Should we be renting or buying?

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Should we be renting or buying?

3News NZ

Should home-ownership be encouraged?

Should home-ownership be encouraged?

With house prices once again at record levels across the country, the question more and more people are asking is can they really afford a house, or should they resign themselves to a lifetime of renting?

In the year to June 2011 35 percent of households were renting, compared to just 26 percent in 1991.

Back then we had one of the highest home ownership rates in the world. We're now well down the list and below Australia, the United States and the United Kingdom.

Many people believe that home ownership should be encouraged, but what about the numbers? Do they add up?

In the second part of Campbell Live's housing series, Tristram Clayton did some number crunching.

Watch the video to see his report.

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Comments

10/08/2012 9:36:14 p.m.

stanace wrote:

He didn't even mention loss of interest on the 10% or 20% deposit.
Put up 100,000 as deposit, and you lose 4,500, thats 3,000 after tax, thats another 60 per week for owning.
Anyone can see that renting is the way to go, use the money to buy an investment property that gives cashflow positive returns, and get the tax benefits besides, eg interest, depreciation, home office etc etc.

7/08/2012 12:59:00 p.m.

Rose wrote:

As Tracey eluded too... the $$ you pay to the bank in interested is wasted money as per the rent you pay... the difference is the captial/cash in hand. If you save the money you would otherwise pay on a mortgage while you are paying rent, then you may end up better off than owning the house outright at the end (so could be a cash house buyer). For me, I suck at savings but GREAT at paying off debt, hence, have a mortgage!

6/08/2012 10:40:34 p.m.

Blair wrote:

I guess it all depends where in the country you intend to buy. I own my own home in Invercargill I purchased it nearly 7 years ago. 10+ years ago this house would have sold for less than $50,000 I have a 3 bedroom townhouse with double garage and reasonably sized section. I paid $135,000 for the place in 2005 and in 2007 I estimated the place to be worth nearly $200,000. I borrowed $20,000 from my parents for the deposit which I have now paid back and I managed to get the mortgage under $100,000 so I have nearly 50% equity in this property. My repayments are just $155 a week and my flatmates pay that for me. So for Aucklanders wanting to get into the property ladder, here is the place to buy, buy property here and rent the property out. The If you can afford to save money as well build up some savings and switch to an offset mortgage and that will allow you to pay off the mortgage faster. I plan to switch to an offset mortgage in the next year and pay this place off in 12 years time. The sooner you pay the property off the sooner you can sell it and use for a deposit to buy in Auckland.

4/08/2012 3:03:50 p.m.

Gavin wrote:

Rent will go up untill you die but my mortgage payments will stay the same until I pay it off. It might look more attractive now to rent but what about 25 years from now when you rent has doubled my mortgage is paid off?

4/08/2012 2:49:14 p.m.

Gavin wrote:

You really should look at the costs and return over your lifetime. If you rent, you have to pay rent until the day you die. You therefore have to have enough interest from your investment to be able to pay your rent after you retire without eating into your capital (I estimate about 4-5% after tax or 6-8% before tax). If you buy at age 30, pay off you house by age 55, and save from age 55-65. Then you only need enough return on your savings to cover rates/maintenance/insurance. You also have an asset to pass on to your kids (assuming you have some). I have run a few scenarios and if you can get more than 6-8% on your investment (before tax) then you will be just as well off renting. less than that and you risk running out of money during retirement. If you buy, providing you are mortgage free before you retire, there seems to be far less risk of running out of money in retirement.

3/08/2012 4:53:54 p.m.

