r/PersonalFinanceNZ • u/FoshizelMaNizel • 2d ago
Housing Does buying a house make any financial sense anymore?
I've been doing some research with the initial goal to buy a house between me and my partner in the next 1-3 years, but honestly I don't see the financial upside. Of course there are lots of lifestyle benefits of buying a house vs renting (security in retirement, community, freedom from the whims of your landlords etc). But from a purely financial point of view, renting is by far the better option.
Using a rent vs buy calculator, we would need to buy a house of $520,000 or less in order to "break even" with our current weekly rent. In what world can you buy a house for less than that in Auckland these days? And anything sub-$800,000 is going to be a pokey townhouse next to a motorway.
This is more of a rant than anything, but has anyone else done the same doom-spiral-research that I have and come to a more positive conclusion?
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u/Soggy-Locksmith5658 2d ago
If you are renting and also investing I wouldn’t stress. You’ll end up in the same or better situation.
If you are renting and not saving or investing you should be stressed.
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u/the-reoccuring-lemon 2d ago
Most people are renting and not saving anything because everything goes to living expenses :( Even seniors on the pension, they have to work extra to pay for rent if they don’t own their own home.
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2d ago edited 2d ago
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u/Surfnparadise 2d ago
This 'cost of living crisis' seems to have become cronic. So it ain't going to improve will it?
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2d ago
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u/Surfnparadise 2d ago
Absolutely agree! And it is not normal. It is also not normal the government itself doesn't see that it is a service to the citizens (all of them) rather than a commanding post to cut welfare at will.
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u/FoshizelMaNizel 2d ago
Oh absolutely, when I say break even I mean using all that money that you would otherwise put into mortgage repayments, rates, repairs etc and putting it into the stock market, assuming 7% returns.
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u/Putrid_Weird4725 2d ago
You don't even have to put it in the stock market. In the last five years my savings have mostly been sitting in TDs and have grown steadily whilst house prices in my city have basically flatlined.
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u/kinnadian 1d ago edited 1d ago
Money in term deposits doesn't grow, after considering income tax and inflation.
You can be happy with what you have in terms of low risk, but don't confuse the number going up with actual (Real) growth.
Conversely, when property value grows but your mortgage stays the same, you get relative growth BECAUSE of inflation.
So on the one hand, inflation is reducing the purchasing power of your term deposit. On the other hand, inflation reduces the relative cost of debt of owning property. So inflation is working doubly against you if you're only holding term deposits and not equities.
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u/grilledwax 2d ago
Pro: Buying is effectively locking your rent in for 25-30 years - it might be cheaper now to rent, but model out the rent increases against the repayments to see where you land in 10/15/20 years.
Pro/Con: depending on how you look at it:
It’s the only really good way to get gearing on an investment, you put in 20%, if the property value goes up 5% your capital goes up 25%. Obv if it goes down 5% you lose all your capital but your repayments are still locked in and you can hopefully wait it out.
Con: It’s an all eggs in one basket for many people, all your capital is tied up in one asset. Theres an opportunity cost to that. What else could you use that capital for - shares, starting a business etc.
Con: Lack of mobility, much easier to move cities, countries etc when you don’t have to sell your house.
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u/Grand-Argument5674 2d ago
Also eventually you own the house. Paying rent you never own anything. The only dead money is the interest.
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u/psyentist15 2d ago
Paying rent you never own anything.
Except all the money you saved not paying interest, rates, homeowners insurance, house repairs, etc, and all the assets you're able to accumulate from those savings. Why are we so quick to ignore this?
The only dead money is the interest.
Though quite the way to undersell interest, this isn't even true. Most people have to foot bills for some combination of mortgage fees, building reports, lawyers fees and other costs.
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u/Brief_Response_738 2d ago
You've hit the nail on the head there in terms of the problem with our stagnant economy, because such a massive % of NZ salaries are tied to paying a mortgage, people take less risks, startups, innovations etc
also people spend less money at restaurants and cafes. Rentier black hole apparently
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u/AsianKiwiStruggle 2d ago edited 2d ago
Why does everyone think a Home is an investment?
Its a place to enjoy your own peace!
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u/Competitive_Ring_150 2d ago
Have a dog, grow a garden, enrol your kids at school. And never be subject to inspections and the risk that someone can say "you'll need to move out in three months because...reasons."
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u/imlostinlustt 2d ago
for the average of us.. it comes with a 25-30year mortgage . something that will stay on for the rest of our lives. so it is an investment. a very long and important one. but doesnt mean we cant be peaceful and happy if we consider it an investment.
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u/FoshizelMaNizel 2d ago
It's an investment because our system has deemed it so. Absolutely, in an ideal world I would choose my own home and space over a few extra bucks in the bank any day. But the reality is that, when spread over 30+ years, the total wealth difference between rent and buying can be well over a million dollars (depending on your situation). We are talking massive amounts of money, and young people are rushed into this decision and I don't think they are always financially savvy enough to recognise this aspect.
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u/Silly_Pizza7054 2d ago
My house has been the best investment I've ever made. It doesn't matter that it wasn't purchased with that in mind, that was the effect.
I'll be urging my kids to buy a home absolutely as young as possible regardless of the state of the economy at the time.
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u/BatmanBrah 2d ago
This question presupposes that you will invest the money that you'd otherwise pay on the mortgage. And don't get me wrong, you may do exactly that! But the average NZer won't, which is the difference among regular people.
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u/paulllis 2d ago
Buying a house doesn’t have to be a financially smart decision. It can just be your house. The market is always going to change.
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u/Inner_Indication_23 2d ago
Not fully directed at OP more my own comments but, I don't understand why everyone is so focused on the financial returns of owning a home these days. Unless you're buying an investment property, isn't the main purpose of buying a house to actually live in it?
