Rental yields rising as house prices fall in many locations

Property

Residential rental yields are rising in more places than they are falling as prices drop in many places and capital gains become a less significant feature of the housing market

5th May 18, 9:02am by Greg Ninness

By Greg Ninness

The market for residential investment properties appears to be at a turning point, with gross rental yields rising in slightly more areas than they are falling in, according to interest.co.nz's Rental Yield Indicator.

The Indicator tracks the REINZ's lower quartile selling price for three bedroom houses in 56 locations around the country where there is a high level of rental activity, along with the median rent for newly tenanted three bedroom houses in those same areas, to get an indicative gross rental yield for three bedroom houses in each area.

That would be the gross rental return an investor would achieve if they purchased a three bedroom house at the lower quartile selling price in one of the 56 locations tracked, and rented it out at the median rent for three bedroom houses in the same area, (before allowing for costs such as mortgage interest, rates, repairs, maintenance and insurance).

That allows an apples with apples comparison of the relative attractiveness of investing in rental properties in different parts of the country, and how that changes over time.

When rental yields are rising, it means rents are increasing at a greater rate than property prices, and when yields are falling the reverse is true.

The latest Indicator figures, based on property sales and new tenancies that occurred in the six months to the end of March, show yields rose in 25 of the locations monitored around the country, fell in 21 and were unchanged in 10.

That suggests that overall, the market is reasonably well balanced between areas where rents are increasing faster than property prices, and those where property prices are increasing faster than rents.

However there has been a significant shift from the last Indicator, which was based on rents and property sales in the six months to the end of December last year.

In that Indicator, yields rose in 17 locations, declined in 28 and were unchanged in 11.

That suggests capital gains are becoming a less important feature of the market and investors would be wise to focus on potential rental growth when considering the purchase of residential investment properties.

The trend was particularly noticeable in the Auckland region, where yields rose in five of the locations monitored, declined in two and were unchanged in three.

The main drivers were movements in lower quartile prices, and although these, declined in four locations (Massey/Royal Heights, Henderson, Avondale and Highland Park), rose in four locations (Torbay, Glen Eden, Papakura and Pukekohe), and were unchanged in Beach Haven/Birkdale, the price falls tended to be reasonably substantial while the price rises tended to be modest.

Overall rental growth was also relatively modest, with rents rising in four locations, staying the same in four locations and declining in one.

Overall that tended to push up yields, although they remain extremely modest, ranging from 3.7% in Torbay, Avondale and Highland Park to 4.7% in Pukekohe, suggesting that without the prospect of significant capital gains, investors could have difficulty finding a property that will provide them with a decent return in Auckland.

Around the rest of the country, yields were mainly under 5% in Hamilton, Tauranga, Wellington City and Nelson/Tasman, meaning investors may struggle to find properties capable of producing reasonable returns in those areas.

The table below tracks the movements in the indicative yields in all 56 locations monitored by the Rental Yield Indicator.
Indicative gross rental yields for three bedroom houses in 56 selected areas with high rental activity during the previous six months. Based on REINZ lower quartile selling prices and median rents recorded by Tenancy Services' Bonds Centre in each area over the previous six months.

	Indicative gross rental yields for the six months ending:
Town/region	Yield % March 2018	Yield % Dec 2017	Yield % Sept 2017	Yield % June 2017	Yield % March 2017	Yield % Dec 2016	Yield % Sept 2016	Yield % June 2016	Yield % March 2016	Yield % Dec 2015	Yield % Sept 2015	Yield % June 2015	Yield % March 2015	Yield % Dec 2014	Yield % Sept 2014
Whangarei:
Kamo/Tikipunga/Kensington	5.4	5.5	5.3	5.5	5.4	5.4	5.9	6.1	6.0	5.6	7.1	6.5	6.9	7.6	6.4

Rodney - Orewa/Whangaparaoa	4.0	4.0	4.0	4.0	4.0	3.8	3.9	4.1	4.1	4.1	4.3	4.5	4.5	4.6	4.8

North Shore:
Beach Haven/Birkdale	3.8	3.8	4.0	3.8	3.7	3.7	3.7	3.7	3.9	3.8	3.9	4.0	4.3	4.3	4.6
Torbay	3.7	3.6	3.6	3.6	3.7	3.6	3.4	3.6	3.8	3.6	3.8	4.0	4.5	4.6	4.5

Waitakere:
Glen Eden	3.8	3.9	3.9	3.9	4.0	3.8	3.7	3.9	4.0	4.0	4.1	4.3	4.6	4.9	5.1
Massey/Royal Heights	4.2	3.9	3.9	3.8	4.0	3.9	3.8	4.1	4.1	4.0	4.1	4.4	4.6	4.9	5.1
Henderson	4.2	4.1	4.1	4.0	3.9	3.8	3.8	3.8	4.1	4.1	4.1	4.4	4.7	4.9	5.0

Central Auckland:
Avondale	3.7	3.6	3.6	3.5	3.6	3.6	3.7	3.6	3.7	3.7	3.9	4.1	4.2	4.4	4.5

Manukau:
Highland Park	3.7	3.6	3.8	3.6	3.5	3.5	3.4	3.3	3.3	3.6	3.6	3.8	3.8	4.1	4.3
Papakura/Drury/Karaka	4.6	4.7	4.7	4.3	4.3	4.4	4.4	4.7	4.8	4.8	4.9	5.5	5.6	5.9	6.0
Franklin - Pukekohe/Tuakau	4.7	4.7	4.8	4.8	4.6	4.4	4.3	4.5	4.9	5.0	5.0	5.3	5.5	5.6	5.6

Hamilton:
Deanwell/Melville/Fitzroy	5.1	4.9	4.8	4.8	4.8	5.0	5.1	5.4	5.3	5.5	6.2	6.8	6.9	6.9	6.9
Fairfield/Fairview Downs	4.6	4.6	4.5	4.5	4.9	4.8	4.8	5.1	5.4	5.7	6.0	6.8	6.7	6.2	7.0
Te Kowhai/St Andrews/Queenswood	4.7	4.6	4.6	4.5	4.4	4.3	4.6	4.7	4.7	4.9	5.3	5.4	5.4	5.6	5.8

Cambridge/Leamington	4.3	4.2	4.4	4.4	4.6	4.6	4.7	4.8	5.2	5.3	5.2	5.5	5.5	5.6	5.9

Te Awamutu	4.9	5.1	5.0	5.1	5.0	5.1	5.2	5.2	5.7	6.2	6.3	6.5	6.2	6.3	6.4

Tauranga:
Tauranga Central/Greerton	4.7	4.8	5.1	4.7	4.6	4.4	4.3	3.7	5.2	5.2	5.6	6.0	6.1	5.9	5.9
Bethlehem/Otumoetai	4.3	4.3	4.1	4.0	4.1	3.7	4.2	4.2	4.6	4.8	4.8	4.5	4.8	5.3	5.4
Mt Maunganui	4.4	4.2	4.3	4.4	4.4	4.2	4.2	4.4	4.8	4.6	4.7	5.4	5.7	5.6	5.2
Pyes Pa/Welcome Bay	4.4	4.6	4.7	4.3	4.8	4.8	4.9	4.8	5.4	5.5	5.3	5.9	5.7	5.7	5.8
Kaimai/Te Puke	4.9	5.5	5.0	4.9	5.3	5.4	5.5	5.6	5.8	5.9	6.2	6.4	6.2	6.2	5.7

Whakatane	6.3	6.0	6.1	6.0	6.1	5.8	6.5	6.6	6.4	7.1	7.3	6.7	6.3	6.7	6.9

Roturua:
Holdens Bay/Owhata/Ngapuna	7.8	7.4	9.3	10.5	8.0	9.7	10.7	9.4	8.7	8.3	8.7	n.a.	n.a.	n.a.	n.a.
Kuirau/Hillcrest/Glenholm	5.8	4.9	5.6	5.5	4.9	7.3	7.5	6.4	5.9	6.3	6.6	n.a.	n.a.	n.a.	n.a.
Ngongataha/Pleasant Heights/Koutu	6.7	7.6	8.5	6.2	8.6	8.2	7.2	7.9	7.7	8.0	8.2	n.a.	n.a.	n.a.	n.a.

