By Amanda Morrall
As a Aucklander who lives on the North Shore (and rather likes it), the question of whether it is better to rent or buy (given my present circumstances) is pretty straight forward. Gisborne on the other hand, or perhaps Dunedin put me in the buyer's market in terms of affordability.
Take a look at the graphic below and you'll see why.
This issue of Take Five draws on the rich real estate data that we've compiled here at interest.co.nz with a few external links to help other prospective home buyers survey the landscape.
Many thanks to our interest rate watcher Suhaimi for producing this goldmine.
#1 Rent or buy
According to the latest Household Economic Survey published by Statistics New Zealand the average renter is doing it hard. Since the last time the survey was done rents have risen 6.6% and the proportion of those paying more than 30% of their income on household income has jumped from 33.8% to 39.1%.
The proportion paying 40% or more has also increased however not so sharply.
Where you rent obviously makes a difference. So too do interest rates.
For many renters, buying now makes more sense than renting, in particular areas. Have a look at the regional break downs in our rent-or-buy section.
|
October 2011 |
Other ratios | House prices | Rental | ||||||||
|
rent (%)
|
buy (%)
|
diff (%)
|
rent ratio | median multiples |
median
|
lower quartile
|
median rent (p.w)
|
||||
| renting is more affordable than buying | |||||||||||
| Queenstown | 27.6 | 40.9 | 13.3 | 24.6 | 6.6 | 475,000 | 352,000 | 372 | |||
| Auckland North | 29.1 | 41.8 | 12.7 | 24.0 | 6.6 | 580,302 | 434,100 | 465 | |||
| Kapiti Coast | 24.7 | 32.2 | 7.5 | 21.6 | 5.0 | 370,000 | 286,600 | 330 | |||
| Tauranga | 27.2 | 33.4 | 6.2 | 20.5 | 4.9 | 352,000 | 280,000 | 330 | |||
| Christchurch | 24.7 | 29.7 | 5.0 | 20.2 | 4.8 | 356,500 | 295,000 | 340 | |||
| buying is more affordable than renting | |||||||||||
| Gisborne | 25.0 | 20.0 | -5.0 | 15.6 | 3.3 | 218,500 | 185,000 | 270 | |||
| Rotorua | 21.2 | 17.1 | -4.1 | 15.6 | 2.9 | 215,000 | 166,000 | 265 | |||
| Wanganui | 16.6 | 12.5 | -4.1 | 13.7 | 2.2 | 150,000 | 125,000 | 210 | |||
| Invercargill | 17.9 | 15.5 | -2.4 | 17.3 | 3.0 | 207,000 | 140,300 | 230 | |||
| Dunedin | 22.4 | 21.0 | -1.4 | 17.2 | 3.7 | 250,000 | 192,900 | 280 | |||
| New Zealand | 22.4 | 24.4 | 2.0 | 21.6 | 4.6 | 359,000 | 250,000 | 320 | |||
#2 Rent ratios
One of the benchmarks used to assess housing affordability is something called the rent ratios comparing the median house price to the annual house rent.
I just did a quick look up on our site and found that I'm paying NZ$4,000 a year above the median rent for a 3-bedroom house on the North Shore.
Time to move I guess. Wanted, nice three bedroom home for family of three plus dog and cat.
#3 House price to income multiples
Another measure of housing affordability commonly used is the house price to income multiple. It's defined as the ratio between the median house price and median annual household income, or the median multiple.
A median multiple of 3.0 times or less has come to be accepted as a good marker for housing affordability.
Have a look at our data here on house to price income multiples to gauge affordability in the area you'd like to live in. Looks like I should be moving to Rotorua.
#4 Calculators
How much can you afford? Not since Math30 in highschool have I enjoyed using calculators this much.
Here's a few to check out.
http://tcalc.timevalue.com/all-financial-calculators/mortgage-calculato…
http://www.theshapeofmoney.co.nz/general-resources/calculators/rent-ver…
http://www.consumer.org.nz/reports/mortgages/rent-or-buy
http://www.nytimes.com/interactive/business/buy-rent-calculator.html
#5 Useful links
And finally some bed-time reading.
http://www.getrichslowly.org/blog/2010/01/27/does-renting-make-sense/
http://www.telegraph.co.uk/property/rentingproperty/8198613/Why-buy-whe…
http://gra.co.nz/BlogRetrieve.aspx?BlogID=2311&PostID=126423
http://www.businessweek.com/lifestyle/content/jun2010/bw2010063_142497…
http://www.economist.com/blogs/dailychart/2011/11/global-house-prices
Please add your recommended reading suggestions to the comment thread below.