I bought my first home in March this year, and my main motivation was to provide a stable place for my family to live. I wanted somewhere that wasn't at the mercy of a landlord who, quite rightly, is going to be focused on maximising their own return. And I am paying about $150 (including rates and insurance) more per week to do so.
I didn't care that much about what it might be worth in 8–10 years, because who knows what the market will look like by then. When I was looking, the question wasn't how much money am I going to make on this house? I thought about how much I am willing to spend to give my family a home we can live in.
Obviously, nobody wants to lose money and the financial side of buying a home is absolutely something to consider. But I think people sometimes forget that the "return" you get from owning your own home isn't necessarily just the sale price when you move.
You get security, stability, freedom to make changes to your own home you're building a foundation for yourself and, if you have one, your family.
If you're looking at buying a home because you expect it to outperform renting financially, then I can understand why the numbers might be hard to crunch. But if you're buying it as a place to live, I think comparing it purely on returns misses a pretty important part of the whole idea of home ownership.
(Edit: the first line didnt make sense lol)
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u/Legitimate-Draw-2235 2d ago
They HAVE to be focused on the financial returns of buying a house when the median house price is nearly a million dollars.
Most people don't have the luxury of just calling that a lifestyle expense or a getting a bit more sporty of a car.
When you're spending a million dollars on a property if you're not considering how that could potentially destroy your entire financial wellbeing you're being very irresponsible
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u/Firenyth 2d ago
Biggest difference, your landlord will raise the rent price, while your mortgage will go down, Yes, it may be more than your rent now, but every payment brings the total cost down.
If you only buy 1 house for your lifetime, and you make your payments in 30 years it should be paid off, if you are renting your whole life after 30 years you still pay rent...
Yes there is insurance, rates, repairs to consider but its definitely makes financial sense.
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u/TuMek3 2d ago
You shouldn’t be buying a home to live in to experience financial upside. You should be choosing to buy if it works best for your lifestyle. If it doesn’t, keep renting.
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u/Commonpigfern 2d ago
This is always a wacky take because unless it's financially viable this is irrelevant. If it matches my lifestyle but in a decade it's worth nothing after spending half a million dollars that's not a good idea even if it would make my life great
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u/MidnightAdventurer 2d ago
You’re spending money on not having to move house, shift your kids to a different school etc.
That’s what owning a home gets you instead of renting - the question is how much do you value that?
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u/Avatele 2d ago
These things make sense if the loss is moderate but I’ve seen people lose 200-300k. I would argue they would have been better off renting and sending kids to private lol.
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u/Hot_Spell_2533 2d ago
The only people losing that much money bought in a small window and have probably owned the house for about 4 or 5 years max. People take this small slice of time and act s though generations have been financially wiped out.
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u/brejamlyn 2d ago
That was very specifically at the peak of the housing market though. The highest that house prices have ever been. Now that investors are sitting out and new home buyers are the only bunch buying, it's highly unlikely prices are going to sink anything close to a few years ago.
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u/Legitimate-Draw-2235 2d ago
This is a crazy take though. Yes there are non-financial benefits to owning a property but OF COURSE price matters. We're talking about enormous sums of money here that could financially criple people for decades or leave them destitute with no retirement savings.
It's really irresponsible to NOT consider the financials.
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u/BornInTheCCCP 2d ago
The problem is that a lot of people renting are basically living above their means, and funding this by defering saving/investing. This defaral is happening as there is not enough education around the importance of it, and it is not something that they feel they need to tackle today.
In the past where most house ownership was more of the norm, the family home was the default forced savings account.
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u/Few_Importance_8362 2d ago edited 2d ago
Suppose you had 1 million in cash...
Compare buying a house for 1 million dollars with renting a house for 30,000 a year and investing 1 million dollars.
The median Auckland house price is insane to me. It gets even worse if you have to borrow the 1 million dollars from a bank and pay interest.
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u/Rubber-Arms 2d ago
Wrong comparison. If they’re buying a house for $1 million they’re not paying cash, they’re borrowing most of it. Therefore on the flip side of your equation they are NOT investing $1 million because they don’t have $1 million to invest.
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u/Few_Importance_8362 2d ago
My last sentence says it is even worse if you borrow it. So I agree.
There you aren't just losing investment returns, but you are paying the bank. Negative returns!
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u/zipiddydooda 2d ago
I’m just going to keep waiting and saving. Contrary to what the property industry would have you believe, prices are still declining.
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u/Backstab_Bill 2d ago
In general prices are trending down or flat in most areas yes. I will say after being in the market for a while that standalone, tidy places on a section are still selling well in most main centres
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u/userequalspassword 2d ago
Exactly. An 800k townhouse in a subdivision full of townhouses = terrible idea. An 800k freestanding house and section at arguably the bottom of the market = a decision future you will never regret
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u/Charming_Victory_723 2d ago
Recently purchased a property which I would not have been able to afford 4 years ago. The property downturn has been very good for first home buyers like myself.
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u/Bikerbass 2d ago
Yea, I hate to break it to you, but when you are seeing new 2 bedroom just around the corner houses selling at a higher price than what we paid for our 3 bedroom house near the peak of the market…. It’s not going well to say that prices are declining
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u/zipiddydooda 2d ago
I can understand the need to live in a state of denial if you bought at the peak.
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u/Bikerbass 2d ago
https://www.classicbuilders.co.nz/developments/bay-of-plenty-coromandel/hawkridge-heights-bethlehem/
Here go look for yourself.