Hastings - Flaxmere	9.6	9.8	9.9	9.3	8.9	8.6	9.4	9.3	10.9	11.5	11.0	12.1	12.2	11.7	11.8

Napier - Taradale	4.6	4.4	4.4	4.9	5.0	4.9	5.1	5.5	5.4	5.6	5.5	5.3	6.2	6.3	6.1

Taranaki:
New Plymouth Central/Moturoa	4.6	4.7	5.4	4.9	4.7	5.3	5.1	5.4	5.8	5.4	5.5	n.a.	n.a.	n.a.	n.a.
Waitara/Inglewood	6.4	6.1	6.0	7.2	8.1	7.0	7.7	7.7	8.8	8.9	8.0	n.a.	n.a.	n.a.	n.a.

Whanganui	9.0	8.9	8.7	8.6	9.1	9.7	9.7	10.3	9.6	10.0	14.9	n.a.	n.a.	n.a.	n.a.

Palmerston North:
Kelvin Grove/Roslyn	6.3	6.5	6.3	6.5	6.6	6.6	7.0	7.3	7.4	7.2	7.2	n.a.	n.a.	n.a.	n.a.
Palmerston North Central	5.0	4.9	5.5	6.0	5.9	5.6	6.5	6.3	5.6	5.5	6.2	n.a.	n.a.	n.a.	n.a.
Takaro/Cloverlea/Milson	6.0	5.9	6.2	6.2	6.1	6.3	6.7	6.8	7.2	7.1	7.3	n.a.	n.a.	n.a.	n.a.

Kapiti Coast:
Paraparaumu/Raumati	4.9	5.0	5.0	4.9	4.8	5.3	5.6	5.7	5.9	6.0	6.1	6.2	6.1	6.1	5.9
Waikanae/Otaki	5.4	5.2	4.7	4.7	5.2	5.5	5.8	5.8	5.9	6.5	6.8	6.6	6.7	5.5	5.4

Upper Hutt:
Heretaunga/Silverstream	4.8	5.0	5.4	4.7	4.7	4.6	5.3	5.6	5.8	5.8	6.1	n.a.	n.a.	n.a.	n.a.
Totara Park/Maoribank/Te Marua	5.6	5.6	5.7	5.8	5.8	5.2	5.7	6.2	6.3	6.2	6.8	n.a.	n.a.	n.a.	n.a.

Lower Hutt:
Epuni/Avalon	5.0	4.5	4.8	4.9	5.1	5.6	5.1	5.5	5.8	5.2	5.1	n.a.	n.a.	n.a.	n.a.
Taita/Naenae	5.7	5.9	5.5	5.6	5.8	6.1	6.2	6.5	6.8	6.9	7.1	n.a.	n.a.	n.a.	n.a.
Wainuiomata	5.6	5.6	5.7	5.9	5.9	6.3	7.0	7.2	7.7	7.7	7.7	n.a.	n.a.	n.a.	n.a.

Wellington:
Johnsonville/Newlands	4.9	4.6	5.0	5.0	4.9	4.8	4.8	5.2	5.5	5.4	5.6	5.8	5.6	5.5	6.2
Vogeltown/Berhampore/Newtown	4.9	4.3	4.5	4.5	4.2	4.1	4.6	4.9	5.4	5.2	5.5	5.1	5.5	5.2	5.6

Tasman:
Motueka	4.2	4.5	5.0	4.4	4.0	4.0	4.7	5.3	5.2	5.4	5.3	5.3	5.5	5.6	5.5
Richmond/Wakefield/Brightwater	4.5	4.6	4.8	4.6	4.7	4.6	4.8	5.3	5.3	5.3	5.5	5.6	5.6	5.8	5.9

Nelson - Stoke/Nayland/Tahunanui	4.9	4.9	4.8	5.0	5.1	5.1	5.2	5.3	5.5	5.7	5.8	5.9	5.7	5.7	6.0

Blenheim	5.6	5.5	5.7	5.6	5.8	6.3	6.5	6.5	7.0	7.0	6.4	6.5	6.5	6.6	6.5

Christchurch:
Hornby/Islington/Hei Hei	5.7	5.8	5.6	5.6	5.6	5.7	6.1	6.1	6.0	6.0	6.2	6.2	6.3	6.5	6.3
Riccarton	5.2	5.7	5.1	4.7	5.0	5.2	5.5	5.0	5.7	5.0	4.9	5.9	5.2	4.9	5.1
Woolston/Opawa	7.8	6.7	6.2	6.0	6.2	6.5	6.6	7.4	6.3	6.4	6.6	6.8	7.3	7.2	8.0

Ashburton	5.3	5.8	6.3	7.0	8.3	8.4	6.3	6.1	6.2	7.0	6.9	7.0	6.8	6.7	7.2

Timaru	5.8	6.2	6.0	5.7	6.0	5.9	6.1	6.4	6.5	6.4	6.2	6.6	6.8	6.7	6.3

Queenstown/Frankton/Arrowtown	4.2	4.3	4.4	4.6	4.3	4.1	4.5	4.3	4.6	5.2	5.0	4.8	4.9	4.7	5.3

Dunedin:
Kenmure/Mornington	5.9	5.4	5.8	6.3	7.5	6.5	6.3	6.7	7.9	7.1	6.6	n.a.	n.a.	n.a.	n.a.
Mosgiel	5.6	5.4	5.4	5.4	5.5	5.7	5.7	5.7	6.4	6.4	6.1	n.a.	n.a.	n.a.	n.a.
South Dunedin/St Kilda	7.6	7.6	8.6	8.0	7.9	7.5	8.1	7.4	7.2	8.0	8.2	n.a.	n.a.	n.a.	n.a.

Invercargill	7.9	7.9	8.9	8.3	8.3	7.9	8.3	8.4	8.7	9.1	9.0	6.7	9.0	9.2	9.5
Source : REINZ / MBIE *Yield is a property's annual rent expressed as a percentage of its purchase price. The indicative yield figures in this table are gross, and are calculated from the REINZ's lower quartile selling price for three bedroom houses in each area during the previous 6 months, and the median rent for three bedroom houses calculated from new tenancy bonds received by the Ministry of Business Innovation and Employment for the same areas/period. This gives an indication of the gross rental yield that would have been achieved in each area if a three bedroom house was purchased at the lower quarter price and rented at the median rent for that area.

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88 Comments

by Pragmatist | 5th May 18, 10:17am 1525472270

Might want to fix the dates.. two march '17 columns.

by David Chaston | 5th May 18, 10:31am 1525473105

thanks. updated now

by CN | 6th May 18, 2:39pm 1525574361

David,

Perhaps you also want to correct in the following link - https://www.interest.co.nz/saving/rental-yield-indicator

by Retired-Poppy | 5th May 18, 11:03am 1525475030

Excellent news! storm clouds gather for one group, ray of hope for another (FHB). I think In the absence of capital gains, risk/reward has to become realistic suggesting yields will rise a lot more to reflect the risk. Speculator/Landlords are already asking all they can get away with so expect further erosion in house values. Ring fencing is just another reason to validate years of declines to come.

by sammnz | 5th May 18, 1:28pm 1525483702

I’ve just bought a house. As a FHB is it a ray of sunshine? Or a omen of doom?

