Buy rent differential reaches a record low with best looking buying prospects in provincial towns; pricey Queenstown and Auckland buck the trend

Buy rent differential reaches a record low with best looking buying prospects in provincial towns; pricey Queenstown and Auckland buck the trend

3 bdrm"Priced to please" in Gisborne at $239,000

In six of 12 regions across New Zealand, young couples looking to get onto the property ladder would appear to have found the break they are looking for in the market.

Outside the main centers, it is now cheaper to buy than rent even factoring in the associated costs of owning a home, according to data collected by interest.co.nz

Gisborne, Wanganui and Hastings stood out as among the most attractive places to buy with cost differentials to renting of -5.1%, -4.8% and  -2.3%, respectively.

Nationally the gap between buying and renting closed in May to 1.1% from 2.2% the month previous and 4.8% from a year earlier. That follows a trend generally towards housing affordability led by a drop in property values. (See Roost Home Loan Affordability report for May here).

Auckland and Queenstown continue to buck the trend with home buying 8% and 15% more expensive than renting.

In all, the case for buying versus renting relates to first-quartile properties based on the median incomes of 25-29 year olds who have already saved for a deposit.

But the size of those savings varies depending on where you live. Interest.co.nz publisher David Chaston said the study does not just assume a 20% lump-sum deposit is available to all buyers because of the higher costs in some regions. Instead, the level of deposit available depends on savings over the four years (with interest) prior to purchase, and this varies with incomes levels by region.

In addition to the cost of the mortgage, affordability of buying in this analysis compared with renting includes the normal on-going costs of home-ownership such as insurance, rates and maintenance.

To see the trends on whether it makes better sense financially to rent or buy, by region, see our rent or buy reports here.

 

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62 Comments

Wouldn't it be more accurate to report that rents are to high and due for a fall ?

Aren't rents already falling? Perhaps it is just that house prices are falling even faster than rents.

Depends where you look; in Auckland neither are falling; in fact, rents have increased significantly over the last year or so...

Agree a) Auckland appears different to the rest and b) rents have increased over the last year. But that was I think Andrewj's point - rents now have plenty of room to come down and seem to be doing so in many places.

Depends where you look in Auckland, as well. My rent has....gone down , and the asking price on the property has....gone down :)

This sort of thing is headed our way "Britons’ finances have suffered their steepest decline since the recession in June as people loaded up with more debt to finance the rising cost of living..."

Agree that it is probably varying within Auckland too. I recently had a change of tenants, advertised at more than 8% higher rent and had no shortage of potential tenants at all. New tenants moved in same day as the previous ones moved out.

Two houses have been sold in the same street last week, including one by auction. Both sold at way above their current CV.

Do not agree with parallels with US or UK - reasons discussed several times and (should be) clear by now...

incorrect - prices in Auckland are falling

rents have gone up in the last year

House prices are certainly falling on the North Shore, slow and steady, but a fall nonetheless. And the number of 800k plus properties that have been sitting on the market for over a year now and not going anywhere is astounding....

Untill prices are withing norminal standards, they will keep falling..

What's a 'norminal' standard?

Made affordable by record low interest rates only and a fortunate 50bps decrease in Feb post quake.

One should be looking to have a mortgage stacking up over no more than say 20 years.

If you have the ability to convince me that the average interest rate during the term of the loan is going to be 5.5% then.............

And the caveat regarding the 20% deposit is probable the most misleading aspect of this research - how long does it take to save a 20% deposit for a $350k house? Say 2 years for combined household income of $120k.

Houses will always be available to those who save lots, understand wants and needs, and understand that is you are spending more than 30% of your gross wage on interest then you may be well and truly screwed...

All valid points, my wife and I (early 30's) have just purchased our first home. We've been saving for just over two years (together) and our 20% deposit saved us a few $k in low equity fees.

The best bit was that the house we purchased (Lower Hutt) we actually put an offer on it 7 months eariler when it first came on the market, our offer of $360k (unconditional) was turned down as they had better conditional offers. Anyway it went to auction 2 months ago and we got it for $320k. The house is in a better location, is larger, warmer and better condition than the house we were renting. If our mortgage was over 30 years we would be paying the same amount of rent, however we're going all out to pay it off ASAP. (let's just hope the wife doesn't get pregnant anytime soon......)

