Should you buy a house?

t’s one of those things that is held up as a rite of passage. You buy a car. You get a job. You buy a house.

But is that still a reasonable goal to have in 2018? With prices softening and rental rules tightening, is long-term renting a better proposition for modern New Zealanders?

We look at the arguments for and against buying a house. When you’re a university student, renting is OK.

You might not plan to stay put very long anyway, so you don’t mind the idea that your house could be put on the market at any moment, forcing you to look for somewhere new.

But when you’re a bit older, with a job in a certain place, maybe kids at a local school, the idea of packing up all your belongings and shifting somewhere new is much more difficult.

Although the Government has indicated that it wants to make life better for tenants, potentially giving them more ability to make alterations to a house or have animals, it’s still not quite the same. You still might have to move purely because someone else decides to make it so.

You might wonder whether it’s worth investing the time and money in a vegetable garden if your lease will be up before it bears fruit. Would you get a dog if you don’t know whether your next home will be a house or apartment? And that’s just the emotional stuff.

While capital gains are stalling around the country, you can still expect that if you buy a house now as a 30-year-old, by the time you retire at 65, it will be worth more.

ASB chief economist Nick Tuffley isn’t expecting much action in the short-term but says, over time, values should still creep up, as long as there is population growth.

The average house price in 1975 was just under $25,000. Now it’s

$681,802 – an increase of 2627 per cent. Once inflation is taken into account, house prices are still now more than three times what they were in 1965. In many recent years, a lot of New Zealanders’ houses earnt more than they did.

Even if increases over the next

40 years are half what they were in the past, it’s still a wealth boost that you want a slice of.

Over that period, all being well, you should also have paid off your mortgage. That means when you get to retirement, you won’t have to scramble to pay for the cost of the roof over your head. This makes a huge difference to your quality of life.

Paying off a loan is enforced saving – how likely are you, in reality, to save an amount equal to the value of a house over your working life, without a mortgage? While interest rates are so low, in many cases a mortgage isn’t much more expensive than rent, if you compare properties within the same area.

So the day-to-day ‘‘saving’’ of renting that in theory you’re meant to put aside for the future is not so great.

Banks are becoming a bit more lenient with lending, especially to first-home buyers.

Further easing of the loan-tovalue restrictions from January will make it straightforward for most borrowers to get a loan with a small deposit. You can forget about the need to slave away saving 20 per cent, in most cases.

You can never know what the future holds. If you hang back during this time of flat prices, they may shoot away again and take your chance to get into the market with them. But hold on, have you seen house prices? Do you really think it’s reasonable to spend $1 million on an average Auckland house?

It’s getting easier to get a mortgage, sure. But if you aren’t going to save a 20 per cent deposit, that just means you have to borrow more money.

If you took out a loan of $700,000 now, you might ‘‘only’’ be paying $3695 a month – or $852 a week. But it wouldn’t take much of an interest rate rise to make that unbearable – at 8 per cent it would be $5403. And even at $852 a week, that’s enough to pay rent on a pretty nice house.

You can usually afford to rent a pricier property than you could afford to buy, so you can access better schools, nicer amenities and be close to work, saving money on transport.

As properties become more valuable, their rental yield – the amount of rent they can get compared to their price – drops. While they are more expensive to rent than more modest homes, the step up in rent is nowhere near the step up in sales price.

If you opted to rent in the same area in which you might buy a house, your rent costs would be lower. According to Barfoot & Thompson, its average sale price in September in first-home-buyerzone Glen Eden was $698,898 (or $682 a week even with a 20 per cent deposit) and its average rent was

$492 a week last month. That’s not a huge difference, granted, but save that $190 a week for 40 years in an investment with a 5 per cent return and you’d end up with

$553,669.

Economist Shamubeel Eaqub said the financials of buying had never stacked up. Even with rents rising, they were still well below the cost of buying. Then there’s all the other costs that go along with that – rates, maintenance, insurance…

The argument that people should get in now to get ahead of price rises has evaporated, too. Prices are flat in Auckland and Christchurch and increases are evaporating in other parts of the country now, too.

Eaqub said modern buyers could no longer expect their homes to be a sort of bank account, giving them equity to tap into in later years.

Prices are so stretched to incomes that it’s unlikely that modern buyers will see anything like the price increases that homeowners of the 1980s to early 2000s experienced.

And what if prices actually drop? If you were to buy a house now for $850,000 then found prices dropped 10 per cent over the next three years (as has been predicted) while your income rose, you’d have been much better to put your money into saving your deposit – buying when prices were cheaper.

With rule changes on the horizon that landlords think could make some rental properties nicer than their own houses – and moves to give renters more rights, maybe it’s time to embrace longterm tenancy.