Homeowners with capital will be able to weather the storm, but not me.

by Independent_Observer | 5th May 18, 3:13pm 1525489987

Ever heard of the story of the old man and his horse?

https://oshostories.wordpress.com/2012/05/28/old-mans-horse/

by Sasha | 6th May 18, 10:29am 1525559352

Amazing story

by Chessmaster | 5th May 18, 7:09pm 1525504199

Yes great comment Retired Poppy !!!! Hopefully FHB don't read these threads.
FHB have to start by getting a deposit together, if they have enough it is absolutely stupid to wait. If the banks believe a falling property market, it will be very hard for FHBs to get a loan anyway. Thankfully, the banks don't believe "the sky is falling theory". Anyone who thinks interest rates are going to shoot up, think again. The World economy is still very stagnant, even the US now talking down rate increases, Europe wants more reduction. Interest rates are not going anywhere with banks competing for business. Like I said before, if prices drop anymore, yields get better and investors start increasing their stock.

It's obviously not good for Auckland that we have people leaving like teachers, nurses, etc but nothing any of us can do when demand is so high with limited houses. My advice to FHBs and anyone without a home is that the ideal time to buy is when they have enough deposit, can afford to and bank will give them the loan. It is their home and gives them a chance to grow their wealth and even better if they can do some Reno work to add value to their asset. Hold on for 3 to 5 years and then sell, buy a better house and maybe move to more desirable suburbs. Regardless of what happens to house prices, up down, they are hedged. As time progresses, hardworking people do better in their jobs, gain more experience and hopefully their incomes will be higher. Affordability gets better and life is easier.
Can't sit on the sidelines, wait and then blame everyone else for not having a home.

by tothepoint - d… | 5th May 18, 1:42pm 1525484579

Hi Retired-Poppy,

Yesterday (and Thursday) you emphatically dismissed the relevance of rate-of-return (yield) to housing investment - forgetting/ignoring it altogether. I know - because I personally drew it to the attention of readers.

A day later (today - see above) you completely change your tune - acknowledging the central importance of yield to housing investment analysis. Such an abrupt change from you in just 24 hours begs fundamental questions re your plausibility. (Or are there two different people using the same "Retired-Poppy" moniker?)

And by the way, the latest data shows house prices are still rising significantly through most of New Zealand - a 7.6 percent increase on average over the last 12 months is no paltry amount. (Even Auckland shows an increase on the latest year-on-year figures.)

TTP

by J.C. | 5th May 18, 3:25pm 1525490729

Right. Which suggests that investors and home buyers are buying an asset for which they might be better off not buying based on a simple ROI benchmark (and yes, for most homebuyers, their home is an "investment", regardless of what the media and the FIRE industry army might say).

by Retired-Poppy | 5th May 18, 8:57pm 1525510620

TTP, you're telling more lies....again. Nowadays, when an astute investor is shopping, of course yield is everything when determining risk/reward. The problem is that its too low. That's why in the absence of capital gains prices in parts of Auckland are now drifting south, giving tiny uplifts to yields. That's what I meant by giving way to increased yields. I'll take it that you did not read this article properly. It's such early days of this period of adjustment.

Now for the FHB owner occupier, yields are not the main focus because they are buying a house to live in, not rent out. Its wise for FHB to wait for this period of adjustment to play out. There just isn't any reason to rush in and commit hard saved deposits on overpriced homes. Auckland's overall 0.8%pa gain is running under the rate of inflation and term deposit interest. Note some parts of Auckland are falling. That means house prices in our biggest city are now declining when adjusted for inflation. It won't be long before impatient vendors sitting on overpriced homes become impatient with this difficult market. Soon regional markets will feel this chill too and the Nationwide annualized gain goes down the gurgler too. What will TTP have to report then I wonder......

Everyone here knows your desperate tactics. You deliberately undermine factually based comments with baseless lies. It is you that changes his forecasts every quarter in tune with the changing house market. Your latest about turn is that Auckland house prices are going to fall by a small amount. What happened to the "oscillations" and that they would continue rising throughout 2018 and it wouldn't matter who one the election? Talk about a hypocritical flip flopping flop.

This is precisely why no one but DGZ takes you seriously. Your knowledge base is derived from the online "Oneroof" section of the Herald.

by tothepoint - d… | 5th May 18, 10:25pm 1525515925

Hi Retired-Poppy,

On 2 May, you omitted to include yield in your analysis/commentary, creating the impression that house investors are worse off financially than they actually are. That is misleading and deceptive - as was pointed out to you. (You were unable to refute that in the ensuing discussion.) [Reference: see the item entitled "Housing Market Continues to Slow" of 2nd May.]

However, in other circumstances (notably when it suits your personal agenda, as in your comments above) you happily address the issue of yield.

As most readers will know, yield can always be calculated and is basic to assessing the performance of any (housing) investment - no matter the state of the market OR the actual level of the yield. Ignoring yield when it suits your agenda to do so is spurious and unethical.

Further, as regular readers know, my position is clear: that Auckland house prices are most likely to remain around much the same level for the foreseeable future - with relatively small fluctuations. (I have held that view for many months now.)

This is in contrast to your position: for a long period of time you argued vigorously that there was going to be a housing market crash, with big prices drops. Only recently have you dropped that line. You now - somewhat unhappily it appears - seem to be acknowledging that a crash is unlikely.

TTP

by Retired-Poppy | 6th May 18, 9:15am 1525554944

TTP, your ilk are thinning out. Even your mate Yvil's shared thoughts on how we are all dancing the slow spiral into a new Great Depression; https://www.interest.co.nz/opinion/93542/patrick-watson-says-free-marke…. I gather this is another well informed article you didn't care to read because it failed to sing you the right tune.

Yvil's point (from the subject article) is that Capitalism is now damaged. Without regular losses/corrections then there's guaranteed trouble in right in front of us. Our Government's policy response to this are merely tinkering around the edges now that after nine years the problem has become so serious. Hopefully the Coalition has enough time on their hands to shift the balance away from the speculator and back to the owner occupier before the next shock.

Your emotions are so deep in the one game to believe anything could happen otherwise. It's like you've been brainwashed.

by Eco Bird | 5th May 18, 10:52pm 1525517554

LOL, you are so simple RP.

0.8% on the average Auckland price of $1050K is more than $80,000
which could be a year's take home pay for a FHB and almost 3 years rent , that is hardly a pocket change to most ... and you want FHBs to wait longer to pay more next year or possibly be shut out altogether from the market like in 2010, 2011.?

We all know that you flip flop as required and when all fails you get into personal attacks as usual.

You keep dreaming of a crash and keep creating scenarios to prove your point - Fine, .... But it's not happening RP ! ... So wake up and stick to you rotten knitting and pull your nose out of what you don't and cannot comprehend.

here is hint for you : As time goes by, the lower quartile old or rubbish houses will become cheaper ( for many good reasons) ....However, the cheaper they become the more expensive they will end up to run and live in them because renovation and maintenance are anything but Cheap today! there won't be a landlord to call to repair stuff, the owner will have to fork out repairs and all other expenses.... Capiche? so cheap is nothing to celebrate about.

There are tons of affordable houses out there which are not selling because, unlike yourself, most buyers are smart enough and have figured it out !.

by mfd | 6th May 18, 8:38am 1525552729

0.8% of 1050k is ~8k, not 80k

by Retired-Poppy | 6th May 18, 10:10am 1525558231

EchoBird, lol!, outing yourself as the one who can't even do basic sums does you no favours. It's no wonder you think property is always the golden goose for you. Geeze, reading your comment reminded me of someone in a state of emotional hysteria. Good fodder for the worlds budget advisors and sobering reading for the banks to which you personally owe $millions.

BTW, 4.20% before tax return on $1050K term deposit is $44,100.00. Just in case you're struggling to comprehend this sobering fact, that's (forty four thousand one hundred dollars) Right now, this is a smart place to be.

by Eco Bird | 6th May 18, 7:44pm 1525592668

yeah, sorry, maybe it was a bit late at night for perfect math ... but my point still stands ... count your own chooks RP - dont bother with mine of others, we can take care of ourselves. lol

by Auckland | 5th May 18, 7:52pm 1525506749

TOTHEPOINT (TTP) have you been SMOKING A JOINT ! ( SAJ )

by J.C. | 5th May 18, 4:47pm 1525495673

Interesting layman analysis about the Aussie property bubble and the coming changes to the cutting of cheap money and "interest only" malarky.