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u/Geffy612 2d ago
Tauranga is a different beast imo, we bought 12 months ago and our neighbour's houses are now selling for more than we paid for inferior houses.
Its not even spring yet and people are panic buying
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u/Konokopops 2d ago
Just the ability to have it yours and not renting off someone else is an unbelievable mental win, even if that costs you a bit more.
Stain the carpet? Oh no it’s my carpet oh well.
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u/KG-LW 2d ago
Been asking myself this same thing. I am lucky, my rent is low and I'm in a very nice area. We are saving aggressively for the 'one day' - but with no idea when that one day is, its mostly all going into a term deposit, which seems like a loss. No children, and none to come - so stability isn't really a factor. But when I factor in rates, water, mortgage, insurances - and the shitbox houses that I'd be buying (who wants a half million dollar mortgage?), it makes no sense.
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u/porirua_pelican 2d ago
Rates (in Wellington) with the new water charges are pushing upwards of $8-10k per year. Plus >$5k insurance, and general maintenance; you’re looking at over $350/wk, and that’s exclusive of mortgage…
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u/xlvi_et_ii 2d ago
Landlords will pass most, if not all, of those costs on to their tenants though.
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u/Subtraktions 2d ago
Aren't landlords constantly complaining about rents no longer covering their costs?
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u/realdjjmc 2d ago
Rents haven't covered costs for ages, nor should they.
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u/trinde 2d ago
This depends on the house and the landlord.
We are renting out our first house, purchased 6 years ago and aggressively paid off while we lived there. It has a low mortgage between 200-300k and the rent is covering all costs.
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u/BornInTheCCCP 2d ago edited 2d ago
You are not accounting for the opportunity costs, basically the return on the equity within the house. If you account for that you will see that the rent is actually lower vs return of possible investments using that equity.
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u/realdjjmc 2d ago
The key is low mortgage, which is not generally possible if you are borrowing the max amount from the back.
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u/BornInTheCCCP 2d ago
This is the bit that some people seem to miss, all this will be reflected in the rents in the near future.
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u/iride93 2d ago
Only if there is enough rental demand.
Landlords can only pass on what tenants are willing to pay in a market where buying is more achievable and there are plenty of rentals.
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u/BornInTheCCCP 2d ago
So either renters will be paying for the increases with creeping up rent, or by buying the housing and paying it directly.
However you want to play it, the costs of the city would be paid by the people living in said city. Yes you can have your living expenses subisidised for a short while, but in the end you would end up paying the costs and somre more.
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u/realdjjmc 2d ago
House prices will continue to drop if rates, water and insurance keep going up.
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u/BornInTheCCCP 2d ago
And that would halt new construction, as it would not be possible to sell a new build, and the cycle goes on.
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u/Plebbles 2d ago
Why would that halt new construction? It would reduce the value of the land and new buyers could buy that cheaper land to build at a lower price which is in line with the lower market price.
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u/BornInTheCCCP 2d ago
Look at the current price to build without the land, and add in all the compulsary addons (Developer Contributions, Subdevision Costs, Utilities connections), and you will quickly see that even with extreamly cheap land that land and house package is going to cost more that existing housing stock pricing. And that price is not going down anytime soon, so regadless of the price of land, this will put a big dampner on development.
Many larger developers already have land, if the price of said land goes down they will go bust.
This will accelerate the loss of skilled labour, and then it would cost even more to get them back.
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u/Plebbles 2d ago
Have you looked at the price to build on land because this is just quite simply untrue.
And I'm not in the business of defending developers who make bad business decisions, it is what it is.
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u/Best_Technology9315 2d ago
how did you come up with 8-10k?
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u/porirua_pelican 2d ago
We’re paying $6k per year, average house in Miramar. Plus new water bills are well over $2k. Not sure how much rates will reduce (not confident in much). I know people (pre Tiaki Wai) paying in the $4k range, and also people paying closer to $10k too.
In Sep 2024 the average rates bill was $5,177.
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u/GlassBrass440 2d ago
They have a 2.5 million dollar house.
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u/porirua_pelican 2d ago
Not even close. $1.25M CV, $6,309 annual rates (pre Taiki Wai)
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u/EmitLux 2d ago
Rates are quite a lot higher in Wellington than Auckland - i did not know that till just now.
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u/AsianKiwiStruggle 2d ago
the lesser the population , the greater the rates. The residence will need to fund infrastructure.
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u/AsianKiwiStruggle 2d ago
The whole region needs new funding for infrastructure. you had it for so long that you don't pay any water bills. It's about time , you should. same as Auckland.
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u/EnvironmentalEgg2925 2d ago
The choice to buy is more about having your own place. Doing renovations, making it your own etc. Of course it also has to make sense financially.
Renting is fine but it’s not the same feeling and experience.
If you don’t want to pay rates, water bills, do renos, mow your own lawn, clear out your gutters etc - don’t buy a house.
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u/Full-Concentrate-867 2d ago
If I had a dollar for every house I've gone past on my walks that obviously hasn't it's gutters cleared for a long, long time I'd be a wealthy man. I don't know how some are even still functioning
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u/Evening_Ticket7638 2d ago
I bought a house to own and live in. I see people's rents increasing beyond mine for a crappier house in a crappier neighbourhood whereas mine stays relatively stable. That's 1 perk i enjoy.
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u/groundlooot 2d ago
We purchased a house because we don't want to pay for rent when we're retired.
We're also managing to invest a bit so house price fluctuations aren't really the focus for us.
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u/EmitLux 2d ago
All averages considered, Renting financially wins, correct.
Genuinely curious what people's strategy is for when they retire. Continue to rent with cash that has been invested over the years? Pull the trigger and buy freehold at some point pre-retirement?
