortgage and it will be all equity and your outgoing on housing will fall dramatically.
‘‘When you look at the issue from a life-cycle perspective, the only sensible option is to buy, although this can be complicated by divorces and so on along the way.
‘‘Maybe house prices fall at some stage and people who opt to rent now will be able to buy later at better prices, but I don’t think the average economist, let alone the average Kiwi will be able to [time] things so nicely.’’