Until people get their head around the fact this is a deliberate, strategic, 5-10 year strategy to rebalance and remove systemic risk across banks, they are going to continue to believe these regulatory changes are going to pass quickly and growth cycles will return to pre APRA levels. Im sorry, people are going to be sadly sadly disappointed.

Consider these very simple maths.

if you have $1 Million of debt today ( which is easy to do with just 1 x PPOR and 1 or 2 INV properties) and its being assessed at 7.2% P&I over 25 years rather than 4.2% actuals, that means a servicing calc now says it costs you $86,352 per annum to service that debt, instead of $42,000. Thats a $46,352 difference, meaning $46,352 of net income that used to be considered available to you on a servicing calc, is no longer considered available to you. That's the same as a $56,150 gross taxable pay cut.

Then add HEM's, which have increased by anywhere bewteen 1K and 2K per month for most categories of borrowers, and are likely to get even tougher . There goes another 12-24K.

Add them together and you have servicing calcs that now use @ 68-80K less income for the first million you owe, compared to how they used to work.

Take the hypothetical out to $ 2million of debt - which is what most commentators here say is the minimum asset value you need to hold for 15-20 years to have any chance of retirement and the differences equate to 68-80K for the first Million and then @ 56K less income for each million thereafter. ie 124K - 136K for $2 Million of debt.

Now, how many years do you think the average 150-160K household with a modest portfolio carrying just $1Million debt will take to replace 68-80K of income through rent and wage increases? And remember, thats just to restore their pre APRA capacity, not to increase it.

Then ask yourself how many years do you think the average 150-160K household with just $2 Million debt will take to replace 124-136K of income through rent and wage increases? And thats just to restore their pre APRA capacity, not to increase it.

Forget trying to get to a $3 or $4 Million portfolio on anything less than several hundred K of income each. No chance.

So the maths tell a very very important story. You better start seeing things really differently, and understanding that debt reduction is critical to future borrowing capacity, and growth cycles as we know them are over. This is now a game of dividend reinvestment using cash flow and debt reduction. Its no longer a speculative buy, hold, growth game.

Also consider this... even if 100% of borrowers reverted to P&I today and simply made minimum monthly repayments, it would take at least 10 years for @ 12% of the debt to be paid off. Minimum monthly isnt going to get it done. You need to make extra repayments..and lots of them. Combined with modest rental and wage inflation, thats the only way you are going to start to see some borrowing capacity restored ....

The days of endless IO being available to every man and his dog, and the days of endless borrowing capacity being available to every man and his dog are over. All roads , all the maths, all the servicing calculators, all the mortgage repayment calculators- they all say the same thing - cash flow and debt reduction is now king.

by Gummy Bear Hero | 5th May 18, 8:07pm 1525507636

... yes ... the ultimate brick wall for individuals ... or for companies ... or whole countries ... across the entire globe .... : has always been debt ....

Too much debt eventually leads to failure , to collapse ....

... always has , and always will : This time is NOT different !

by Eco Bird | 5th May 18, 10:27pm 1525516065

This is Bad and Sad news for tenants and people looking to rent ...

Yields are low, but they are not the sole reason why Investors buy property, future CG and the security in investment are few additional ones in addition to the tax break.

According to lenders' data, Investor numbers are decreasing so fewer new properties are being added to the starving rental property pool .... Well, everyone can anticipate what he likes out of that .... However, as time goes by, we will start hearing more clever dudes calling for tax on empty properties and forcing people to house the homeless and maybe more similar stupid suggestions along these lines.

So with the removal of negative gearing the CoL is pushing for more turmoil in the rental market because they ( and some others) think it is unfair - because life should equally present opportunities to everyone , and everyone should be able to invest in property if wanted ( communist thinking in a capitalist system ) !

Now, what could possibly happen when we combine all the above with the lack of building new "Affordable " homes or HNZ units to house the poor and the homeless which are increasing by the day ?

A simple analysis using simple logic would conclude that as investors ( supposedly) sell and leave the market to FHBs then their poor tenants who cannot buy a tin shed will end up in the street - please pay attention for a moment to demographics ! .. this will end up in a huge problem

Now do you really think that this CoLs are doing us a favor? or it is becoming fairer ? ... Is this matter so difficult to comprehend even by some new inexperienced ministers?

Property prices will continue to go UP ( albeit because of a whole different set of fundamental factors) , trash and rubbish lower quartile properties will decline down to its land value ( i.e. it will cost MORE to buy cheap trash as you have to rebuild it again) - it is the normal organic recycling of properties as time goes by.

Dont worry about calculating investors' yields and gains or losses DGMs,
Focus your crocodile tears on FHBs who will miss out on buying a property now when they can, and the poor people who will struggle to find an affordable place to rent, and the elevated TAXes we will all pay as AS goes from $2.2B to $2.5B and to $3B+ pa soon ...

Alas, The Billion Trees planted by the Greens will not bear any $$s, they will suck Carbone out of the air and money out of your pockets.

by linklater01 | 7th May 18, 4:39pm 1525667965

Eco Bird,

I know it's very old-fashioned,but I find it hard to concentrate on your arguments,given the poor quality of your English.

by tothepoint - d… | 5th May 18, 11:09pm 1525518594

Hi Gummy Bear Hero,

If such circumstances ever came to fruition, I'd sooner have my money in land and buildings then in a trading bank.

TTP

by Houseworks | 6th May 18, 7:05am 1525547102

Our tenant recently bought a first home. We advertised the unit at close to but under market value and relet quickly. This is win, win, win, win. Why? The former tenant had a goal and saved for four years and is really happy with their achievement. We are happy we gave a quality couple a start in life by providing good accommodation at an affordable price. We have let out quickly to another quality couple and our affordable rent increased significantly. The new tenant is happy they have a nice central unit to stay and paying less than market rental. Finally the increased rent means we pay a bit more tax so the new government is happy. Everyone wins!! Have an enjoyable relaxing Sunday all.

by Retired-Poppy | 6th May 18, 9:38am 1525556306

That's quite some fairy tale, I almost vomited. Reflux aside, you admitted failing to lodge bond payments with Tenancy Services. Have you mended your ways?

by Zachary Smith | 6th May 18, 3:31pm 1525577502

Why is that a fairy tale? A fairy tale like my tenant having a live in nanny perhaps?

by Houseworks | 6th May 18, 12:30pm 1525566650

Well as you are an enemy of residential landlords I can't be surprised by your thoughts and reactions retired. Have you heard the saying "jealousy makes you nasty"? When I was younger I resolved to be glad for others success. But I find that your posts are quite the opposite. Perhaps that explains your own less than mediocre results.

by J.C. | 6th May 18, 3:10pm 1525576211

Have you heard the saying "jealousy makes you nasty"?

Jealousy is a negative emotion. It doesn't really do anyone any good. OTOH, I recently was involved in a discussion about corporate culture with a foreign alumni of Sumitomo Bank during the great Japanese economic bubble / crash. He told me the stories of how difficult it was to implement change and transformation because the Japanese leaders and foot soldiers were consumed by their "success". The attitudes were endemic not just in Sumitomo, but across the Japanese corporate world and society in general. The level of humility on display today is a polar opposite to those times.

We can all gloat on our successes. That doesn't really add anything meaningful. It's much better to learn from and recognize our foibles, weaknesses, and mistakes. That rubs jealousy completely out of the equation.

