Amanda's Take Five for Tuesday

Personal Finance

Is it really so wrong to rent?; Median rents; What are you risking?; Taxing the rich; Meeting with a financial advisor

6th Nov 12, 10:17am by Amanda Morrall

By Amanda Morrall

1) Is it really so wrong to rent?

Thank you Shamubeel Eaqub for being bold enough to challenge the home buying mania that has driven average home prices over $600,000. Reporter Anne Gibson, from the New Zealand Herald went to Eaqub (from the NZ Institute for Economic Research) to get his opinion on the latest spike in house prices. In her story, Eaqub asks why more economists aren't raising questions about the insatiable appetite for property given its obvious unaffordability for many. For some time Eaqub has been on the record as saying home buying, at today's prices, doesn't make sense for a large segment of the population and yet the overwhelming chorus you hear from realtors, residential property investors and other punters, is buy, buy, buy. Is it really so wrong to rent and invest your money elsewhere?

2) Median rents

As a renter myself, I would concur with Mr. Eaqub's assertions about the bubbly housing prices, particularly in Auckland. And yet rents, at least out my way, aren't exactly cheap either. The last time I paid this much rent, for a property that was arguably shabbier than the student housing I lived in 20 years ago, I was living in Dublin and it was 1999. The Celtic tiger was roaring and money hungry landlords were charging as much as £400 a week for a measly room in a run down house. It was nuts. We all know how that story ended don't we.

For those who have some flexibility in their working or family lives, here's our in-house charts showing median rents nation wide and where you can get the best deal.

3) Tax the rich, "Yeah right!"

A very cheeky piece from Ian Frazier of the New Yorker about taxing the rich and why, ostensibly, it won't fix anything.

4) Risk and reward

Financial advisor Uma Shashikant, writing for the Times of India, warns about the importance of understanding risk and return and being very wary of bankers or anyone else peddling products whose returns are just too good to be true. For those interested in learning more about risk and return on investments, New Zealand money writer Mary Holm has published an updated version of her investment guide manual Snakes and Ladders, available for free through the Reserve Bank of New Zealand or on her website here.

5) Financial advisors

Wall Street Journal finance writer Aparna Narayanan offers some general advice on how to find a financial advisor. Obviously, our market and regulations are different here however the same approach can be applied to shopping for an authorised financial advisor. For more localised information on how to go about seeking professional financial advice, see the New Zealand Institute of Financial Advisor's website here.

To read other Take Fives by Amanda Morrall click here. You can also follow Amanda on Twitter @amandamorrall

We welcome your comments below. If you are not already registered, please register to comment

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

29 Comments

by StanGoodvibes | 6th Nov 12, 11:06am 1352153203

#1 Probably the wrong place to say this but seriously, there is a reason Aucklanders get mocked for their obession with houses. And it's so boring!

I rent in Sydney, I'll probably rent everywhere else I choose to live. It's hassle-free and this way I can hang out in the city with fun people who just want to have a good time and take advantage of this great civilisation we live in with where it's possible to travel the world on a whim and see and do amazing things that even my parents couldn't imagine doing in their lifetime.

Or, you can buy a house in suburbia and spend your life mowing lawns and washing the car and gardening and going to dinner parties where you talk about house prices and *snore* ... sorry I fell asleep there for a minute.

by Amanda Morrall | 6th Nov 12, 11:36am 1352154960

LOL! You're invited to next dinner party Stan...when I get the yard whipped into shape. Too cheap to buy a mower. Anyone have one I could borrow?

by steven | 7th Nov 12, 12:29pm 1352244591

Just dont get a rabbit to do it..... $1200 and counting....

regards

by Ralph | 6th Nov 12, 11:47am 1352155641

Mocking and scoffing is beneath you Mr Stan.

As a place Sydney is packed to the absolute gunwales with negative gearing people obsessed with housing.

There are of course fun people who love having a good time and appreciating everything this great civilisation has to offer whilst owning their own home.

by StanGoodvibes | 6th Nov 12, 12:15pm 1352157334

Few things are beneath me Ralph. You could wade through my deepest thoughts without getting your ankles wet :-)

by Ralph | 6th Nov 12, 1:03pm 1352160218

I have found the main thing about being happy in life is not to share it around too much.

There are a lot of bitter, angry and damaged people out there and they don't want to hear about our great civilisation, unbounding opportunty or irrepressible joy for life.

by StanGoodvibes | 6th Nov 12, 2:17pm 1352164673

well that could just possibly be because we are exploiting them like crazy just so we can have this fantastic existance.

by StanGoodvibes | 6th Nov 12, 11:53am 1352156014

So where exactly is this city where a 25 year old can stump up with the deposit for a house and have it paid off by the time they are 50? Good luck trying to do that anywhere remotely fun!

