What's best? Renting or buying
Sunday, September 26th 2010, 10:48PM 
7 Comments
What’s best renting or buying? Radio New Zealand asked me that question last week, partly because another one of those affordability surveys had come out and headlines screamed out Queenstown and Auckland were the most unaffordable places to live.
One can ask why do you need a survey to tell you that? Queenstown is a very unique place in New Zealand and the home of some serious wealth. (Personally it hasn’t had that much appeal to me, but hey I enjoy Rotovegas!)
Auckland is a different story and illustrates why I don’t like these surveys – that is they are all about trying to say the housing market is one big amorphous mass. In reality it’s lots of little markets. You could even think of it in sharemarket terms where each individual house is a separate company listed on the exchange.
House, like shares, often trade at prices which are different to fundamental economic valuations. We see that in the housing market at present where prices are around five to six times the average wage, when three to four times is considered “fair value”.
Coming back to the story and the Auckland headline. It is silly to make such a bald statement as it is such a big market. Sure plenty of bits are seriously unaffordable, while others are the opposite.
After the RNZ interview I had a good yarn with Harcourts chief executive Hayden Duncan. While he had lots of interesting things to say one thing was the state of the market. It’s a two speed job at the moment with the middle and top end doing well with good sales volumes and prices and, if anything, a lack of stock on the market. Those who do sell are making reasonably quick sales at good prices.
At the other end of the market, which tends to be the preserve of first home buyers and property investors, it’s a different story. High stock levels, low sales volumes and soft prices.
To me this, along with current interest rate forecasts, suggests to me that it is a great time for both investors and first home buyers.
It’s quite a different story to what the affordability surveys show.
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On 27 September 2010 at 5:03 pm admin said:
Use there graph to chart NZ house income relative to house prices against the rest of the world.
http://www.economist.com/node/14438245?story_id=14438245
For first home buyers - might be a better play to rent until houses revert to affordable levels.
On 27 September 2010 at 5:42 pm Phillip said:
This is one of the first commentaries I have read to draw attention to the fact that Auckland is a number of markets both by location (eg North Shore, eastern Suburbs and Mangere) and type (eg apartment, houses, investor) and that these factors are now becoming more important than before. On 27 September 2010 at 8:09 pm Brian said:
Admin if you look at the graph with the start period of 1999 Q4, the story is different, the increase is higher in aust, Britain and South Africa. On 27 September 2010 at 10:40 pm Aaron said:
Hi Philip.
Heard that interview. Two things which crossed my mind were- a/ sale prices are simply a result of supply and demand and can never be too high as there would be no sale, and b/ what struck me was that it was comparing the average wage rather than the average household income. The household income would more likely determine a households ability to afford the next property. Nowadays households often have two good incomes, unlike previous generations where typical was one good income and maybe one part time or lower income.
Which takes it right back to point a/- sale prices can never be unsustainable. And of course it is unrealistic to compare an averge income with average prices in the top area of the market- of course they wouldn't stack up.
Also, the trend has been away from ownership- I think more for flexibility and pragmatic reasons than affordability- the new generations don't like to be tied down, and want everything now- including the A category home. The only way they can have that NOW is by renting. I don't think first home purchases are any harder than they have ever been- always an up to your eyeballs exercise, but which less are prepared to sacrifice for.
Keep up the good work.
On 28 September 2010 at 9:32 am Arty said:
From my own experience as a potential buyer and only on the North Shore, a factor in price is the quality of the offerings. Lots and lots of plaster houses in the North Shore that are potentially leaky. That stock distorts prices as it languishes on the market, taking out more than 50% of offerings. The buyer profile is also a factor; competitors are 2nd, 3rd or 4th generation Kiwis or Asian.
In regard to renting, it makes sense to rent at the prices currently being achieved, but most Kiwi's want to own their home. The conditions of the non leaky properties on offer are generally poor and not well maintained very old and on postage stamp size land areas.
It amazes me that residential rents are at the levels they are when some commercial rents are weak, given they produce income.
On 28 September 2010 at 6:05 pm SueHawkinsNZ said:
Enjoyed your post and the comments posted by others. Good to hear what other people are thinking and experiencing. Cheers. Commenting is closed
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Interesting that bloggers like yourself provide more accuracy than reporters. I listened to a media discussion on the weekend where the concern was about bloggers being able to say what they like, but reporters must represent the facts. When that occurs in the property space, rather than the reverse, we will all be better off. It is way too easy for reporters to say that they are reporting the comments of others, but when they do little if any investigative work and quote averages as though they are the facts, then we are poorly informed by the reporters.