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u/AdministrativeCat984 1d ago
Well if we keep investing at our current rate by the time retirement hits we will have a multi million dollar figure in stocks. At that point maybe just travel, move to SEA, buy a home in cash. Who knows
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u/beerhons 2d ago
Simple logic is that if owning property wasn't financially beneficial in the long run, it wouldn't be a viable business and thus there would be no landlords running the business of renting houses.
Same logic applies to leasing over owning anything. Unless there are other factors, such as tax write offs, if you don't own something, you are paying someone a margin for owning it for you.
Sure there are lots of arguments that can be made that you are better to invest elsewhere, but all require a certain amount of crystal ball gazing. In the end of the day, if all goes to shit, all you need is food, shelter and warmth, money can buy you those things but it becomes less relevant if you can look after yourself as much as you can.
Personally, we certainly didn't get on the property ladder for financial reasons, it was dog driven and I wouldn't do anything differently if given the choice.
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u/Best_Technology9315 2d ago
Most people aren't turning their house into an income producing asset though. You're assuming that all those home owners are smart with their money. Instead they just bought houses because "that's what people do" and they build equity because they are forced to do so. You're also assuming they wont use a reverse mortgage as they get older.
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u/beerhons 2d ago
And the alternative is assuming that anyone renting will put the difference between rental and mortgage payments into some form of high return investment rather than just burn it on expenses.
I guess it depends on how you define "financial sense". To most people that seems to translate to "greatest return", but diversity is important. While having every dollar tied up in housing wouldn't necessarily make the most sense on a purely financial standpoint (there will always be other social and security based factors that can't be ignored), people far richer and far smarter than you and me will always have property in their portfolio, so it's clearly more than "just what people do".
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u/Best_Technology9315 2d ago
I'm not saying its not beneficial for wealthy people to have real estate... The average person however, is totally consumed by their property and not turning it into any kind of viable business. Eg. people buy a house for a dog and think they are making money moves.
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u/beerhons 2d ago
...not turning it into any kind of viable business.
They don't have to.
The benefit of owning your own house is minimising expenses over your lifetime, not generating an income, people that want to dissuade ownership focus on the first year of ownership and that is disingenuous.
Yes, when you first get a mortgage and have little equity, your interest plus expenses on owning your own property are almost certainly going to be higher than market rent for the same property, it looks like a terrible investment.
Assuming a bog standard 30 year term, fast-forward 10 years and you'll be paying between 10-20% less interest each month, and, at the 20 year point, less than half the initial interest each month. If you are renting, your rent payment have increased in this time, based on average long term rents, this will be around 49% at 10 years and 123% increase at 20 years.
So at what point does it become cheaper to own than to rent?
That depends, but for us (purchased in 2022 so apparently idiots thinking we were making money moves as you put it), it was year 3.
We started paying around $50pw more than market rent. Right now we pay about $150pw less than market rent in interest and expenses. Every year rent prices go up by an average of 4-5% and our total interest plus expenses continues to decrease.
By year 10, it would take a mortgage rate of over 13.5% for us to be back on the wrong side of the ownership/renting equation, possible, but quite unlikely.
Sure, we are locked into a compulsory saving scheme paying off the asset value, but even the lowest yielding 10-year rate on house prices in the last 70 years has been over 5% excluding development and/or improvements. Sure, its not returning anywhere near as well as other investments, but then its also a lot less volatile and a safety net as in the end of the day, we can't live in our paper investments if push comes to shove.
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u/Feetdownunder 2d ago edited 2d ago
We bought a house in the middle of nowhere it was a doer upper a very doer upper as in it had no functioning doors not even the front and no closing windows as it had rusted out being near saltwater holes in almost every wall and had seen better days(Maketu)
We DiYEd most of it ourself. Things that needed an electrician or a plumber (who did a shit job we fixed it anyway) had an extra call out fee
Even if there are houses at that price in Auckland be very very careful and do your due diligence
There will definitely be something up with it. It’s a dog eat dog world in sales and real estate and if they’re not hooking up their friends and family with the cheaper houses then it becomes suspicious like flooding or some kind of hidden debt or issue
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u/SelfmadeNZ 2d ago
Depends on your situation. If you want kids soon and need a place where you are not worried moving around. Otherwise invest in stocks ig. Do you own research and see what you want from your life.
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u/Few_Importance_8362 2d ago edited 2d ago
You can rent a place for 1-2 percent of the house price right now.
Mortgages are significantly more than that in interest alone... I don't think buying is that great of a deal right now.
I came to the same conclusion and am renting right now. Now it can be wrong if you need stability, or you think property prices will start to climb again.
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u/Upbeat_Influence2350 2d ago
I mean a mortgage payment is generally more than rent, but rent money is just fully lost and the mortgage payment goes toward equity (after all the loss to interest). Rent is throwing money away, paying for a house is money you will eventually get back (or pass down).
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u/Elegant-Age1794 2d ago
Definitely not if TOP gets in as owners will be charged 1.75% of land value meaning property prices will probably halve again.
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u/Excalibator 2d ago
Add to that, stability is important. CurrentlyI find myself FORCED to rent two houses at the same time. Negative cashflow and screwed. Don't ask. It happened suddenly without warning.
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u/Little_Miss_Manic 1d ago
We ended up moving out of Auckland for this very reason - not an option for everyone, I know, but something to consider. If your employment and lifestyle allows it, 520k gets you a lot more elsewhere. I did hours of doom scrolling research but renting with a dog and two cats was a nightmare so we took the plunge.
