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Personal finance editor Amanda Morrall, in this second instalment on her battle with the property bug, explains her reasons for bucking the trend

Personal finance editor Amanda Morrall, in this second instalment on her battle with the property bug, explains her reasons for bucking the trend

By Amanda Morrall

Winter cancelled in Auckland?

It's been close to six years now since moving to NZ and I still can't get a handle on the weather, so the aforementioned proclamation by the head of the Real Estate Institute of New Zealand (REINZ), was news to me.

The rain didn't stop. Does it ever? The winds were constantly shifting, as they tend to do. And with the exception of a few genus of plants, which care nothing for seasons, mother nature took a nap.

But according to the REINZ an odd thing happened this winter while she was sleeping. The normally dormant housing market burst to life leading the agency to conclude in its latest housing report that winter, for all real estate intents and purposes "was cancelled."

It seems prospective home buyers skipped the usual hibernation phase because the lure of low-interest rates proved too great - that coupled with the fact that many KiwiSavers had reached the magical three year point of being able to tap their funds to offset the mortgage.

I understand the reasons for the home buying contagion but the best realtor in the world wouldn't be able to convince me why paying NZ $500,000 for a two bedroom brick and tile joint (the going price in some places in Auckland reports Gareth Vaughan in this piece), is a good idea.

It wasn't too long ago that Amanda professed to have come down with a fever, an affliction that is all too familiar to Kiwis called the property bug.

I wrote at the time that I was succumbing to the low interest rate lure myself and the temptation to plunge in what is widely known to be an over-heated property market in Auckland. (See BNZ senior economist Craig Ebert's opinion piece on the market here).

I'm not so extreme in my views as to share the opinion of peak oil economist Nicole Foss who told me during an interview that she thought the Auckland housing market was "a trap."

You might recall her advice for prospective home buyers, whom she cautioned would get caught in the backsplash of a peak-oil tainted housing bubble burst.

"Don't buy a house under any circumstance, unless you can buy it outright,'' she warned.

In principle I kind of agree with her zero LVR policy but let's be realistic, eh. Not many are in that privileged position and even dedicated savers would be waiting until their 50s to buy a home with cash.

In any case, I've had a few inquiries from readers just busting to know whether I'd recovered from the fever.

Alas after many sleepless nights of tossing and turning, finger nail chewing and deliberation, I am happy to report that the fever has broken and I'm no longer sweating the decision.

Although the emotional strings of home ownership continue to pull, logic got the better of me. Until a change in the weather that works in my favour, (instead of bankers, property moguls and realtors), I have decided to hold firm as a renter.

There is a move on the horizon for Amanda nonetheless. It's about a kilometre down the road, to a smaller, more affordable, easier to maintain rental property that will take me, my boys, my cat and dog.

For my packing pains, I will save close to $5,000 a year. It's not a mansion but it meets all my needs and with a new coat of paint will be cute as a button.

Yes, there's the moving costs. But I'm hoping to do this on the cheap. I have a tow bar and friends with muscle.

The property is heated by gas, which I understand is one of the cheapest forms of heating.

Except for a small patch of grass, I won't have to pull weeds or pay a gardener to prune, mulch and maintain.

Now according to some experts, my decision to rent, despite saving me heaps, could ironically leave me worse off.

Why? The theory is that by not becoming one of the mortgage indebted masses, I risk putting myself in the category of a perpetual, mindless consumer who will fritter away my savings.

Well, as most of you know, Amanda is not a big spender. It's a good thing too because my biggest liability is travelling. Everyone I love (apart from pets and children) lives in another city so a good chunk of my discretionary pesos gets sucked up by the airlines. If they weren't such a poor investment, I'd buy stocks with my savings.

Until the teleporter is invented, or my loved ones move to NZ, I can't see me cutting my carbon footprint anytime soon.

My savings on accommodation won't be banked entirely but at $5K I'll be able to get off the Island and with discipline stow some away into my retirement fund.

I fully expect I'll become stricken once again with the property bug. But fingers crossed when I do, the bubble will have finally burst.

Rent or buy?