So you move somewhere cheaper or buy way out in the burbs (which as you can see from my post above is akin to dying a slow painful death) and by the time your house in the burbs is paid off you are 50 and the best years of your life are behind you and spent them... in the burbs, paying off a mortage... *snore* sorry fell asleep again. Still tired from an epic weekend in the city with renting chums.

Renting means I have lots more spare time to have fun because I don't have to worry about insurance or maintenance or what house prices are doing. I never hear from the landlord because I pay my rent like clockwork once a fortnight, but he hears from us quite often - whenever something breaks or wears out.

I'll quite happily pay rent when I'm old if it means living a life I love outside the burbs! Owning a house is a PITA, like owning a car.

*puts on Morpheus face* Free your mind, Ivan

by StanGoodvibes | 6th Nov 12, 12:24pm 1352157886

I get the impression from your writing that your trying to convince yourself, not me

Oh God that argument annoys me Ivan! I'm a white affluent Antipodean male, sufficiently aware enough to realise that my opinions are complete bollocks, but as they are my opinions, I'll defend them to the death, and occasionally get quite animated and even passionate about them (well right up until the point I get proven wrong at least). So no, I don't need convincing. I'm just passionate about this topic because I know I'm right LOL

Yes it will be interesting to see how this discussion would play out when we are all 70 or so. However I do have scientific evidence on my side - given that you and I are well in the top 5% of the richest people on the planet, and live a life most people in the world can't even imagine - why is it that we in the western world with our houses and pensions and financial security are less happy than they are?

by Amanda Morrall | 6th Nov 12, 3:34pm 1352169282

A very good question.

by StanGoodvibes | 6th Nov 12, 5:58pm 1352177917

It was rhetorical - I know the answer

by KH | 6th Nov 12, 2:38pm 1352165922

The demand for 'social housing' (you know - those tiny little refrigerator boxes provided to oldies by the council - living euthanasia). That demand is generated by those who have rented all their lives and then face an income drop with old age. And have no house asset to utilise.

Look forward to confined living Stan. Hopefully you won't be eating catfood in your 80s as well.

by kiwimm | 6th Nov 12, 4:18pm 1352171890

I'm with Stan on this one - I rent and save. I already have enough stashed away in liquid assets to buy a house for cash in a non-bubble city. When I get old and I am no longer able to live life at full throttle, I'll buy a mortgage-free house by the sea and live out my days in comfort.

by Ralph | 6th Nov 12, 1:10pm 1352160610

Back to a core point. Renting can be a really good idea.

When I started a business one of the best things I did was to cash up on all fronts, including selling the house. This johnny-come-lately idea of 'having it all' simply isn't true. We all make choices in life that exclude other options.

The result was in the early start up years we never had serious cashflow problems and we weren't beholden to any banker who didn't really give a stufff about us. 14 years later and we have never done less than a 50% ROE in any financial year.

But .. me and bank eventuallty made up and together with my wife we all own a house together. Seeing as my wife and I get to live in it I feel like it's me ripping off them though.

by StanGoodvibes | 6th Nov 12, 2:23pm 1352165032

I thought we were still on the core point.

by KH | 6th Nov 12, 2:33pm 1352165622

Rent costs are linked to house prices. House prices are linked to rent prices. Same thing really. The debate over which is better misses the point that both are currently (in Auckland) way out of line with any sense. People are being hurt.

If, as happens occasionally, there is a disconnect between rent and house prices - look out. Prices are about to crash. People will be hurt.

by Basel Brush III | 6th Nov 12, 2:53pm 1352166804

You are only partly right. Rent is related closely to income plus any government supplements.

Prices also have the influence of how much an investor will accept as a return. Current yields only become acceptable if the capital gain is thought to be certain.

Current interest rates are not the 'new normal' . Wait a time and when they rise again there will be a few unhappy punters, both owner occupiers and investors with borrowings.

by steven | 7th Nov 12, 11:47am 1352242078

but at the same time then if a landlord knows what he/she can get and knows house prices are always going to rise then the house price just needs to be say 5 or 7% below that of the income. He/she can then afford to pay more up to that margin....more than say a first home buyer...the actual value doesnt matter as long as there is enough profit....surely?

I dont agree that current rates are not the new normal, I think very much that they are. An OCR above 5% is not something we'll see for decades IMHO ....not for long anyway...may not even make 4%....

On top of that I'd suggest that rising interest rates making punters un-happy is not the thing if thats rising so are incomes and inflation....but the bubble bursting losses now thats the hurt.

regards

by moa man | 6th Nov 12, 4:41pm 1352173310

For those that have youth and ambition on thier side, renting is a far better option.

There are many oppertunities out there, and being tied down with a mortgage will severely effect your flexibility and ability to grow a business, especially in the early years.

Unless of course, your sole mission in life is to own a house.

by Farky | 6th Nov 12, 11:37pm 1352198239

Excellent. renting is good,

I'm 65. Just lost my job. now on pension. Which is what. Say $300 per week.