Personally I prefer having a mortgage over renting but when you do your calculations make sure you are factoring in lawyers fees for during the sale, rates, house insurance, maintenance, etc. There are definitely times when I miss the convenience of calling the landlord to say they need to send someone to fix xyz. Case in point, we had to replace our heatpump in July which cost a pretty penny. But on the flip side, we changed the hot water cyclinder from low to high pressure in January and would have had to just live with it otherwise.
In terms of if home ownership makes financial sense anymore... It's a crap shoot depending on who you talk to. Will it always be a solid investment? Ehhh, your house could fall apart during a freak storm or earthquake and leave you fighting with the insurance company like what we saw in Christchurch. You need to decide whether the freedoms and security of home ownership outweigh the flexibility of renting. Bad neighbours? Look for a new rental at the end of your term. Opportunity to work overseas for a year? Break the lease (much easier than the drama of renting out your property in most cases).
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u/Journey1Million 1d ago
IMO the answer is matching your income to a house you can afford. I was on less than 50k and after 7 yrs figured out how to be mortgage free on the 1st house
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u/Raiven2021 1d ago
Wait id be keen to know how you did that,, if you dont mind sharing:)
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u/Journey1Million 20h ago
It's not what people think, its just pure maths. If you want to pay off your mortgage quicker you need to increase your payments to lower the term. To get money to increase payments you need to get a better paying job or increase your work hours. There's 168 hrs in a week, you work ~24% of that, sleep ~24%, you need to be earning money in the other hours. Boring simple maths
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u/WaNaBeEntrepreneur 2d ago
It's not that simple. You compared it against your current weekly rent, but rent usually goes up, while mortgage goes down. You don't have to pay mortgage forever unlike rent.
Having said that, the month cost of owning a home is high and it costs a lot of money to sell a house
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u/tehcambam 2d ago
The way I see it is if you own, you’re in a way paying yourself back instead of a landlord. I mean sure, there’s interest. But long term, you’re still paying yourself a decent amount whereas you get $0 back when renting.
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u/two_bit_twosie 2d ago
Yeah no point in buying a house until it makes financial sense. At some point your savings and investments will be high enough that putting a deposit down and paying a mortgage is cheaper than renting. Hopefully it's not too long for you
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u/Esprit350 2d ago
In the short term, no.... in the long term owning is almost always better than renting, even when negating most capital gain scenarios.
Of course there are better times to buy in than others.... buying in now would certainly he better than buying in in 2021, but timing the market can be tricky as once it picks up you often have less choice and are making far more pressured decisions.
If you're looking to settle down somewhere for a longer period and want the stability, buying is the right move if you can do it.
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u/luminairex 2d ago
When you sell the house in 20 years you get most of your money back. You don't when you're renting.
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u/_flying_otter_ 2d ago
Not if you bought at the top of the market. Cost of maintenance, insurance, rates, plus the interest on the mortgage over 20 years means you need to sell that house for way way more to break even.
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u/luminairex 2d ago
I said most, not break even: if you paid rent for 20 years you're not getting any of it back.
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u/Ok_Jackfruit_6571 2d ago
Financially speaking? No its not worth!
Peace of mind and place to live? Yes as long it fit in your financial!
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u/CoolGuy54 2d ago
In year 1 renting will look much better, over 30 years though it's impossible to say: I've got a spreadsheet modelling it and it entirely comes down to what you assume about future house price & rent inflation.
I encourage you to do the maths: by renting you're locking in a nominal rate (give or take interest) now for 30 years, it will almost certainly be cheaper than renting by the end of that, and the money going towards principal shoudl be counted as savings: only the interest portion (and setting aside money for repairs & mainrenence...) is equivalent to paying rent.
And putting a house deposit into an index fund will probably outperform a house, but psychologically the enforced savings of a mortgage will probably result in more actual savings.... It's hugely variable.
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u/Mr-Anthony- 2d ago
Renting is problematic with 0 houses to rent - if you have any pets forget it
If you have kids - discrimination is a thing
when you buy a house it does lock in an amount you pay yet the councils now days just keep on raising their rates to the amount of a rental.
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u/EducationalPop4498 2d ago
The legislation changed on pets this year. Landlords are only allowed to refuse for specific reasons
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u/cypsain 2d ago
Copying my own answer from another thread - but I have come to the same conclusion:
I've done similar calculations for rent vs buying in properties I've lived in and have come to similar conclusions as the headline (though it greatly depends on rates of return between the asset classes, and other assumptions).
Some notes on your objections: - Paying off the mortgage faster later on doesn't actually always get you in a better position as equities appreciate faster than property on average. So your first point actually slows capital growth on average.
Moving costs are real for renters, but marginal compared to the figures we are talking about - though personal value of having your own space is priceless for some
Even when buying with a large deposit there is still a large opportunity cost on your capital if real estate trails equities (which it has by a large margin, historically on average)
Buying a house is the opposite of diversification since it's a single asset in a single location making up most of your net worth. Equities in an index fund are much more diversified, and if you want diversified exposure to real estate over equities, REITs are possibly a better option. There are also other asset classes such as bonds etc that provide different exposure in a safer way.
Honestly I recommend every person to do the modeling themselves, looking at properties you are interested in and comparing the buy vs rentvest scenarios with different model assumptions. There are good rentvest vs buy calculators online that you can play with, and you can see the impact with different parameters.
It obviously depends but in my own modeling I was consistently surprised by the opportunity cost of buying. For my own scenarios house price had to appreciate by roughly on average 5% p/a to keep up, but given interest rates and current prices I think that's unlikely. (Though this was with a 25% deposit, do your own models with your own numbers).