Roost Home Loan Affordability

Rent ratio

House price to income multiples

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Amanda , good on you ,  the ability to keep your head when everyone else  is losing theirs is a good trait to have.
Keep saving , your time will come .
This housing bubble in Auckland is founded on the premise that there is no more land for development , which is nonsense.
Auckland housing  could double with little new sprawl , but for the costs imposed by Council which are excessively onerous are exacerbating the problem
This will all change , simply because the status quo is unsustainable
Its further fueled by low interest rates ( which cant stay low forever)  , new immigrants, the ridiculous over -reaching and costly Resource Managment Act,  and costly subdivision processes.
All thse factors are working in a perfect storm.   
The balloon  will come down to earth eventually , and I agree with you in principle, I would not buy in this heady market . Its just a pity you did not get onto the ladder a few years ago when things were a bit more realisitc

Totally agree Boatman and well done Amanda. It is very hard not to get sucked into the vortex which is the current property market but when you observe the crash an burn result of these markets world wide, why should Akl be immuned? I'm in Ireland at present and am seeing first hand the crunching in property values by some 30 odd percent. There is truth in the old saying, 'when others are running, you walk'

Good for you, Amanda.  
I think there are many people whose only significant savings for the future are 100% tied up in their home - relying on it to increase in value ad infinitum for some great reward in future decades, when they sell up.   They place absolute certainty in this, above anything else, citing doubts over the future existence of NZ Super and KiwiSaver as a reason. 
They may be right.    Yet when people piled all their money into finance companies, and then lost everything, didn't many of us tut tut over the fact that they didn't at least diversify?

"The rain didn't stop. Does it ever? The winds were constantly shifting, as they tend to do"
Ah, so you live in Wellington then? ;-)

Amanda interest is simply a wealth redistribution tool and property is the popular contemporary mechanism for this. The time to be on the train, was before the GFC because it was pretty much a safe bet then. All bets are now off and it can hit reverse at any time, when it does it will likely be fast. I may continue to work for a while but it relies on the ability of people to pay. Money pouring in from China doesn't change the underlying ability of New Zealanders to pay and so this will have a greater impact on the ability of housing to act as described than anything else eventually. When housing has been exhausted as a tool to extract wealth, then those doing the lending will move on to the next one.

Amanda should buy a house, there are heaps of houses in Auckland with a price less than $300k.
The cost will be much higher to rebuild a same size house on the section.
Amanda, you just need to open your mind, think about whole Auckland.
People seem thibk about central Auckland only at the moment. A young couple I know just bought a house in Takanini for about $250k, they are very happy.

that retirement fund had better be huge because if you retire(a long way off for you)
without your own property you may find that any income you get may bee needed for rent.
However if property prices collapse which i think they will,you may have enough socked away to purchase a very nice property.

Buy a house/home.  You will need a debt-free house to live in your retirement.  You always need a place to live. Isn't it anoying to pay rent to a landlord? Knowing that you're paying the mortgage on his house but not enjoying repayment or capital gain yourself?
I bought/built first house in 1987 @ 21% interest, and was oblivious to the economic environment. That first purchase has effectively lead to a good-sized equity which has been used several times for major family trips, integrated school fees, cars etc. So the house is sort of like a family bank..   OK, ok I should have paid it off earlier - but I preferred to use some equity for family benefit & living today - not just squirrelling for the future.  
Every mortgage has an endpoint & diminishes relative to your growing income over time.  Rent is always benchmarked to current conditions, so you will never get ahead or relief from market rents.

House price inflation now running @ 11%+pa difficult to save that amount.
Meanwhile the fixed debt is being eroded by inflation.

Gee. Just as well House Prices don't count in core inflation....

Funny how equity and capital roll of these guys tongues so easy when they don't have a damn clue exactly what it is or where it comes from. Is it the banking fairies that waive their wands and confer this benefit? Me thinks not.

Home owners are never debt free! Ever heard of EVER INCREASING local rates? Many have done what you said and guess what? They had to sell their 'asset' due to rates screwing them down to a point where turnign on a heater or taking a bath used any remaining pension income! 
No guarantee's in life, particularly making it to "retirement". You can die anytime any place and many of us refuse to live a majority of that short life as a bank slave.  'Times are achanging', many people now realize the global monetary rort is a total scam, keeping the rich rich and poor poor. Good luck too you 

Justice, where do you live as you say if you are a homeowner (debt free or not) you are a tenant to the local council but if you rent you are at the whim of the landlord to move you on (within your rights of course).
Sounds like best option is to live under a rock somewhere where the govt can't reach you?