Allan M wrote:

I have a bit of a problem with the numbers in this article: 1. The 2.5$ to cover rates, insurance and maintenance is a bit high. 1 to 1.5% would be a bit more realistic. On a $750k property, say rates of $2.5-3.0k, Insurance, say $2k (house insurance only), which leaves maintenance of say $3-4k. 2. He also seems to include the principal repayments in his calculations of the "cost" of home ownership. That doesn't really make sense, as principal repayments are not a cost - you are increasing the equity/reducing the debt you owe. I calculate that in the first year of a 6% mortgage, you pay $38.6k interest, plus say the $9k cost of ownership (rates, insurance, maintenance) means that you are really only $11.3k worse off than renting. That's a 1.5% cost on a $750k home, which is well within the range of house price inflation. And when you consider the intangible benefits of owning your home, then it still looks worthwhile owning your own home. Moving the interest rate back up to 8%, the above example starts to look debatable, with you being $25k worse off by owning. That's about 3.2% on a $750k home.

3/08/2012 2:46:58 p.m.

Mike wrote:

That economist with adding like that could apply to the Labuor party for a finance portfolio - he can line up with those that claim revenue = profit.

Mostly if rent the cost of renting is more than the mortage repayment, and in plenty of cases its much more. But many looking to buy, want to buy much better than they are renting.

Renting you get no asset, and you get no value increase of the property.

Since your pet economist cant use a real world example, how about pick 5 rental options online at random, take an estate agent out to put a price on it, then compare rent vs mortage. Also compare increase in house prices in say the last 10 years.

Who is better off?

I had this discussion with an economist over 20 years ago spouting the same crap. If you ignore all the benefits of owning, claim cheaper rent prices than people can find, of course you can make renting appear cheaper.

Take the basic apartment with shared facilities on Campbell Live earlier this year, $40-50,000 to buy and around $130 in rental. Mortage on the apartment is around $50 a week vs rental of more than double. Add in the growth in capital value as Auckland continues to grow, the value of land and buildings like that can only go up.

This is why people like Bob Jones are milionaires and the economist is still renting ...

If take an average smoker, if they hadn't smoked they would save a lot of money over their lifetime. Take how much a smoker burns up in their filthy habbit, your looking around $1,400,000 over their lifetime - and that can buy quite a house even today if they instead saved their money and put it into a home.

3/08/2012 12:26:07 p.m.

Wendy wrote:

Mr Clayton's comparison was so wrong. How can one evaluate two investment options (Rent or Buy) without looking at their respective residual values (RV). For Rent, its RV is zero. For Buy, its RV is the market value of the house when it's sold. What we should look is whether the saving from rent option during all the years justifies the house value at the end of the investment. It's a big mistake to ignore RV for an economist to advise potential investors like that.

3/08/2012 10:58:17 a.m.

Tracey wrote:

John Davis you are wrong which was why this story was great as people don't do the maths correctly. If you can rent a place for less than the interest you pay to the bank then that makes financial sense and your just choosing to pay a landlord rather than interest to the bank niether of which matter as its not going toward paying off a house. everybody completely forgets that they pay a heck of a lot in interest to the banks to own a house. I too have done the numbers over the last few years to figure out whether its going to be financially better off for us to use the money we have saved to buy a house or invest otherwise, the numbers have always came out in favour of continuing to rent. The maths broken down for you based on my real life situation: house i live in costs $320 pw to rent. based on similar house sale prices on this street the house is worth about 400k (being conservative). 10% deposit would leave us with a mortgage of 360k, interest alone on a 360k mortgage (6%) is 21600k a year, $415 per week, or $95 pw more than i currently pay to rent the same place, and then on top of that i would have to pay for house insurance, rates and water. my $320 a week is either going to the landlord or the bank - people need to understand that, it ISN'T going on your mortgage, so i'm not wasting my money by renting.

3/08/2012 9:10:17 a.m.

James wrote:

Who the heck puts down just 10%?!?, obviuously if your thinking of buying a place you aim to put down enough deposit so your mortage payments are roughly what you are already paying for rent. I have a hard time relating to this guy in that video, obviously you should rent if you can't make a good down payment but regardless you should try get out of the rent trap if you can find a affordable place, renting/being a kind of serf for the rest of your life isn't to your advantage, tho for investors im sure they are dead keen on selling you on the idea its a great thing.