Furthermore, success does reside outside the world of property. Property bubbles are designed partly to win favor with the masses and to juice consumer spending, which is essentially a more important byproduct than someone feeling self-satisfied about their house price. Probably important to realize that not a single economy in the world has benefited in the long run from property bubbles.

by Retired-Poppy | 6th May 18, 4:56pm 1525582583

Houseworks, oh really? You can only wish I was an enemy of all Landlords. If only you could factually criticize my approach as being one eyed. Not this time. Its my wish to see more professionals in the game as opposed to novice speculator/Landlords such as yourself who often fail to lodge bonds. My only experience with a professional Landlord happened to be a good one. Right now, our country needs more professional Landlords that are in the business long term.

Spinning stories about how good you are, how you're in it long term and how you are a professional makes for comedy reading. I guess it might be an attempt at being funny. Seriously though, you come across as being none of these. Capital gains mean too much to you to be bothered about such quality formalities.

by J.C. | 6th May 18, 4:01pm 1525579282

Right now, our country needs more professional Landlords that are in the business long term.

In 2018, successful businesses are those that can continuously "delight" the consumer and optimize the value proposition. If a landlord can do that, they have a winning business model. Of course, his is outside the modus operandi of slum landlords and those whose motivations are primarily driven by speculation ("you can't go wrong with bricks and mortar" mentality which only really works in speculative bubbles).

The FIRE industry in NZ and Australia is not really driven by delighting customers and better business models. That is quite obvious from the revelations from the royal commission in Australia.

by Houseworks | 6th May 18, 8:59pm 1525597185

Am pretty sure the country is better off by having lots of one and two property landlords although there is still room for the full time professionals. Besides you would complain no matter what is the status quo. Was the one experience you had with a professional landlord a couple of weeks ago when you were speaking here with the ambitious Chessmaster and you were applauding his high targets? In my opinion that doesn't count as experience retired.

by THE MAN 2 | 6th May 18, 6:14pm 1525587277

Retired Poppy, you do come across as a totally jealous person who wishes the worst on people who have been successful, just because you haven’t been financially.
You can say that you have done well, but it doesn’t appear that way as your negative talk about property values gives it away.
You speak exactly like Gordon does, perhaps,you are perhaps you aren’t the same person, but you come across as bitter about your own lot!
No doubt Gordon will come on and have a go at me, but if you know him can you please advise him that my challenge to him is still on the table, but we all know that he won’t take it up as he knows that he will be paying up!

by J.C. | 6th May 18, 8:45pm 1525596338

Retired Poppy, you do come across as a totally jealous person who wishes the worst on people who have been successful, just because you haven’t been financially

Yes but trolling to evoke emotional reactions that you can paint as "jealousy" suggests that you yourself are likely to have some issues to deal with. Why not add something constructive and / or enlightening and give the contributors something to think about?

by rastus1 | 6th May 18, 8:58pm 1525597092

Retired poppy is the Man! A beacon of sense amongst much rubbish.

by Auckland | 6th May 18, 9:06pm 1525597616

The Man 2 - You actually come across as a totally jealous person who wishes the worst on Retired Poppy because people dont give you thumbs up, and many many people do give Retired Poppy a thumbs up.

by tothepoint - d… | 6th May 18, 10:32pm 1525602757

Getting lots of "thumbs up" in a blog dominated by the DGB (a notable bunch of losers/failures/pessimists) would have to be the ultimate insult.

If I started getting lots of "thumbs up" here I'd be highly offended.

TTP

by Retired-Poppy | 7th May 18, 9:40am 1525642823

TTP, accusing interest.co.nz of rigging the selection of online commentators is pretty low. Calling other commentators, losers, failures and pessimists proves you have exhausted your audience respect and have nothing left to lose but your own battered keyboard :-(.

by tothepoint - d… | 7th May 18, 1:59pm 1525658351

Hi R-P,

Tell me where I said there is any "rigging" going on?

I merely note that the DGM group is dominant. You only need to read through any thread on the housing market here and that becomes obvious.

It is also abundantly clear that the DGM are pessimists. That's why the title "Doom and Gloom Merchants" was coined.

And, by the way, I have a new keyboard. It's certainly not battered.

So, yet again R-P, your post is riddled with wrongful information and false accusations.

We also note that the more mistakes you make - and get exposed for - the more bombastic and angry (and childish) you become. Your temperament is an excellent barometer of the guilt you feel.

Time you showed some maturity.

TTP

by Retired-Poppy | 7th May 18, 10:44am 1525646664

Ha-ha-ha-ha-ha:) You're a crack up dude, honestly.

by Auckland | 7th May 18, 2:14pm 1525659257

Tothepoint TTP - Smoking A Joint ( SAJ ) you sound paranoid . Go easy on that stuff man. I know you have a big mortgage and tied into a loan that you will be penalised if you try to break, and obviously the market is about to take a huge turn in the wrong direction for you. But dont be nasty to R.P, he is only giving good advice for people who never learnt from the last GFC. Now take a large deep inhale and count to 10. NO NO NO SAJ I meant with fresh air !

by tothepoint - d… | 7th May 18, 8:55pm 1525683302

Hi Auckland,

DGM who have no information but repeatedly make false allegations has become a hallmark of this blog - which is rather unfortunate....... Any advice they give is bound to be poor quality.

TTP

by Auckland | 7th May 18, 5:26pm 1525670774

Tothepoint TTP ( SAJ ) - Here is some good advice. Time for you and your other user names to leave this website altogether. Your audience has slowly died to only you and yourself. I suggest comment on some youtube CNN blog would get you many like minded friends.

by tothepoint - d… | 7th May 18, 9:41pm 1525686114

Hi Auckland,

If I quit coming here, you and your mates would be terminally bored.

TTP

by pacifica | 8th May 18, 1:24am 1525699450

To be frank I am exceptionally board with Auckland. Slurring a name with green does not make it bad. After all a lot more of this nation would be better if it was more available, certainly I would have friends alive today if they took dope instead of opiates (almost killed me too). Never assume your cat calling has any value Auckland and on this thread all you have done is troll. Until you bring an argument to the table all I can assume is in your head is vapour and the value of that in Auckland city is nothing.

by TheFiminator | 7th May 18, 8:30am 1525638633

Quite a variance in yields around the country. The big cities are predictably low but some of the provinces are surprisingly high. The challenge in the smaller towns in the demand and quality of tenants but could work for an astute investor.

by Canton | 7th May 18, 8:56am 1525640183

"Investors". This is so foolish. If you must invest in real estate, why not just buy a REIT and call it a day? I never understood the desire to deal with problem tenants, repairs, rates, insurance, etc. Further over long periods of time housing prices rise at about the rate of inflation by definition.

Can someone more informed than I please explain this obsession with being an armature landlord?

by gingerninja | 7th May 18, 9:59am 1525643967

To be fair to property investors, it was the obvious choice for anyone looking for the best return on their investment for probably most of the last 2 decades, not because of the yield, but because of the tax, leverage advantages and capital gains. Investors will obviously always just go for which ever investment gives them the best returns with tax a major factor. Add to this that property investment is psychologically considered relatively safe compared to other investment vehicles and you have a perfect storm. However, the group to blame for the mess is whichever idiots in charge of tax and economic policy over the last 20 years have left the tax issues unaddressed. If you leave such a huge obvious tax advantage, everyone will take it, of course they will. And they did. Property investment will always be a part of the wider investment landscape, most investors see that as sensible diversification, maybe it's REIT rather than actual houses, but nonetheless, the mess in home ownership can't be blamed on the property investors, it has to be laid at policy makers (or avoiders) feet.

by Retired-Poppy | 7th May 18, 10:38am 1525646295

Well said. The key word is (was) the obvious choice of investment. The astute investor has already figured this out and no longer kick the same tins like novice one trick ponies still do.

by KH | 7th May 18, 10:38am 1525646287

".......... it has to be laid at policy makers (or avoiders) feet." Policy avoiders !! Gingerninja. That's a great line worth stealing and I will.