Amanda a house is essentially shelter, a fundamental human need, you can find them throughout the land. By choosing to live in NZ's most expensive city you're  making  your financial life pretty challenging. What is it about Auckland that you can't find in other parts of the country.Climate? Schooling?recreation? Job???( And you may indeed have perfectly valid reasons.......but .... . . really???)
If you make an astronomical salary then I can understand living in Auckland..but if like most of us you're on a more humble income then Auckland is a fairly extravagant lifestyle for middle NZ.

Actually, I have always (between selling/buying houses) found it extremely difficult to find a decent rental house, in the right suburb for schools,  cater for 3 kids, 1 dog, within range of work.  Not many, if any ...   how many rentals under $450 a week would you want to actually live in?  Not many, if any ....

Perhaps you should find yourself a great man and two incomes are better than one? you could even cut your work at down (or partly work from home) and spend time with the kids and you would still be better off. Unfortunately you are competing against most households that have more than one income, which makes it very hard....
The day when a house in the central suburbs of NZ's most expensive city can be bought easily with one income which is also caring for dependants... probably means houses are very cheap...

The question is , Hugh ....... will NZ house prices taper off slowly , and grind sideways for a few years , whilst inflation plays catch-up .....
........ or will we get a gut wrenching sudden collapse , a'la the US , UK & Ireland .......
[ Bernard is the one to thank for Amanda's sprucing up ....... Hickey knows all the finest salons and aromatherapy spas in Auckland ....... he's a legend amongst the cuticle set .....]

Well done Amanda. You.... in the coming years will not regret your decision. NZ homeowners are now the nations bottomless ATM machine. Governments, local councils, and.........banks will exploit them to the point of 3rd world status by the time this 'depression' is over. And is a depression we are facing. Debt.......any kind of debt is a bad idea.

You did the right thing alright Ivan. You paid outright, no mortgage and that is the best you can do with any major purchase. Good for you. You are very rare 

Is it an attached unit Amanda? I generally found units (not leaky ones of course) the best rental bet in Auckland, because as long as they are of reasonable construction and insulation you will typically pay much lower electricity prices in winter, as well as typically lower rent

Amanda , ignore the chatter , buy when you are ready , not before , you are still young and have time on your side
Always remember that  if you do buy a house you remain a tenant , your landlord is either the Bank or a property owner.
Nothing changes and you are less mobile if you have a bank as landlord , its damned more  expensive to get out of owning a home than renting one.  

Despite a lot of respect for your usually well considered views Amanda, I disagree with you on this one.  
Owning a home is about lifestyle, security and all those other wooly things (and I don’t believe that you don’t have a wooly side). It is rental property that is about financial investment.  
Off-setting your perceived financial advantage, is the possibly that one day there could be a knock at the door and you have 42 days to vacate (if a family member of the landlord is to move in). this could be a bit of a hassle if you are leaving the next day for three weeks in Tahiti, or the baby is due in four weeks.  And, are you really that keen on that job lot of off-colour paint that the landlord has painted every room and are you certain that you won’t tire of it? And are you really keen on being accountable to the landlord coming around every four weeks for a property inspection?
If life is really just decided on financial investment, then sell the car and take public transport. Like a house, the car will cost, however, probably unlike a house, the car is certainly just going to lose value.
Having said that, is it really a financially advantageous to rent rather than own?
Certainly your landlord will disagree with you. Unless he or she takes perverse pleasure in subsidizing your accommodation costs, they are planning on making a profit out of renting to you. There is good reason why we own the car, own the TV, and own the lounge suite (albeit on HP in many instances); ownership in the long term is the cheaper option.
OK, in short term, house process may fluctuate, but long term they can be expected to rise. Remember that The New Zealand Company purchased the whole of Wellington for six blankets, two axes, and an antiquated musket.  
There again, us landlords need people like you . . . .