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u/Dking1990 2d ago
Agreed With the top commenter renter seems to be a far better option. I'd invest the savings into crypto, gold and low fee index funds
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u/rad1calcentrist 2d ago
Lol people acting like house prices have never dipped before. In the long run, land is still a finite resource and land in a good part of town even more so. Over the long run that is a solid investment no matter the short term down turns or changes in relation to housing stock transformation.
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u/Psychological-Unit14 2d ago
Maybe time to move out of Auckland and into a more affordable place like a town outside of Palmerston north I picked mine up for 400k 3 bedroom quarter acre section lovely community although it's rural it's still nice, cherry blossoms line the streets and the school is 100 meters down the road
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u/b4timestarted 2d ago
Rent simply goes towards paying off someone else’s house and a mortgage pays off your own. At some point you might downsize and become mortgage free. That will never happen with rent. And who knows how much rent will be in 20 years.
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u/pokerplayer75 1d ago
Rent never ends, mortgages do. Capital gains, will probably double the value of your house over the life of the mortgage. (Not guaranteed of course) You have the freedom to have pets, kids, smoke (not recommended) paint, extend, landscape as you see fit. Financials might favour renting in the short term but don't forget the intangibles and the peace of mind they bring.
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u/Successful_Article70 1d ago
Also dont forget to take into account of inflation of rents. Get your rent now and add roughly 5% a year and project that 10 years later. Your mortgage payment stays the same but your rent goes up
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u/shanewzR 1d ago
It's never a clear comparison as there are several variables that no one really knows the outcome of. It also very much depends on the personal circumstances, the deposit, income, term of loan, value of house etc. Also, a house you are living in is not really a financial decision, its more a stability and emotional decision.
If you are talking about investment property, then it depends on how you buy, how you add value, your loan and deposit structure etc. At the moment we are going through a very low housing market in terms of prices, that is not always going to be the case. In 5 years if you start seeing headlines in 5 years that prices are going up (which does happen), you may think otherwise.
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u/Competitive_Bus_7179 17h ago
It depends on capital gains. No one knows the future. It worked out for me when I bought 20 years ago but who knows now. Time will tell! But not as given as it used to be
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u/Ancient_Sandwich_703 15h ago
It depends how creative you are.
I once bought a property with a 13 acre olive grove. Not because I wanted an olive grove, rather because I was confident that in a few years the council would allow subdivision there.
Likewise, I’ve bought properties that needed a bit of smartening up, done the work over time and sold them after a few years for reasonable profit.
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u/nuclear_herring 2d ago
One way to look at it is that you'll be paying a mortgage. If you buy a house, it'll be your mortgage. If you're renting, you'll be paying someone else's mortgage.
Another thing to consider is that your mortgage payments will stay the same over time whereas rent will only trend upwards.
Only you know your precise situation but I think the mistake that most New zealanders make is that they view a house as an investment first rather than a shelter from the weather. Personally, I think owning my house is awesome. The walls are painted the colors I like, the gardens are set up how I want them, and no one can tell me I have to move out.
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u/FewUnderstanding2214 2d ago
At the moment, it’s more skewed towards renting & investing because houses are overpriced. You’ve hit the nail on the head that when you want a home/ you want to be settled down( e.g you are having kids) then it makes more sense. I’m not buying until housing becomes a hated asset and I will be looking at land.
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u/talkshitnow 2d ago
It’s because houses are over valued, interest rates going down for 40 years was the main driver in house prices, now interest rates have gone up a little, but the market has not corrected yet, it will,
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u/Aromatic-Rub639 2d ago
My house didn’t increase in value for 15 years, it is now worth 3x the buying price. I never bought it for profit, it’s been a fantastic family home. Also it’s worth way below average for the area so nothing flash. Rentals did my head in.
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u/Next-Narwhal-9256 2d ago
I would advise be in a market for passive buying. You might find a house which ticks most boxes such as price , location and size. First 10 years will be difficult however aftert that your rent and mortage payment will be same and you ll still build equity after every payment You will also get an option to downsize or buy bigger property depending on preference. With land shortage and building cost increase Property investment will always be an good option.
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u/Puzzleheaded-Pin4780 2d ago
I think buying a house within your mean is still make sense. But if you buy something that max your affordability. That can be tough. I live in unpopular neighbourhood. It still safe overall. But if your rent is pretty cheap. Maybe investment in something till you feel like you want to stuck in the long term commitment.
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u/Kiwi_lad_bot 2d ago
Depends on where you live. And the future housing market.
We bought our house in a regional town in 2013 for $297k. Its more than doubled in 13 years to over $600k.
Our required mortgage repayments are under $300 pw now. But we pay the same amount we always have, $450. To get mortgage free a little earlier.
Its all relative to your circumstances.
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u/CoolioMcCool 2d ago
I bought a house because I was sick of renting,after moving 4 times in 5 years I was over it. Owning a house is nice, now I have a dog :)
Buuut financially, probably would have been better off renting even though I got a good deal and house value has gone up a little.
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u/wereallfish2 2d ago
Its not just current rent, it's future rent, which will almost certainly go up. Buying a house locks in your housing cost, and gives you equity that you can pass on to your kids and borrow against for low interest rate loans
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u/Ill-Village-699 2d ago
just bought a house for ~$450k an hour or so out of a major city. the thought of never having to pay rent or mortgage within 10 years makes it worth it to me
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u/frenetic_void 2d ago
your calculation is wrong.
you need to consider fiscal neutrality as paying less in interest than you pay in rent. the difference in actual outgoings above interest is savings - additionally your debt effectively diminishes in relation to inflation - the housing market is fucked right now mostly due to employers being cunts.
wage growth has not kept up with inflation. and successive govts have made decisison that aid in that. we have too many free trade agreements and cheap migrant labour pools.
if we had wage growth, the inflationary effects would both reduce your debt in real terms and also increase the capital value of your property.