33 Comments
"A median multiple of 3.0 times or less has come to be accepted as a good marker for housing affordability."
Is that even relevant any more?
How many people just want affordable houses?
What's the point of owning a poorly built house in an undesirable neighbourhood?
What's wrong with the idea of the residential property market consisting of properly built houses at affordable prices (ie 3 x or less the mean)?
It's not that it can't be done. It's just that those who feel entitled to gouge massive profits don't want it to happen and won't allow it to happen.
Who are the "massive profit gougers" and how can it be done?
The average Auckland city house is $500k and average household income is $85,000. By your 3x idea it should be $255k.
Firstly take off $25K for council taxes (the profit gougers?) then $26K GST (more gouging?) leaves you with $174K.
You're looking at $1500/sqm for a properly built house (down to $1100/sqm for improperly built/not complete house) so you might get 130sqm of house - is there some gouging going on there you think? presumably builders/suppliers should be allowed to earn an average income too?
Then you're left with $0 for land. Is anyone that wants over $0 for a site also a "massive profit gouger"?
It can be done by discouraging housing as an investment (eg. putting a captial gains tax or making it so only NZ residents can buy) so that overall demand for housing is reduced.
It can also be done by mortgage lenders requiring bigger deposits or shorter payment terms.
(Of course I'm not talking about building new houses here, but about buying existing ones)
How does adding more tax help reduce the price of any component mentioned above? Housing, like food is a neccessity so overall demand will only be reduced by decreasing population or increasing house supply. Adding GST ti fruit and veges doesn't make them cheaper. The mantra that CGT will reduce house prices is nonsense (refer UK, Australia etc.)
The idea is to reduce the size of the market that are looking to buy houses. The CGT could function to keep away the people who buy houses only as investments.
Like you say, housing is a necessity, so I don't like the fact that people looking to secure somewhere to live have to compete with investors that keep the market inflated.
"Overall demand will only be reduced by decreasing population or increasing house supply". Don't forget there's also the factor of how many people to a household, which has decreased greatly over the last few decades. If that trend reversed itself, the population could increase without needing more houses. I wonder how many empty nest boomer couples are living in 3 and 4 bedroom houses these days?
It's a misnomer that housing price increases are caused by the housing supply not keeping up with population. Here's an article by an Aussie economist explaining that (for the Aussie situation): http://www.debtdeflation.com/blogs/2011/05/02/house-prices-and-the-credit-impulse/
If and when I do buy a house, I will be damn sure the place is covered in pink bats or something akin to insulation that works. I spent a year living in an orange crate for a house in chch. The air was so cold I could blow 'smoke rings' in my kitchen. Auckland feels down right tropical by comparison, even in the winter.
Injecting foam is a good way to trap water and prevent the old house drying out so it can rot quicker. It also shrinks away from edges leaving nice big uninsulated areas so you can stay cool while it rots.
For an old house you really need to strip off internal linings (or external) building paper it and polyester insulation or similar - wouldn't use fibreglass batts in my own house as apparently slump and not healthy.
drilling foam has a rep of rotting the building paper as damp cant escape....but its cheap....
Im (slowly) installing 100mm pink bats and 100mm eps as I do up rooms....former from inside, latter from outside....not cheap but DIY is fairly cost effective......
regards
Auckland is voted 3rd spot in the Mercer 2011 Quality of Life Survey - taking out bronze for the fourth year in a row and earning the highest ranking in the Asia Pacific region. Across the Tasman, Sydney was Australia's highest ranked city coming in at 11, followed by Melbourne (18) and Perth (21). Adelaide nowhere LOL~
You are an imbecile. Actually adelaide came in about number 30, its generally recognised that there is little separating the top 30-40 cities, and what do they measure? They clearly place little emphasis on weather or cost of living, judging by their top ten.
Also fyi adelaide came in as most liveable city in aus last year and was top 10 globally in one of the other liveable cities surveys (by The Economist i think)
adelaide / south australia does suck at sport mind you
According to NY Times Auckland is hip (whatever that means):
Hmm....rent rises and people desperate for somewhere to rent - wasn't that mentioned when the government told everybody that they were taken depreciation off commerical and domestic property rentals? Landlords have got out of the market and the few that are left are fighting tenants off.
You're most welcome to come down here to Rotorua to live Amanda. The housing costs are much more sensible, it beats spending $1 million on a dilapidated Grey Lynn villa. In these days of the distributed knowledge economy it really doesn't matter where you work from. I'm sure Bernard won't mind.
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