Buying a House

When chatting to a couple of mates after the cricket – (it finished early we were both lucid and coherent) - they are retired on a government pension plus savings – age60 – the topic of their children buying a home came up. Their kids are in Melbourne. The children understand that Mum and Dads place valued at 700K + in central Hutt will not be affordable for them, or the equivalent in Auckland, Melbourne, Sydney or Wellington – where my kids are. But this was not how or where we first brought. (We both had basic properties at Foxton Beach – I had a very basic and very small house in Tokoroa before that – then on rubbish dump road in Palmerston North.)

We decided that probably our children would not start that way. They would continue to enjoy rented accommodation in a more modern environment. So why the difference and is that rationale making it harder for couples to get into their first home, eventually.

Firstly, when I bought my first home at age 21 I had no idea that a) inflation would pass 20% over the next few years and b) interest rates would follow. Inflation had a double negative affect – house prices did not match inflation and therefore in “real” terms prices declined over that 10 years and secondly mortgage interest rates of over 20% were the norm. In other words – we had our own issues back then. One income, three children and double digit mortgage rates.

Secondly, buying rather than renting was what most Kiwis were scripted to think. Inner city living was not the norm and having a section for garden and kids was what we wanted.

Thirdly, we married and had a family much younger; we didn’t live together and work at individual careers/business into our 30’s. So things have changed. But getting into the property market is not as difficult as most would have thought – even in Auckland.

Firstly, if you consider property ownership at a younger age rather than leaving the decision to age 30+, your expectations can be much less. If you are prepared to sacrifice perception of wealth for reality of ownership.

Secondly why wait for marriage, whilst you might own the worst house in the street with a couple of mates or an apartment in a back street rather than the waterfront – you are on the first rung, and that’s important.

But you have to be patient – mortgages don’t decline much in the first decade and property does not rise in value on an exponential scale. Property, especially residential property can be volatile but you don’t lose money if you hang in there.

I’m picking you can buy a basic house in Auckland for $400K. It won’t be in Remuera, Epsom or around the waterfront and it could be an apartment. It will probably mean travel and be a pain in the butt however you will not be building someone else’s superannuation. You’ll be working on yours. You can’t tell me that with KiwiSaver and Housing NZ Deposit subsidy on Housing NZ 10% deposit holders that you can’t jointly get into a home by the time you are mid 20, especially now that the government has provided extended benefits. We certainly didn’t have those hand outs in our mid 20’s.

What’s needed is clarity of vision and a plan of action. Without that individuals and couples will continue to procrastinate and not put an emphasis on an important area of their life.

Instead enjoying lifestyle and consumerism at the expense of home ownership. In other words, they won’t save.

We didn’t have both – at that age, and nor can this generation. But it’s your choice which you choose. What I see however is a very different scenario. Couples mortgaged to the eyeballs, both working to pay the bank and delivering their children to crèche or school whilst suffering the trials and tribulations of life. The point being at age 30-40 couples are starting out life with huge debt, young children and professional careers, putting stress on their health and their relationship. They left the buying option too late. Their income provides lending options of multiple times of their salaries, but income is not a guarantee of wealth – net worth measures wealth. Good financial habits, allow lifestyle and wealth creation. If the cost of living (i.e. paying a huge mortgage) takes a substantial portion of your weekly pay then lifestyle is disaffected through an important stage of life (family years). The answer – start planning earlier.