by linklater01 | 7th May 18, 3:33pm 1525664028

Canton,

"Armature landlord"? Someone who has a factory full of armatures perhaps?

by Upside | 7th May 18, 11:17am 1525648669

Real Estate is always going to be a viable investment strategy regardless of yields and CG's at any time in the market. If the "Great Depression" should come or Armageddon that many are predicting I can assure you that the world will recover and the cycle of life with it's ebb and flow will continue. Regardless of whatever is going to transpire in the real estate market moving forward, real investors, FHB's and property owners will find a way through, some times will be tougher than others but it will still work out over the long term. History may not show us the future but it's been around for a while and could suggest we will get through. Some will win and others will lose! Now, if you are a real gambler and are just speculating and timing markets, then you can caught, this is a dangerous and risky tact with the natural cycle of markets. Yields will be great one day and not so good the next, if you are looking to buy a home to live in what does it matter if you bought at the top end of the market, you may not be able to leverage that home for a business or another Investment (should the market tighten or dip back), but if the goal was to be a home owner and you are happy with the situation you are in, then it ends there!
If you are buying a home to strategically leverage it for other opportunities, then you may need to think a bit harder about what you buy and where, yield, income/value etc. I find it very odd how some get so crazy on the topic of boom and bust cycles.
It's very hard to predict these things to the exact point in time. If we could all predict it then we would all be able to prosper!
Today's article is just another day in the natural cycle of Real estate, if you know what you are doing you most likely have done some form of risk assessment and covered your bases accordingly, if not perhaps it's panic stations once again....

by Yankiwi | 7th May 18, 11:35am 1525649702

Upside,

Your first sentence is laughable in the level of its incorrectness. Sometimes real estate can be a viable investment strategy. Sometimes, it isn't. If you had bought the house that I sold 12 years ago, you would be just now returning to break-even. That is not including inflationary effects. Including inflation, you would still have a seriously negative total rate of return.

A "viable investment strategy" should be entirely separated from the decision to purchase a house to live in. In almost all cases, the money used to purchase a home would have had much higher returns if it was used to invest in the share market.

by Upside | 7th May 18, 11:52am 1525650754

Thanks for your comment Yankiwi. The main word there is Investment, not speculation. If you have invested in Real Estate wisely and managed your risk and doing it for the long haul, yes it's viable in most circumstances in my eyes.
If your "investment" did not work or would not have worked 12 years down the track, then perhaps it was flawed. I'm not saying park your money in any old house and it's going to bloom. I like to associate the word investment with real returns from day dot! Did you buy for CG or weekly return? Was your rent reducing the value of the loan or was it interest only, if you buy hoping for a CG then you are more speculating on a return at some point in time. Did the "investment" take money out of your pocket to hold it up each week or did it bring you money each week after expenses?

by Yankiwi | 7th May 18, 12:24pm 1525652643

In short, what you just wrote was that real estate isn't always a viable investment.

This contradicts your statement in the first sentence, "Real Estate is always going to be a viable investment strategy regardless of yields and CG's at any time in the market." I strenuously disagree with this, and gave an example that disproves this "always" statement. The house I sold would have almost returned the MTI costs on the house if it was purchased for investment and was rented out without any extra maintenance costs or other typical rental expenses. Sometimes RE is a bad investment, neglecting the speculation aspect.

by gingerninja | 7th May 18, 11:50am 1525650642

Perchance is this a comment based on someone who has never experienced negative equity or been trapped in a house with a huge mortgage that cripples your life choices from month on month?

Housing markets are of course, not terribly easy things to time. But deciding to completely ignore timing and just buy whenever you possibly can, up to the maximum you can afford is not sensible either. When sale volumes start increasing again, when value growth starts increasing (rather than shrinking) again, when ToM start declining again, that's a fair indicator that the market is warming up .... but while all those measures are moving in the opposite direction? Why ignore that, why not consider your options, the costs and the opportunity costs?

If you buy in a very hot market, with multiple competitive bids, you are almost guaranteed to pay more than someone who buys in a cooler market with less competition. And if you buy towards the top of the cycle, then you run the risk of having overpaid. The amount you pay for a house isn't just about the security and enjoyment of a roof over your head (although that is obviously a hugely significant factor) it's also about how much money that house actually costs you over the course of your ownership. Mortgages are hugely expensive products, the higher you bid up on the house, the more you will spend over the years relative to someone who didn't bid up in that hot market.

Let's say for instance, compare the average house in Auckland (which has gone down in average price by $50-60k yoy). You have a buyer who bought at peak, paying the higher price for the same average house...they will always have to pay back that extra amount of money, plus the mortgage interest over the course of the loan.... in addition to the opportunity cost of not being able to use that money for something else during that time frame. However, the potential buyers who have waited, will be able to benefit from the cooler market and lower values experienced this year, vs last year. They may have spent $30-40k on rent over that year waiting and watching the housing market, but then, they also weren't paying maintenance, rates or mortgage interest over that year either and their deposits were also earning interest, so the rental spend amounts to even less....

When the market is clearly cooling, and if you are not suffering socially, psychologically or physically sitting in your rental, why oh why would you buy now? Why not wait and see if the market cool further, let your deposit earn a bit more interest, potentially save yourself even more on your future mortgage payments? Yes the cycle will always happen, but that doesn't negate the real world affects of taking your time, doing your research and making sensible decisions that massively impact on your future wealth.

I'm not suggesting that buyers should abandon home ownership and rent indefinitely, waiting for some epic crash that will render houses at half the value they are currently at. You should always aspire to home ownership because the cost of accommodation over your entire lifetime will be much greater otherwise and you'll struggle in retirement. However, the difference between waiting a year or two to buy a house, is not going to leave you homeless in retirement. And if you watch the data come in dispassionately, you might just save yourself a lot of money.

by tothepoint - d… | 7th May 18, 3:35pm 1525664104

Hi Gingerninja,

I hear what you are saying and you make some fair points.....

But I think it would be very unwise to think the Wellington market will cool by much - if at all. (I assume you still plan to buy in Wellington.)

If you're paying rent around $600pw for a family house, then that's $31,200 per annum. If you hold off for three years waiting for a price slump, then you've "lost" nearly $100,000...... Is the average family house in Wellington going to cool by $100,000 in the next three years? I very much doubt it. Plus, you have to put up with the uncertainty etc of renting in the meantime - including being at the whim of a landlady who might not have her tenant's best interests at heart.

With the increased traffic congestion on the Wellington motorways/highways and the growing commuting times (talked about in the DomPost today) I think houses in Wellington City and suburbs are going to become increasingly sought-after. These days, people happily pay for convenience - and prices will go on reflecting that. (Same as any other large city.)

I'm told by Wellington people that there's been a dire shortage of good family homes being listed in the close-in Wellington suburbs for many months now. I hear that if you have a family home to sell in a good location with sun, drive-on and good access, there will likely be a queue of people chasing it (even if it needs a renovation/refurbishment). So I can't see Wellington prices cooling.

To summarise, I think the waiting strategy is high-risk. Some people wait due to their own procrastination - but they can end up disgruntled. But even if you're a pro-active buyer in Wellington who goes about house-hunting efficiently, it could still take several months for the "right" house to turn up - and then you might have to tender for it!

Sadly, it remains a tough market for house buyers in Wellington.

TTP

by Yankiwi | 7th May 18, 3:26pm 1525663589

TTP,

I'd recommend learning elementary finance before making similar replies in the future.