We are alot happier now and can plan for the future & if interest rates do skyrocket we are prepared. (where do I get the male pill from)

 

 

Congratulations on the purchase - again I'd ask what the sensitivity is for the term of your loan with regard to inflation, interest rates, children (as you allude to!), rates, insurance as well as anything else may come in.

I do not begrudge your home ownership - moreover I applaud you.

My beef is with those people who have a vested interest in making such judgements and to the property investors who believe there are significant gains to be made as a general rule...

Good on you for repaying quicker than the maximum term. It will give you access to capital to contribute to something productive!

You are correct there were a number of little expenses that we over looked. Rates of approx $50 a week is something we forgot about while weighing up all the pro's and cons. We're hoping our insurance premiums don't take too much of a hit, but with the wife being in Insurance I'll leave that part of the equation to her.

The big risk for us is being 100% floating (we got a sign on bonus of 0.25% below floating for the first two years) So @ 5.5%  we are putting a good dent in our balance. Obviously we are keeping track of the markets and if we have a child and rates exceed 9% we'll be doing it tough. So for the time being it's head down and get that balance under $200k ASAP

If you're buying now, fix for 5 years. It may be 8% or something like that, but you will come out a winner. Or half fixed and half floating, seriously consider it.

That's how I split it, one each way

Daycare costs can be quite substantial - in Akl for the mid-level daycare it's $15k for one child, about $28k after tax dollars for two.  My pre-home budget was itemised on 10 rows, now having purchased it's 48 for just expenses! .. vet bills, friends & family presents, bank fees, dentist/doctor, car service, insurances (5!) ... and so it goes on. I wouldn't change it though, owning is great

I'm paying $6500 at an excelent creche on the North Shore - shop around!

I'm paying $6500 at an excelent creche on the North Shore - shop around!

I'm sure the wife will appreciate a discussion on the cost of kids on our drive home tonight....

 

Couldn't think of anything worse than letting some stranger parent my kids. Makes me wonder why some people have them.

I live in Queenstown , getting a rental property that isn't freezing cold and will be in the shade for the next few months ( literally !! ) is not easy at present.  Demand is strong, the market is tightening, rents are rising.  On the sales side listings are extremely limited. prices are rising.

I have a rental property in Maori Hill, Dunedin.  I bought the property late in 2007, I recently received an unsolicited offer $32,500 ( 8.80% ) higher than I paid for the villa.  The same tenant that moved in the day after I settled the purchase last week agreed to a rent increase to $397.50pw , when they moved in back in 2007 the agreed rent was $365pw.  They know of quite a few families from Christchurch looking to move into the better parts of Dunedin but nice rentals are very limited and hard to find.

 

People who buy nice properties in nice areas have done well over the last few years.  Buying quality real estate will remain a good solid investment, especially with interest rates now at sub 6% levels.

I still contend that the "opportunity cost" of the buyer's deposit money is not taken into account with the rent or buy equation.

A 20% deposit in Auckland could easily be $100k with an after tax return from $3000 (bank) to as much as $9000 (quoted property PIEs)

That is a big difference in  the proposition valuation.

http://www.stuff.co.nz/sunday-star-times/news/5163349/House-buyers-in-the-box-seat 

Maybe prices are really starting to favour  the buyer. The cold hard truth is that the recent influences like re-insurance money and recovery activity in Christchurch and the artificial dollar stimulus from borrowing ahead will soon be dissipated. It is necessary for the Key government to try to buy the electorate up until November.

Provided you can still afford the mortgage in year or two at 8%+ then maybe it is time to start looking.

Now you are on to it Amanda, this is the way to get thread to the magic hundy:)

14...i'll be back at 99

The Baby Boomers ( the real ones, the first in the queue ones) want one last payout. I think they will vote in National to give them lots of our money one last time before thaey shuffle off to the old people home. So they want us to pay for their retirement, for our tertiary eductation, for their inflated properties. good luck to them I say.

While it is an attention grabbing generalisation Plan B...I can understand why you feel that way...given the I'm alright Jack attitude of many but not all boomers....but for myself I paid for both my kids tertiary education....I'm happy to gift away all but what we'll need for retirement , big guess..?to remain in our own home and leave it feet first....I think  for all the whining you hear our generation doing about ...oh I had it tough...you guys have it tougher with a lot more uncertainty about things financial ...tougher decision making with tougher consequences for getting it wrong....which is why I think we who have benifited from "the golden years" should do as and when we can to help our own and in some part others to a more stable outlook.