What is my rent. (in Auckland) 36k per year? Pension is $300 per week.

Oh look 52x300= 16k approx. Oh. How upsetting. i appear to be 20k short.

Now what. Leave town. find somewhere cheaper?

Is there anywhere cheaper. Buggered if i know. maybe i can get an accomodation supplement. maybe not. leave town? Children live in Auckland. Dont want to leave. Now what

Owning your own house is possibly a good thing

by steven | 7th Nov 12, 11:39am 1352241566

If you lose your job while still with a mortgage then you could be in deeper poo....its still a full recourse loan after all.

If you had a crystal ball and saw your life before you, you'd never put a foot wrong. As an example in the 1990s I got made redundant, as I was renting I could move to a new job easily which I did......

But your right, at 65 I wouldnt want to be still renting but at the same time thats assuming the house is still worth what you paid for it.

regards

by notaneconomist | 7th Nov 12, 12:50pm 1352245839

Ivan - yep owing your own home is better. Firstly if that property has doubled or trebled over a persons life time they can actually take out some of the equity in their retirement if they need to.

Rent payments are a poor use of a persons earnings and people forget they swap time for earnings. Rent payments simply waste earnings.

by StanGoodvibes | 7th Nov 12, 1:04pm 1352246683

can take some of the equity if they either a) scale down to somewhere cheaper, move to a town where property is cheaper, or take one of those cash-for-your-house-when-you-die deals which leaves nothing for the kids.

If you are happy where you are and don't want to move, your equity is locked down.

Given the way house prices and the world economy are going the days of your house value doubling or trebling or going from $50 to over $1,000,000 like it did in the last 30 years (where inflation was your friend) are a lot less likely going forward from here.

And the rent payments are quite often not much different from the interest you pay on your mortgage over the 25-30 years - so is that wasted money as well? Plus your savings and investments can compound over time to be worth much more than a house.

And a house and mortgage locks you into a long-term commitment to one place, which isn't necessarily suitable to people like me who don't want to spend our whole lives in the same town *yawn*

by StanGoodvibes | 7th Nov 12, 12:52pm 1352245954

I would say the relevence of Farkys story is that a lifetime of not accumulating any wealth or assets and then expecting the government to provide for you in retirement is well, complete folly.

Which makes you wonder why he's posting on a finacial website.

So, at age 65 with no means of supporting yourself your options appear to be - carry on working so you can remain in Auckland with your kids or move somewhere regional where rents are a much smaller portion of your benefit and accept that as a result of not planning ahead when you were younger.

Sheesh, and they say the young have a sense of entitlement!

This in no way reflects on the wisdom of buying a house or not.

by splineman | 7th Nov 12, 7:47am 1352227620

My father rented most of his life and when he retired he bought a house, cash, never paid any interest. Smart man.

Cheers.

by steven | 7th Nov 12, 12:25pm 1352244348

#3 actually it might well....

No one can show a link between low tax rates and a booming economy and actually its more like the opposite, high taxes for the rich and a booming economy seem to go hand in hand. I suppose its a case of how much real world evidence do you need. Im long past having seen enough...

http://takingnote.blogs.nytimes.com/2012/11/02/ideology-over-reality/?p…

Also this is a fasinating piece of history,

http://www.nytimes.com/2012/10/14/opinion/sunday/the-self-destruction-of-the-1-percent.html?pagewanted=all

regards

by notaneconomist | 7th Nov 12, 1:26pm 1352247983

Steven - when an economy has high taxes those paying the taxes will do everything they can to lower their tax obligations. The large lift in property prices throughout 2000 saw many highly paid public servants and other professionals setting up business structures to invest in property as they could lower their overall tax position.

Those spending the taxes (Govt) create an artificial economy by employing people in unproductive jobs. At first this artificial economy makes everything look rosy but then a saturation point is reached as the artificial economy is not sustainable as the system simply gets too big.

If income tax was removed people wouldn't have a need to position themselves continually. Good productive business would be able to thrive as they would be able to use that tax in things like R & D projects etc.

Government Agencies are not efficient operators in delivering goods and services. Take Ag-Research who have spent $50million on Genetically Engineering a cow. Who the hell wants to consume genetically engineered milk? Products have to be marketable and GE food is pretty much off most people's agenda's. Can they convince people to drink GE milk - not likely given the amount of research pouring out on the health effects of GE foods.

Taxes have enormous consequences to economies which on the surface look OK but underneath cause just about every economic problem known.

by Farky | 7th Nov 12, 10:54pm 1352282094

I think that i was misunderstood.

I think being mortgage free at 65 is a really good thing.

Renting at 65 is not a good thing.

Unless you have saved all the difference between renting and owning.

And how many people do that.

Bugger all i suspect.

by jamesterry | 13th Nov 12, 6:41am 1352742069

Yes this is can be noticed that why taxing and should be control,this will made a busy man more disturbed so this is not good.http://www.d4you.us/