The last family house that I rented was a 4 bdrm house for $525pw. The house was worth about $550k. Yes, I spent about $27k each year on rent. I also made about $39k on the equivalent $550k that was put into 5 year term deposits. The landlord was paying about $2.5k per year for rates, and should have been budgeting maybe $5k per year for miscellaneous long term maintenance. During our six years of renting that house, the landlord only spent maybe #2k in total in maintenance. Of course, a long term investor should be budgeting for the occasional big ticket maintenance... After that six years of renting, I netted about $70k from the TD after paying the rent, and the landlord was losing about $15k per year as compared to investing the equivalent money in a term deposit at the time of the home purchase. As to capital gains, I think that the house appreciated maybe $25k during that time... which barely covered the RE agent cost when they sold the home after we moved out. The landlord had bought a half dozen houses in the neighborhood at the time we were looking for a rental, and ours was the last one that they still owned due to the very bad experiences that they had with various tenants in the other houses...

I suggest learning the meaning of the phrase "opportunity cost" as well as "cost of money". If one bought the house instead of paying a rent equivalent, then one has to pay interest on a 100% mortgage, or forgo earnings on the money used to purchase the house. Also, one has to account for all possible expenses. Your assumption that the price has to decline by the rental amount to break even is MTP (missing the point).

by tothepoint - d… | 7th May 18, 4:27pm 1525667277

Hi Yankiwi,

You write, "The last family house that I rented was a 4 bdrm house for $525pw. The house was worth about $550k."

That line demonstrates naivety.

Any 4 bdrm house that's worth $550k and rents for 525pw in Wellington these days is an absolute DIVE! (I doubt you'd want to have your dog live in it - let alone your wife and children.)

Both rents and values have gone way beyond that level - which makes a remarkably strong case for buying and NOT renting. Otherwise, you can soon get left far behind.

As for money in the bank at today's 3.5 per cent before tax (if you're lucky) you can stick it. So much for your "cost of money".

It's you, my friend, that needs to learn about the value of resources in their best alternative use (i.e. opportunity cost). It sounds like you're keen to "forgo" as much $$ as you possibly can........

Sorry - but I'll refrain from taking any investment advice from you.

TTP

by Yankiwi | 7th May 18, 5:08pm 1525669692

I see that intelligent discourse is not your forte.

Who said anything about my example being in current day Wellington? Note carefully that I mentioned that I had rented for six years... this particular example was in Hawkes Bay, and shows that I made a far better decision to rent than my landlord did to rent the house to me. About two and a half years ago, the decreasing TD yield and incipient capital gains made it clear that it would be cheaper to own than to rent in the future, so I pulled some funds from maturing term deposits and once again became a home owner.

I am happy with my fiscal choices and disciplined investment approach. Based on your animus, it appears that you might have some unresolved issues.

In the future, I'd suggest discussing facts instead of rhetoric. I showed a quick discredit of your incorrect evaluation of your fallacy of "lost" rent expenditure. Where was my analysis incorrect?

by Yankiwi | 7th May 18, 5:14pm 1525670047

The bottom line is that in a stagnant price housing market where net rental yields are lower than term deposit yields, it is clearly cheaper to rent than to own. I've now owned homes for a total of 22 years, and have also rented homes for 10 years. For the large majority of each segment of time on both renting and owning, it was the right choice from a financial standpoint. Sometimes it is better to be the owner, sometimes not.

by tothepoint - d… | 7th May 18, 8:29pm 1525681747

Hi Yankiwi,

You write, "Who said anything about my example being in current day Wellington?"

Well, since the preceding discussion was about Wellington, if you are dealing with another city then why not tell readers?! That information would be helpful to everyone.

In fact, if you knew a little more about economics, you would appreciate that having good/accurate information is something that underpins efficiency (= efficient outcomes). We can function more effectively as bloggers if we know what other people are talking about. Get it?

By the way, the latest year-on-year housing data (May 2018, REINZ) happens to reveal that Hawkes Bay (Napier) houses have had one of the largest increases in average price across NZ. Anyone who has owned a property there over the last year would undoubtedly be much better off than had they rented.

This illustrates my point that the opportunity cost of renting can be high - in terms of the forgone benefit of reaping a capital gain via house purchase. To that sacrifice, one might add the various intangible benefits of home ownership that are also foregone through renting.

If you happen to be better off in your specific scenario 2.5 years ago, then good for you! But don't go generalising it for everyone else - and don't go generalising it to the present era. Plenty have been made much worse off by not taking the plunge and buying a home of their own.

Finally, if you wish to further unravel the mysteries of opportunity cost, then I respectfully suggest you enrol for a course in introductory microeconomics. In the process you will be enlightened about some related economic concepts - such as scarcity, choice and technical/allocative efficiency.

Good luck to you.

TTP

by Yankiwi | 8th May 18, 9:54am 1525730092

Yes, in the past few years, it has been a good time to own in Hawkes Bay, and I've been a happy homeowner in that time period. The prior nine years, well, it sucked to be an owner from a financial perspective. In a flat or declining market, and when rental yields are below low risk returns, it is better to rent than to own. My landlords for the period of 2006 to 2016 subsidized my living expenses while I increased my wealth in partial thanks to their subsidization of my living costs.

Your example at the start of this discussion is still as blatantly false now as it was when you wrote it. Paying $30k per year in rent does not require the house price to decline by ~$100k in three years in order for the renter to break even. That you made this claim shows that your financial acumen is lacking.

Regards

by Houseworks | 8th May 18, 12:35pm 1525739757

There is an advantage of a mortgage that you haven't mentioned Yan and it applies regardless of the part of economic cycle we are in. A p and i mortgage is an enforced savings program. Over the medium to long term the homeowner will be mortgage free. The poor old tenant will never be in that situation instead their rents will continue to rise as sure as the sun rises in the east.

by Retired-Poppy | 8th May 18, 1:00pm 1525741221

Houseworks, huh? but what about your fairy tale...charging cheap rent enabled your last tenant to buy a house. Stories aside, FHB's saving hard while renting IS the way forward, Landlord shoulders all the expenses. Now that there has been structural change away from novice speculating, housing as the prefered form of investment by way of yield, tax advantage and capital gain, is fading in popularity by the day.

by Houseworks | 8th May 18, 12:58pm 1525741108

I just have two words for you retired. House Works

by Retired-Poppy | 8th May 18, 1:04pm 1525741476

ha-ha-ha-ha :) Nah, its - "Legislation Works"

by Houseworks | 8th May 18, 1:23pm 1525742607

You clearly didn't read the thread which was regards homeowners and buying a home to live in. Not investment properties. You keep stuffing up

by Retired-Poppy | 8th May 18, 2:09pm 1525745368

Yes, its early days. Prices are dropping, yields slightly higher. "Legislation Works"

by Yankiwi | 8th May 18, 5:58pm 1525759114

Houseworks,
You make the assumption that the renter doesn't save and invest the reduced cost of renting as opposed to owning. The disciplined person that rents in a flat or declining market will become more wealthy than the person that buys a home and "loses" the interest on the mortgage payment (channeling TTP here!).

I've benefited in both camps, ownership as well as renting. Unusually, I owned for 20 years before selling up in the US in 2006, renting there for a year, then moving to NZ in 2007. Then, rented in NZ until 2016, at which time I eturned to home ownership.

There are certainly times where it is far better to own than to rent. There are also times where it is far better to rent than to own. So many people state that one shouldn't market-time in regards to purchases or sales. I beg to differ as I've been quite successful in market timing both home and share markets.

The renter that spends their cost savings and continues to be forced to rent for life is similar to the homeowner that takes out ever increasing home loan values to finance a lifestyle above their income. I saw how that worked in the housing downturn in the US after 2006. Many of the "house rich" that used their home as an ATM went bankrupt in the housing downturn. It wasn't pretty. So, both owners and renters can make financially irresponsible decisions. One of these is buying into at flat or declining market

by Houseworks | 8th May 18, 9:21pm 1525771314

It may be true for you yankiwi that you save/saved but are you a true kiwi or have recent import mentality? (Don't take that the wrong way). Immigrants mostly always want to better themselves which is why they left their home country. As you yourself say the renter has to be financially disciplined.
But have you heard the story of a well known economist who thought that he could be beat the housing market by investing in the sharemarket whilst renting? He fully intended to rent for his whole adult life and save for retirement. Beware of that attitude yankiwi. That economist has learnt to his significant financial loss that his aim was a vain hope and so has since succumbed to the desire to own his own home. Everyone needs a place to call their own not one where they can be uprooted easily, especially if they have a partner and family. The best time to buy a ppor is when the market is quiet, not when the market is hot or heating because buyers can get shut out by competition for limited stock of available homes.

by Yankiwi | 9th May 18, 6:32am 1525804335

I'd be curious for link to the economist story. In recent decades rhe share market has outperformed the housing market in the large majority of the time.