I have no complaint about shifting the retirement age out to 67 or for that matter 70 as I'm in good health ..but hey things can change overnight right.

If it were to bring less burden to the coming generations I don't see a problem with tearing the whole social welfare charter to pieces and starting again..it's long overdue.

And yes it started to bother me many years ago just how out of reach and unaffordable  Housing was becoming to the coming generation and beyond......but debt enslavement is not a new concept.

I value my quality of life above my money...to have the health to go fish...do the things I need to do around the place....Always tried to teach my kids no matter how much you think  you've got...want...need...it wont buy you another sunup when that is all you really want. 

Many of our thoughts and concerns are with you more often than you think and some of us genuinely want to help......and educate other boomers to do ...as well.

I wholeheartedly second that, C. Which reminds me; I must go and get that mole looked at.....or was it one more piece of toast I needed..?

Nicely put

My sister-in-law has a two bedroom unit in Auckland's Grammer Zone. She bought it for $340k two years ago and now, based on a sale by a neighbour of an inferior unit, reckons she can get $440k for it and will probably sell.

That's a pretty good return..............Surely this trend can not carry on much longer..... (unless all the properties are being purchased by foreign wealth looking to school their children)

 

I suspect that is the only chance of getting that sort of optimistic price - a one child chinese family desperate on getting their son into grammar

It is certainly evident around where I live  

would need to be owner occupier at that price. Wouldn't get more than about $400 pw in rent for that property, so it would need to sell for less than 350K to get even a mediocre return

from what I'm seeing in that market (I'm monitoring closely) she would be very lucky to get over 380K

I am assuming that it is one of those brick and tile type units?

  

I haven't been there for a while but from memory I think it's wood. She's probably heading to Australia for a year or two and I suggested if she could get that price she should definately take it...

Matt are you still talking about returns with your first family home!!! Guess what you won't get a first/family home in Auckland central for a magical 8% return :)

Glad to hear you are still looking though. I think its a good time to buy if you have a good deposit and I think interest rates will stay lower longer especially with most on floating there isn't going to be huge increases in the OCR when it goes up :)

Time will tell as always

no I am talking about returns on what is a typical rental property (2 bed brick and tile unit in Mt Eden). I have no interest in living in such a property.  

quite a few mortgagee sales coming through on CBD apartments

someone in the education sector told me a few days ago student numbers are down quite  a bit over the past 6 months - strong kiwi $, earthquake fears etc. thats pulling rental demand down for CBD apartments -

I'm sure there are plenty of naive investors who see a shoebox returning 8% on paper without factoring in -

- high likely turnover in tenants

- volatile nature of english language student market

 

 

I totally agree with you on this point. Apartments = money down the drain. Too many hidden costs and no land.

You might snap up a bargain house in winter?? Got your pre-approval all sorted :)

28 - I agree it does seem to be quite a good time to buy. Auckland prices are easing down, and as you say interest rates are low. Immigration also down.

I'm keeping my eyes open, but will only buy at what I consider a fair price (still seeing some properties go for what I consider silly prices) with the knowledge that the Auckland market is likely to remain weak for quite some time. To be honest too, much of the property in Auckland I wouldn't touch with a barge pole for various reasons (leaky buildings, or poor / unconsented construction, noise issues, body corporate issues  etc)   

What happens when interest rates climb above thier record low?

Suddenly renting is a much better proposition.

We have artifically high house prices. Buy now and you will most likely regret it - prices will come down as interest rates go up, as we have hit the affordability (and lending) limits over the course of the last property boom.

 

and if house prices collapse wont you feel sick as a pig? especially if ppl have followed your advice?

cant win really...

I think its an insane time to buy a house....but adults make their own choices.

regards

Steven, I'm just greatful we didn't buy 2-3 years ago, having just purchased our first house I am very weary of the current climate, but having put a few offers in on houses 12-18 months ago I am feeling pretty stoked that none of them got accepted.

I wonder how grateful you will be feeling in 12 months time?

All good fun though I suppose.

That is the big question!!  We might find out some of the answers tonight when the Greeks decide what they're going to do! If it is all doom and gllom I'll just have to tell the wife I have a headache and the kiddy making will have to wait!

 

 

na bonk your brains out.....might as well have a smile on your face.

regards

 

I honestly dont know the outcome of whats going on....Im looking at the fundimentals if you will and it doesnt look good....the hot air Im ignoring.....

