Shamubeel Eaqub of the NZ Institute for Economic Research said the latest Barfoot & Thompson figures – which revealed a record average house price of $618,707 – showed most buyers did not think renting was a viable alternative, yet it was better in the longer term.
“Would you buy a loss-making business?” Mr Eaqub asked, pointing out that many house buyers did not factor in the huge losses incurred through paying off a mortgage, maintenance and other expenses.
The NZX had performed on a par with the housing market in the past few years, yet people continued to favour residential property, he said.
Mr Eaqub rents in Wellington and said housing was a particularly bad investment if people examined the amount of money a mortgage and other expenses cost over a lifetime.
Economists don’t like home ownership. It’s an illiquid, non-diversified form of investment that impacts on labour mobility. And in some countries, renting for less than a mortgage and investing the difference makes a lot of sense. Most of my friends in Europe rent properties owned by family trusts, or property management companies who see their rental properties as a long term investment and budget to maintain them in good condition.
But in New Zealand if you’re renting a house, you’re almost certainly renting it off individuals who won’t want to spend any money on maintenance, and will probably sell the house on in a very short time at which point you’ll probably have to move again.
If you’re on a pretty high income you can rent nice apartments or townhouses in the inner-city, sure. But if you have a family and want to live in the suburbs, and you want your home to be insulated, not leak, not have subsidence, have a sense of security because your kids go to the local school, etc, then you have to buy a house.