Housing crisis!

Forums › Off topic › Housing crisis!

1 | ... | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11

750 posts

Ultimate Geek

#869375 31-Jul-2013 16:02

kiwirock: What is hard for some though, is paying rent and petrol while trying to save for a mortgage. If you're saving for a mortgage then you have a different viewpoint of how expensive renting is. I think that's the largest obstacle with getting in to your own home. Perhaps instead of kiwi saver and investor restrictions, they should look at something based on what someone is paying in rent while trying to get in to their own home.

If people think renting is expensive they need to think how dear it is to own a home.

Interest rates are at historical lows. Take a 5% mortgage and a 20% increase (which some would struggle to fund) you are still left with a 6% mortgage.

Insurance is on the rise. Wait until people get their heads around Insured Value rather than replacement value and see how much premiums are on the increase and will continue to increase to cover Christchurch costs and Wellington / Central Otago risks.

Ever seen a council reduce rates. It never happens. They are great spenders of our hard earned loot and show no inclination to reduce spending.

And then there is maintenance. 5% of capital value isn't a bad starting point.

So do the math on a $300,000 house on 10% deposit.
Interest @ 5% = $13,500 rising to say 6% or $16,200
Rates at say $2,000
Insurance at say $2,000
Maintenance at say $10,000.

That’s $27,500 or $530 a week. Or if Interest rates rise then $580 a week.
Now you might think this is fine in a capital appreciating market like Auckland or Christchurch.

There are two faults to this argument.
First people tend to sell and then buy in the same market. So as your house rises in value the one you aspire to increases as well.

Secondly not all markets rise. Comparing June 1010 with June 2013 Wellington Median value dropped from $405k to $400k; Hamilton from $322 to $300; Hawkes Bay from $285 to $271, Nelson from $347 to $341 and Central Otago from $415 to $410

kiwitrc

4123 posts

Uber Geek
Inactive user

#869382 31-Jul-2013 16:11

And this guy would agree.

kiwirock

685 posts

Ultimate Geek

#869398 31-Jul-2013 16:36

minimoke:
kiwirock: What is hard for some though, is paying rent and petrol while trying to save for a mortgage. If you're saving for a mortgage then you have a different viewpoint of how expensive renting is. I think that's the largest obstacle with getting in to your own home. Perhaps instead of kiwi saver and investor restrictions, they should look at something based on what someone is paying in rent while trying to get in to their own home.

If people think renting is expensive they need to think how dear it is to own a home.

Interest rates are at historical lows. Take a 5% mortgage and a 20% increase (which some would struggle to fund) you are still left with a 6% mortgage.

Insurance is on the rise. Wait until people get their heads around Insured Value rather than replacement value and see how much premiums are on the increase and will continue to increase to cover Christchurch costs and Wellington / Central Otago risks.

Ever seen a council reduce rates. It never happens. They are great spenders of our hard earned loot and show no inclination to reduce spending.

And then there is maintenance. 5% of capital value isn't a bad starting point.

So do the math on a $300,000 house on 10% deposit.
Interest @ 5% = $13,500 rising to say 6% or $16,200
Rates at say $2,000
Insurance at say $2,000
Maintenance at say $10,000.

That’s $27,500 or $530 a week. Or if Interest rates rise then $580 a week.
Now you might think this is fine in a capital appreciating market like Auckland or Christchurch.

There are two faults to this argument.
First people tend to sell and then buy in the same market. So as your house rises in value the one you aspire to increases as well.

Secondly not all markets rise. Comparing June 1010 with June 2013 Wellington Median value dropped from $405k to $400k; Hamilton from $322 to $300; Hawkes Bay from $285 to $271, Nelson from $347 to $341 and Central Otago from $415 to $410

Whilst the cost of living has grown much more so those drops don't hugely help the over all picture. But I think now isn't the time to be buying.

The interest on a mortgage is compounding isn't it? Based annually and probably calculated daily? So $13,500 only looks that cheap on paper before payments start.

I rent so I don't know the exact in and outs of a mortgage but I really do feel for Aucklanders. That final figure of yours is 5 times more than I pay for rent and a mates mortgage is nto much more than a standard $210 3 bedroom rental. But I hate renting, it restricts me to how many holes and plates I can bore through walls for wifi gear and other geek toys.

I just can't justify having to pay something like $530 a week. Not when there is alternatives elsewhere. I'd be job hunting in another town if home ownership is the goal and it looks to impossible.

People should be taught to get a home, get someone else to rent/flat/board and pay for it, before you use your own money. The focus is always on debt, and this country lacks a decent financial curriculum in public school.

Buy bigger than you need, rent the other rooms.

kiwirock

685 posts

Ultimate Geek

#869399 31-Jul-2013 16:37

It's easier to get a loan if you can show you don't need the money :o)

Batman

Mad Scientist
29763 posts

Uber Geek

Trusted

Lifetime subscriber

#869400 31-Jul-2013 16:37

i think a lot of people are living in the past.

look at the prices of property in major cities of each country

- London: a couple of million quids (pounds) for an apartment
- New York: same
- Singapore: same
- Perth/Sydney/Melbourne: getting there

the question you should be asking is:
- are the people living in London/New York/Singapore/Perth/Sydney/Melbourne coming to Auckland?
- are some other dudes who had wanted to live in these places choosing instead to live in Auckland because of green image of New Zealand?

If 0.001% of those guys come in every year, Auckland house prices will keep going up.

If none of these guys are interested in coming to Auckland, then fair enough, it will flatten out or even bottom out.