From what I've seen, most people are somewhat financially illiterate. We have certainly seen this on this thread.

As to warnings for me, no worries. I "retired" at 45, then found that I truly enjoyed what I did so I continue via consulting. A large reason why I was able to do this was fiscal discipline, "lucky" market timing in both housing and share markets, and having a goal. I've been a a wage earner my whole life so it wasn't entrepreneurial spirit that got me where I am. Just prudent decisions.

This type of prudent decision making is evidently somewhat rare as evidenced by my coworkers positions, as well as what I read here in the comments at times.

I certainly understand the benefits of home ownership as compared to renting as I have extensive experience doing both. I also understand the benefit of renting... umm, the hot water cylinder is leaking, please fix it!

by pacifica | 8th May 18, 2:33am 1525703606

Definitely can agree housing is far better in retirement than those unfortunate to be caught without a home later on. When a bank calculating 30years payments into the future decides you are too old then there is nothing much you can do. Saving for the decades where most only have the pension as regular & reliable income is a future that is darkened by the increasing costs & demands of the super on the nation. Likely the age will be raised before it is means tested but the banks age limit for mortgages will not change as much. Employers can still discriminate hiring based on those limits too; in fact ageism is practically encouraged. My family has been lucky taking technology business well into retirement but not everyone can. When the quality of your housing & finances is literally life and death owning a home or being able to have enough capital for an ownership agreement in a good retirement village will matter a lot. Hence the demand for accessible universal social housing for future generations is also only going to increase as well. Certainly the government & councils are not planning for this retiring generation, nor can they even plan to house future ones. They are still stuck trying to accommodate those left standing when the music of the immigration increase & property bubble stopped. At times like these I like to read Snow Crash or the Hitchhiker's Guide to the Galaxy... always need a good laugh. Plus with Snow Crash I gauge where we are by the incidence of container sized housing projects & the security measures of gated neighbourhoods.

(Still good luck follow your path Gingerninja, I know the position of being stuck looking down the barrel of a hard choice to make for where you will be in 10,20, or even 50 years time.)

by Independent_Observer | 7th May 18, 12:19pm 1525652373

So are you saying anytime is a good time to buy property? If you are - I'm calling BS.

Are you impartial in your view or is your paradigm severly deceived by confirmation bias?

by pacifica | 8th May 18, 12:48am 1525697310

... but then all investment carries a degree of risk; risk vs reward. In many countries different environments & building standards exist which increase the risk. In NZ, with the higher chance of earthquakes, flooding, leaky & shoddy building with phoenix companies it has been a reasonable risk for a while. However as Auckland has been relatively immune to the environmental issues it was a location for a much stronger property market, (people ended up demolishing the old house, subdividing & cashing in on population increases for a while). But the building issues never really went away. For anyone looking to invest housing is still a more moderate risk. Certainly not as risky as shares, VC/business startups, or online assets. Certainly not a speculative gamble, but still far riskier than cash investments etc. Gauging from the 10 year council plans where the environment & population is expected to be does not paint a hopeful picture for most of NZ. In fact even from those plans alone I see more family dying, (recent funeral from which council planning directly lead to deaths kinda stings still). I would state a home is a good investment in retirement but property investment would be highly risky & dependant on location, right down to the street level assessments. You do not need to predict these things, you can see many major issues quite clearly. It is still a bit of a bugger when they happen. Of course many cannot gauge the risk precisely and often knowing an event or project is going to happen does not shake out all the details. Let's say most people did not expect the flood that day, but many knew it was coming.

by Upside | 7th May 18, 12:34pm 1525653252

I think anytime is the right time to buy the right property for your circumstances...yes!

by Retired-Poppy | 7th May 18, 2:18pm 1525659507

Well, in conclusion, Echo Bird can't calculate yield, TTP doesn't understand yield, TM2 thinks he rakes in NZ's highest yields and Houseworks is "Landlord of the year".

The investment strategy you're promoting at this stage of the game is nothing to be jealous about. It's more of a concern to be honest.

by Pragmatist | 17th Dec 19, 7:24pm 1576563899

by tothepoint - d… | 7th May 18, 5:07pm 1525669642

Apparently, loan sharking is alive and well in this country.....

TTP

by Pragmatist | 17th Dec 19, 7:25pm 1576563906

by pacifica | 8th May 18, 1:17am 1525699037

TTP I would think you would be more concerned with the "property mentorship education" at $45k a pop. That is scalping a new victim but at least they would not really be investing much of their own money. Heck even online currencies can leave you with more afterwards and the classes are free.

Out of interest Pragmatist, have you chosen any new startup business loans through the site or is it mostly automatic selections?

by Pragmatist | 17th Dec 19, 7:25pm 1576563915

by Houseworks | 8th May 18, 7:03am 1525719791

I appreciate the accolade retired

"Houseworks is "Landlord of the year"

But getting any sort of compliments from a dgm is only a back-hand compliment. It would be like me saying to you, retired poppy takes the Gong for investor of the year. But if I said retired poppy wins the prize for "motor mouth know it all without any substance or experience of the subject matter" now that would be true.

Have a good day, House Works

by tothepoint - d… | 7th May 18, 8:27pm 1525681657

Hi Pragmatist,

I'm happy for anyone who feels they've got a good, honest return from their investment(s).

I'm particularly concerned about loan sharks - who typically rake over the poor/oppressed/disadvantaged groups in society.

I'd bring in much harsher penalties for those operating outside the credit legislation/regulation in New Zealand. I think naming and shaming loan sharks publicly would be a very good idea. (If people here think that's too radical, then tough.)

TTP

by Pragmatist | 17th Dec 19, 7:25pm 1576563947

by pacifica | 8th May 18, 1:16am 1525698983

To be fair harmony is not as much the loan shark environment, and nowhere near as bad as payday lenders. Certainly not as bad as raking up credit card debt and often many with bad or medium credit ratings still need a form of loans from time to time to improve their position or put down a month or two of rents during stormy days. One offs are quite common in life and credit card companies are critical & limited to begin with, not to mention when you are in a bad spot. Things like getting a car when the last one got stolen may still be necessary for a person in that position and they will often turn to a loan to enable it. Unfortunately peer to peer does have its issues for both parties and often the lender will lose some as well as hopefully get a reasonable return for the risk they are taking on others. I would be more worried about Q-card and the pressure put on customers to buy and sign up to the damn thing. It is a costly bit of plastic. Or Finance Now's marketing pressure to customers, even from the outside it is a lot. The advertising is often deceptive, leaving out critical details. So if you wanted to go on a legal hunt perhaps tackle that first, the low hanging fruit that can save many.

by tothepoint - d… | 7th May 18, 9:18pm 1525684690

Hi Pragmatist

"I avoid the junk end of the harmoney scale, because anybody stupid enough to borrow money at 25%+ outrageous fees shouldn't be trusted with credit."

Any finance company that charges "outrageous fees" ought to be charged by the Commerce Commission under the CCCF Act - because lenders' fees are required to reflect actual costs. I've had a gutfull of dodgy finance companies.

TTP

by Pragmatist | 17th Dec 19, 7:26pm 1576563976

by pacifica | 8th May 18, 1:19am 1525699176

Haven't we all. But there is still a need for them, many needs fit under the guise of bank mortgages.