I bought way back so even a 75% collapse leaves me still (just) solvent.. The paper money ive never worked for over the last 15 years disappears....what have I actually lost? should I be p*ssed about losing something Ive never worked to attain? I cant see how....

The ppl I really feel sorry for are the ones who will be buying right now and see substantial losses which they may never clear....

On the other hand of course Olly maybe right, it is after all an insane world.

regards

 

 

Well some of the price examples people are talking about in Auckland recently are crazy.

In the dark and dodgy Hutt Valley where some people keep $50k locked up in their safes, housing has been falling for a while. We started looking about 3 years ago and would put a value on a house that we would pay, off we'd go to the auction only to see that price knocked out with the first bid. Surely the same has to happen in Auckland sometime soon?

We got really down about the fact that we'd have to buy in some dodgy area like Wainui or Stokes Valley, but low and behold prices have fallen and now you can buy an average house in a decnet area for a realistic amount of $$$.  Our house had an RV of $395k and we got it for $320k, the previous owner paid $360k for it in 2007. So we are hopeful that we haven't got a lemon. Time will tell...

Time for a panadol ;-) The Ms's won't be impressed otherwise

 

Not much point in comparing Hutt Valley to Auckland is there?

How about London and Hull?

Where the Hull is that?

Comment made in error (of judgement.)

....... just trotting along , minding me own Gummy business , ....... but some ruddy people must poke the borax !

Hey Les : How's this for a novel suggestion : Folk go and potter about NZ ( or else-where ) , have a good looksie , and find a spot or a town  that really lights them up , and then after that ...... look for a job there .....

...... Question : Based on that , how many people would stay in Auckland , because it ticks more boxes for them than anywhere else ........... or do they just stay for the jobs ?

SO MUCH FOR BRICKS AND MORTAR

The issue is the cost of housing.

Doesn't change the fact NZ debt ratio is too high!

The borrowing/gambling heavily in the last 15 years or so to make a profit in the property boom has well passed, but high debt remains, average income has not kept pace.

Those who purchased at prices of around 30 years ago and sold are the winners.

There are a lot wanting to sell right now but simply can't get the price to cover the debt, so they rent. The future does not look promising, the factors are weighted to the negative :

Hi net leaving migration.

Property gains tax on the horizon.

Living costs continues to increase whilst employment and wages stagnate.

Coming generations are less affluent.

More natural disaster due to global warming.

The Government housing affordability initiatives through suburb developments competing with private property values.

Post the 2007-08 credit crunch/bubble burst; the government has borrowed more and more to prop up NZ living standard and compensate borrowing with low interest rates – this is unsustainable, NZ is simply living beyond its means and it all has to be paid back with interest.

Banking on selling ones time to pay highly leveraged debt is perilous.

Is it worth taking on the large debt? Being a debt slave, the worry, sleepless nights – NO! Wait property values have further to fall in this fragile economy. 

"Being a debt slave"

Yes, being a slave to the banks that generated your "loan" out of thin air, and laugh out loud as soon and you sign and became thier "bitch".

Ok, admitantly renting you are the landlords "bitch"  but the worst he can do is kick you out. The bank on the other hand can take everything you own and more.

 

 

Basicly ones life and important part the future

But until the bank moves in ones stuck with a big white elephant and of course one holds out until the bitter end from loss of wealth or home.

Theres a lot to be said for being liquid and earning low maintenance/worry interest.

Double post

Still way cheaper to buy here in the US! We are looking 

Why would I buy when I can rent a million dollar coastal property for what would be a <1% yield for my landlord? On top of that the beach is 2 mins away and the fishing great. No insurance, rates, or maintenance worries either. Money is better off elsewhere.

Dead right scarfie, with all the inherent risks with property - refer my previous blog 21.6.11, including neighbours and councils. Ones better off earning interest in a safe bank.

Any problems "pack up troubles in your old kit bag and smile boys thats the style"

Dead right scarfie, with all the inherent risks with property - refer my previous blog 21.6.11, including neighbours and councils. Ones better off earning interest in a safe bank.

Any problems "pack up troubles in your old kit bag and smile boys thats the style"

Exactly, the place we live is is worth $800k, and we rent it for the cost of a $250K mortgage at todays interest rates. Why on earth would you buy it?

 

cost of a $250k mortgage could be what ever you want it to be? $250 a week or $1500?

If you rent a $800k house in wgtn you should be paying about $700-900 a week. 

an $800k house in eketahuna might get you $300 a week? plus you'll have to wash the dishes aswell