Tuesday, May 01, 2007

"Mortgage" means "death pledge"

Josh writes:

As I intimated a while ago, my partner and I have been house-hunting. Six weeks ago we made an offer on one we liked -- last weekend we moved in. Having first-hand experience of the house buying woes that are all around the media these days, I figured it'd be a good idea to put my two cents in. The process of finding and buying a house has taught me the following:

  1. Houses are expensive.
  2. People like to whinge.
When people complain that they can't afford to buy a house on their income, what they usually mean is that they can't afford the kind of house they want/feel they deserve on their income. True, you can't afford a house in Mt Eden -- so go live in Massey. There are affordable houses out west or down south, but people don't want to live there. (As a side note, this is why I find unconvincing the suggestions that the way to sort all this out is to free up land and let the city sprawl more -- sprawl happens on the outskirts, and that's not where people want to be.)

So part of the problem is pickiness; part of the problem is an unwillingness to prioritise -- you might be able to afford the house you want by sacrificing some of the lifestyle you want (trips overseas and the like). We're planning a trip to Germany at the end of the year, hopefully bankrolled by gifts from our impending nuptials -- however we end up paying for it, it'll be the last extravagant spend we do for a long time. We're also going to have to put off having kids for some time, too -- longer than we'll want to, I imagine, but again: priorities.

Pickiness, unwilling to make the necessary sacrifices... I feel like I'm forgetting something... Ah, that'll be it: Houses are fucking expensive. Here's where I disagree with the other side of the commentariat as well. All the smug pricks who bought a house ten or twenty years ago -- back when the average-house-price-to-average-wage ratio was half what it is now, education was free and you could support a family on a single income -- sneering at we 20/30-somethings snorting lattes out our noses at the size of the mortgages we'll have to take on. It is harder to buy a house than it used to be -- that's just a fact.

I find it hard to blame anyone other than investment property owners -- and not just the people who rent out twenty houses; the swarms of people with one investment property for their retirement. I don't know much about economics, but doesn't restricting the supply of something make it cost more? More houses owned by investors = less houses for people to buy to live in = higher house prices. What to do about it? I dunno. I don't see what's so horrifying about a capital gains tax on investment properties that makes it "political suicide" for anyone to even talk about bringing it in -- politicos, care to comment?


Mal Fet said...

Wow a topic I can actually comment on with some degree of authority...

The political suicide theory has always been thrown around (even by the senior Valuers in the office) as just a given. Owning a House and selling it for retirement has been one of the keystones of "Mums and Dads" for about as long as we have had a property market in this country.

The option of charging a capital gains tax on investment properties wouldn't be as bad... but hard to police.

Something that wouldn't actually require a law change is an old friend "stamp duty", currently set at nothing; it is just a set fee when you sell your house, not much of a problem when you buy and live, but a disincentive for people who live off the market.

As for your first comments, I totally agree, House cost a TON of cash money... but the idea that a $70,000 a year income can't afford one is madness.

On significantly less than that I am looking at buying 2 houses on a cross-leas able site.

Is it a Home I will be living in...? Dash it all no, it's way too far out of town... but with rent, tax benefits and depreciation, It just means the money I was already putting aside a week for a rainy day covers it... and when I sell it in 10 years I'll have enough to use as a deposit on a House that I would be willing to live in...

(Assuming the market continues to my predictions...)

Anyway, that’s what is coming to mind now... I am sure to add something later on when I am less exhausted.

Mrs Smith said...

More houses owned by investors = less houses for people to buy to live in = higher house prices = greater demand for rental properties = higher rents.

Hurrah! Well it works for me.

Eric said...

I agree with a lot of what you say about peoples pickiness. Without any trouble $70k p.a. can get you walking out with a $320k loan. As one economist said in the NZ Hearld "Stop drinking $5 coffees, go out once a month instead of 3 times a week and take that overseas holiday every other year". Buy a property 10 mins further from work and you can own your own place in 25 years time. Anitia Bell wrote a good book "How to pay off a Mortgage in 5 years(by someone who did it in 2)" Great read full of information that can be used. The numbers can be a bit dated(average-house-price-to-average-wage thing) but I cannot see why it cannot be done in 10-15 years. It is all about making it a priority and working at it.

Unfortunately this is the generation who wants everything right now.

As for property investors, they can get a bad reputation. They get blamed for the high prices of property left right and center. The "by one for our retirement" crowd are told to save money for retirement by the Reserve Bank and then Alan Bollard raises interest rates to discourage people from buying property.

Yes there are a few people out there that do turn over properties, but it is a high outlay, high(medium?) risk, high reward.

One small problem with your maths it's supply of desirable housing and new housing that is keeping the price up. More houses owned by investors = less houses for people to buy to live in = more rental properties = lower rents = lower return from property = less people buying rental properties. The problem is that new housing supply is limited and expensive. There are many factor involved mow that have pushed up the price of building a house. More expensive building materials(plus the keeping up with the Joneses new marble top bench), less builders with the knowledge( and wanting to be paid more) new subdivision and other associated building permit costs, having building council inspected and signed off at many stages of the building process etc. Friends in Cambridge have spent in excess of 30k on things not directly relating to the building of the house. Next year you won't be even able to knock together a decent size deck by yourself without a certified builder on site. Another sign of the nanny state that costs everyone big money.

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