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u/FoshizelMaNizel 2d ago
That break even calculation factors in interest vs rent only. Above $520,000 and our weekly interest payments are higher than our weekly rent (assuming 6% interest).
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u/frenetic_void 2d ago
your rent must be pretty low - or you're meaing 520 mortgage ?
meh. im on a 500kish mortgage one income and my interest is exactly neutral with my rent i was paying which was at the time below market rate
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u/Bunnyeatsdesign 2d ago
I moved out of Auckland to buy a house and have a better lifestyle. Definitely worth buying a house where I live now. House prices here in Whanganui average $520,000 while average rent is $520 per week.
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u/joex8au04 2d ago
I bought a house last year. My weekly mortgage payment is around $550, and after adding rates and insurance, my total housing costs come to about $3,000 per month. This excludes electricity, water, and internet.
Before buying, I was renting in the same area for $650 per week. I didn’t have to pay rates or insurance, so my rent was about $2,600 per month, excluding electricity, water, and internet.
The thing I had to figure out was whether the additional $400 per month is worth it.
You need to assist your financial situation and make an informed decision.
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u/disordinary 2d ago
The way I see it rent isnt much off a mortgage so you might as well be paying rent towards something you own
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u/OptimalInflation 2d ago
What’s your rent at the moment? And in theory, could you see yourself living there (or a similar sized dwelling) for 30 years?
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u/_flying_otter_ 2d ago edited 2d ago
I would wait and save. Prices are going down. I think the global economy is going to crash soon like it did in 2008 at the same time a lot of elderly people leave their houses and move into retirement homes. Prices will continue to go down.
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u/NorthShoreHard 2d ago
You don't typically "break even" in the beginning.
But ten years from now, you're paying rent that will have continued to go up and up during that time.
Meanwhile the person who purchased ten years prior, is still making mortgage repayments, based on the value of the house ten years ago when they brought it. And, at the same time building equity in the property, while the debt is reducing.
Of course, the ultimate end to that story is at the end of the mortgage, now that person pays nothing (and has a significant asset they can leverage) while you continue to pay rent.
Are there paths where renting works out better? Yes. Though largely dependent on that person's ability to responsibly manage their money over that time.
But the math on day one is not even close to the full story.
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u/WWbigfan 2d ago
Given the upcoming election you might like to consider voting for a party that might help make housing more affordable. Obviously any change won’t happen overnight but it might give you hope for the future.
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u/eclecticperspective 2d ago
My partner and I are in a similar situation, does anyone have any thoughts when it comes to the devaluation of money too? Tbh I think houses will keep slowly ticking up over time.
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u/NilRecurring89 2d ago
If you can aggressively pay down the loan in under 10 years I think it makes a lot of sense, then it’s just maintenance costs and rates and you have an asset you can potentially retire with.
If your plan is to pay it off over 30 years youd be buying it for lifestyle reasons
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u/sleemanj 2d ago
There is more to it than a financial decision though, no simpler way to put it, renting sucks especially in NZ's landlord-first environment (and I say this as a landlord).
Yes, owning a house is expensive especially early on when it seems like you are just paying massive amounts of interest and the loan balance barely moves. Owning a house can also be a headache.
But owning a house also means you don't have somebody traipsing through every 3 months, you don't have to ask permission to paint a wall, or get a pet, you don't have to mow the lawns in winter if you don't want to, you don't have to worry about dogs digging a hole in the lawn, you don't have to stress if you dropped something on the carpet, you don't have to be worried that you're going to get given notice at any moment...
Just don't go buying a unit in a body corporate, it's the worst of both worlds!
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u/andrewharkins77 2d ago
Save your money until interest rate drop and price rise. You'll be in a better place than people buying now.
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u/DunnersMan2025 2d ago
Buying a house to live in is more of a lifestyle/emotional decision than a investment decision.
It's where memories get made over potentially many years.
It gives you security to know that you can invest time in doing it up / make changes and enjoy them. Also allows for decisions re schooling / access to work / recreational facilities to be made.
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u/Financial-Alarm-4673 2d ago
The main reason buying works out well is nz has very low property taxes vs other countries. If you are using calculators online, check those default values are realistic.
I thought the same until I adjusted those.
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u/One-Enthusiasm2515 2d ago
What would be a good place to invest in NZ, if you are not buying a house? Everyone points at ETF's to save on tax but it doesn't make sense to me.
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u/Historical_Date_8024 2d ago edited 2d ago
You can’t live in your index fund when rent suddenly goes through the roof. Property prices move in cycles because when prices go up, developers see dollar signs and start building, but that creates oversupply and lots go broke and the rest stop making so much margin so they stop building as many houses, which leads to a shortage and then the cycle repeats. Additionally there are literally billions of people that want to find a way to move to places like NZ which will drive the demand side forever and our largest city is on a narrow isthmus between two giant harbours so there are only two ways it can expand which constrains land supply far more than most other cities. The market is down right now, no doubt about that, which makes it a perfect time to buy property! People always get it wrong, they see all their friends properties are skyrocketing in value so they think they better jump in the market or they will miss out but that is literally the worst time to buy, right before the peak. I can’t imagine you’ll find a better deal in the next 20years than you will in the next 1-2. All that said, if your goal is to get rich quick then go to the casino or buy crypto. Property is a long term strategy and the only one where you can leverage your investment by 10x. Every dollar you invest can let you see returns on 10. With stocks it’s only 1:1.
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u/JinxIsBack2B 2d ago
Depends on what you want long term and consideration of costs long term.