Pretty sure if you have signed 1 year's lease they cant do the 42 days notice thing, or if nothing else you can go to the rental tribunal and get your costs, but im wooly on that I admit...and of course the chances of the landlord wanting it back is the odds of that dont really matter too much.
Houses dont lose value, well just keep saying this time its different.....
Financial investment is about being hard nosed with your $ and future $ a property bubble, which NZ is in and huge external factors only a fool would buy today as an investment....

Good on you some stage it does make sense to buy, but not today not with the risks from abroad.

Poor Amanda, you are going to the poor house for sure ....
Better bite the bullet and  BUY NOW before prices DOUBLE next year !!!
Better still take on a 110% mortgage and spend the balance over valuation on your next holiday overseas...then you don't have to spend your own money on the airlines....
If you believe Hugh and thinks the Goverment is going to help ease the rising house prices, you are going to be greatly dissapointed. NO GOVERMENT or COUNCIL in NZ is going to cause their Bankers friend grief by deflating their mortgage portfolio and causing them loss.
A housing bubble's only beneficiary is the Banking system.....what would happen to bank profits if house prices stop rising ??? Impossible dreams....
I read that the Greens are also getting into the high housing prices last week in the Herald..
their latest reason is that urban sprawl makes people unhealthy because they only drive and don't walk anymore in the surburbs....Now if that is not the best reason for stopping building in the surburbs, what is ??? Of course they cannot relate that urban limits causes high land prices which cause high house prices which makes people poorer because they have to pay their bankers more (or Landlord) which then makes them unhealthy....(cos the don't have anymore money left to feed themselves )
But I doubt that the Green MP will understand my long sentences nor the underlying reason why we should have less land development limits and lower house prices

"The rain didn't stop. Does it ever? The winds were constantly shifting, as they tend to do"
Can you send it over to Brisbane way?  Hasn't rain for weeks, blue sky everyday.. we can swap for some rainy days

Don't remind me, I hear perfect weather reports from Sydney on a daily basis too. 

A good choice made with your head Amanda. Save as much as you can now so you are in a position to act when you choose the time to be right.

In broadly the same situation Amanda, I've come to the same conclusion. I could easily buy a decent first home in auckland suburbia (okay, easily is perhaps stretching it a bit), I've a good deposit well in excess of 20%, that's growing each day but after putting a few offers on places I've decided to fold my hand and step back from the table.
It's clear that the market out there is being driven by emotion and fear right now rather than good sense as people in significantly worse situations than myself are detaching from sanity and going "all in" to clamour onto the property ladder. They're buying the properties that I'm looking at with basically no money down and a 30+ year term paying the most they can afford week to week. I'd like to get into the market with a slightly lower-risk position and that means the competition is just too rich for my blood.
The only sacrifice needed on my part is another year or two flatting, since it's costing me bugger all and when the inevitable drop happens (with what's going down in WA at the moment, don't be surprised if the drop happens sooner rather than later), I'm locked and loaded to buy into the market at any time. Now i'm just waiting for the numbers to stack up and the fervour to die down before buying my first place.
What if I'm wrong and it doesn't drop? I'll leave Auckland. I'm not greatly attached to the place, and while I'd like to live here, it's certainly not worth paying a hefty premium for. There are nicer, better value places out there and I just need the motivation to go to them. Another year or two of bubbly prices will provide that motivation.

If you are single then renting is an acceptable option.
It's not so hot if you are one of the majority Mum Dad and three kids types.
Where do the kids play?
Is it safe?
How close is work?
Where are the nearest good schools?
What about transport and shopping?
And if you get lucky and find a nice renter that fills these needs that's good. 
But what happens when the landlord knocks on the door and wants his property back as happens all to often?
'That's why owning beats renting for anyone except the young and the restless.

If you are single then renting is an acceptable option.
It's not so hot if you are one of the majority Mum Dad and three kids types.
Where do the kids play?
Is it safe?
How close is work?
Where are the nearest good schools?
What about transport and shopping?
And if you get lucky and find a nice renter that fills these needs that's good. 
But what happens when the landlord knocks on the door and wants his property back as happens all to often?
'That's why owning beats renting for anyone except the young and the restless.

Good on you Amanda, patience is a virtue!
Keep saving your time will come. Although I would do things differently if I was in your position I admire your decision and the fact your not suffering from paralysis by analysis (what Muzza termed MIA a few years back :)

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