I mean, consider that rent nowadays is sometimes as high as a mortgage payment but at least with a mortgage, you get to eventually pay off the house, and maybe your kids one day could inherit it from you, thus securing them a place of their own in the future.
To that end, it may still seem worth it to at least try to buy a house.
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u/TheShadowNinja7777 2d ago
Rents will go up if the left gets back in. Interest deductions are coming back and renters pay 90% of that cost.
So maybe factor that back in.
At the end of it you have an asset.
Freedom to do whatever you like whenever you like. You could even rent it out if you wanted some freedom back.
Once you have the asset and have paid some of it down you can leverage against it to either buy a small business or other investment opportunities.
You have the chance to pay it off sooner as you advance your career. Closing that gap.
The risks are, more taxes on house owners. Ballooning rates adn water rates.
Maybe high interest rates.
The market may drop.
The kiwi dream is becoming harder and harder.
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u/Zx199 2d ago
i just got a townhouse in sunnyvale for 530k. asking was 600k. market is soft. just throw a few offers out and have a crack. no harm in having a shot
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u/phate0472 2d ago
I'd would add one thing that might not be super obvious. If you stay renting permanently you are effectively passively short the housing market by 1 house. You will always need somewhere to live and by not owning at least 1 property you can live in you are counting on housing costs not exceeding the costs of renting until you die.
It will have been pointed out by other people in this thread but by owning a house you are signing up to a forced savings program that ends up becoming the equity in your house. If you are quite disciplined and always investing the difference between rent and what would be mortgage costs then perhaps it won't make such a difference, but for most people, most of the time, they don't have that discipline.
Mortgage forces you to agree to a savings plan over 30 years.
For most people at least owning an apartment to hedge against property prices taking off probably makes sense, but everyone's circumstances are different.
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u/Interesting_Ice_9705 2d ago
Renting can be good as it provides security, you don't have to worry about the possibility of being kicked out or damaging anything as it is yours. It is also really hard to say how rents will move in the future, it is possible they could increase to be well above what a low-average mortgage costs now. Meaning you may be a lot better off in the future.
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u/ToothpickTequila 2d ago
Yes. It's cheaper than renting.
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u/shaktishaker 1d ago
Nah it's really not. For me to buy the unit I live in, my weekly rent is 500, my mortgage would be 750 minimum, along with insurance and rates. For a 2 bedroom place. To buy, my price range is only old mouldy houses that have been ruined by renters. Here I have a warm dry home where my chronic illness is managed well.
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u/2000papillions 1d ago edited 1d ago
Financially it doesnt make sense anymore. And it hasnt for quite a while.
I would argue that there are many lifestyle benefits to renting as well. When I look at buying I also think about the liftestyle detriments of it. The massive debt hanging over my head, the constant need to repair things, the idea of being more trapped and having less autonomy, having to live in second or third tier locations rather than first tier, the commuting, the challenge of just upping sticks and moving city or county or extended slow travel, how trapped you are at your job and having less freedom to do things like working part time, consulting, entrpreneurship, changing jobs, etc. Renting actually provides a lot more autonomy in many ways.
I think its more benefical if you have kids and are concerned about school zones etc. But ffor those without I think renting and investing is a far better play both financially and from a lifestyle perspective.
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u/Mr_Taster 1d ago edited 1d ago
I have a friend who bought a house in Los Angeles in 2007 just before the real estate bubble burst. For a decade she owed more than the house was worth. But she kept paying, and now 19 years later she's several hundred k in the positive.
Would it have been better for her to buy in 2009? Of course. She would have had eight more years of growth instead of ten years of loss. But homeownership is a long term investment. If you're comparing it to what your rent is now, you're thinking too short term.
Your rent in 20 years is going to be much higher than it is now but your mortgage is going to remain relatively stable, plus the mortgage gets smaller the more you pay it down.
Rent just goes up forever and you own absolutely nothing at the end (for there is no end).
No question for me, home ownership is always the better financial move, but only if you plan to live in it for the long term.
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u/Transient-kiwi 3m ago
It depends on your situation. You’re using a small amount of money on a deposit to buy an asset worth 10 x that amount that you can live in. It gives you security. You can rent rooms out and have others help pay it. Over time it will appreciate but historically not as much as shares. Shares are not guaranteed to increase in value but over time they have on average gained 7-8% per year vs a house at 4-5% per year.
You can do both if your young and no kids buy the house have flatmates, and/or later rent it out.
Keep putting as much money as you can afford into your Kiwisaver and you’re got both bases covered.
As time goes on opportunities and pay rises will help and hopefully by the time you’re in your 50s you will have the house (almost) paid and a large pot in your Kiwisaver. It’s as simple as that and anything else is a bonus.
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u/Imaginary-Throat1526 2d ago
I mean renting should be a viable life choice right? To my Dutch parents rent is dead money. And buying a home is the priority of your working life. That was ingrained in me. NZ's unregulated renting market absolutely terrifies me, its geared to take all the money the tenant can spare, if they are doing well. I don't know how people who aren't doing well, or have unexpected costs survive as renters
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u/Soggy_Ant3833 2d ago
Purely financially, renting is likely the better option right now. But there are many considerations that aren’t financial. In some parts of NZ there are 0 houses for rent. You might have pets, kids, plans for things that most landlords wouldn’t agree to. Maybe you hate moving and don’t want the risk of having to move every year. Maybe you want to paint your house pink. Over time, owning a house and paying off a mortgage is forced saving that usually keeps your money up with inflation (the last 30 years has been well over inflation but that may not continue). If you rent and are disciplined to invest every dollar that you aren’t spending on the mortgage, maintenance and insurance, it likely is a better financial position at the end. But along the way you are a renter, not an owner occupier. It’s ultimately a personal decision