The keyword is immigration.

minimoke

750 posts

Ultimate Geek

#869405 31-Jul-2013 16:55

kiwirock:
The interest on a mortgage is compounding isn't it? Based annually and probably calculated daily? So $13,500 only looks that cheap on paper before payments start.

Math isn't a strength of mine so I'm trying to keep the numbers simple.

Depends on the type of mortgage but you should also add onto my figures an amount for principal repayment. So your first monthly payment might be $1,125 interest + $900 principle ($900 a month x 12 months a year x 25 year term = $270,000). The next month your $270,000 principle is reduced by $900 so your interest is a tad less.

If you are paying a fixed amount of $2025 a month Principal owing reduces (which increase net capital) and interest reduces.

Zeon

3916 posts

Uber Geek

Trusted

#869407 31-Jul-2013 16:58

What about enhancing employment and living prospects in smaller towns? hell of a lot cheaper and plenty of land/houses/transport.

Speedtest 2019-10-14

Sharesies

Trade NZ and US shares and funds with Sharesies (affiliate link).

mattwnz

20157 posts

Uber Geek

#869520 31-Jul-2013 19:26

alasta:
mattwnz: Rents are predicted to double within the next 5 years, according to Olly Newland, if you watch the video on interest.co.nz from yesterday. They are currently quite low, in proportion to the value of a house.

I personally prefer renting as it suits my circumstances better so it was a relief when I did the analysis a while ago and came to the conclusion that what I'm 'throwing away' on rent is about the same as what I would otherwise be 'throwing away' on rates, interest (both incurred and forgone), insurance, body corporate fees, maintenance, etc.

At least for the type of property that I would live in (a small one bedroom flat) there is no economic advantage to owning the property unless you're either getting capital gains, or tax deductability on the expenses. If either of those benefits dry up then rents and property prices would converge, but I damn well hope that rents don't double within five years because there is no way I could afford that.

I have done the same figures, and it also worked out cheaper for me to rent, if you aren't getting capital gains, that are at least in line with inflation.And I don't think that big capital gains are occurring in many places apart from Auckland at the moment.

There was a news story recently about an economist who also worked out that it was cheaper to rent than buy in Wellington. The only benefit was the security of owning your own home and you could do with it what you wanted.

If landlords aren't getting a capital gain, then they still need to make money if the rent they receive only just covers costs. The amount they need to make needs to be at least as good, as if they had that money in a bank account. I have looked at the rental returns of some houses being used as rentals in Wellington, and the amount of incoming rent just doesn't justify the asking price. It is nowhere near enough to cover costs and also make reasonable return, and I can only assume they are relying on capitial gains for the profit, and rent is only covering costs and inflation.

alasta

6704 posts

Uber Geek

Trusted

Subscriber

#869528 31-Jul-2013 19:45

minimoke: Depends on the type of mortgage but you should also add onto my figures an amount for principal repayment. So your first monthly payment might be $1,125 interest + $900 principle ($900 a month x 12 months a year x 25 year term = $270,000). The next month your $270,000 principle is reduced by $900 so your interest is a tad less.

If you are paying a fixed amount of $2025 a month Principal owing reduces (which increase net capital) and interest reduces.

The only part that people tend to forget about is the returns that you could otherwise get on the equity in your home. For example, if you put down a $60,000 deposit then that's $60,000 that you could have had in the bank or managed funds if it weren't tied up in your house.

alasta

6704 posts

Uber Geek

Trusted

Subscriber

#869531 31-Jul-2013 19:49

mattwnz: There was a news story recently about an economist who also worked out that it was cheaper to rent than buy in Wellington. The only benefit was the security of owning your own home and you could do with it what you wanted.

I think it's entirely understandable that many people would choose to buy a house because it has particular advantages to them over renting. However I get sick of people looking down on me because I choose to rent and put my wealth somewhere other than property.

If landlords aren't getting a capital gain, then they still need to make money if the rent they receive only just covers costs. The amount they need to make needs to be at least as good, as if they had that money in a bank account. I have looked at the rental returns of some houses being used as rentals in Wellington, and the amount of incoming rent just doesn't justify the asking price. It is nowhere near enough to cover costs and also make reasonable return, and I can only assume they are relying on capitial gains for the profit, and rent is only covering costs and inflation.

A rental owning colleague of mine recently showed me his tax return and it was quite fascinating. After all the expenses on the property were taken into account the net return was stuff all, but there was a big advantage to him in that all the expenses are tax deductable. I suspect that's one of the reasons why renting is such good value compared with owning.

sir1963

3260 posts

Uber Geek

Subscriber

#869537 31-Jul-2013 20:03

alasta:
minimoke: Depends on the type of mortgage but you should also add onto my figures an amount for principal repayment. So your first monthly payment might be $1,125 interest + $900 principle ($900 a month x 12 months a year x 25 year term = $270,000). The next month your $270,000 principle is reduced by $900 so your interest is a tad less.

If you are paying a fixed amount of $2025 a month Principal owing reduces (which increase net capital) and interest reduces.

The only part that people tend to forget about is the returns that you could otherwise get on the equity in your home. For example, if you put down a $60,000 deposit then that's $60,000 that you could have had in the bank or managed funds if it weren't tied up in your house.

Yea, $60,000 at 4.5% = $2,700 less tax will leave you about $1800

Or in real terms inflation adjusted you are falling behind.

sir1963

3260 posts

Uber Geek

Subscriber

#869542 31-Jul-2013 20:12

alasta:
mattwnz: There was a news story recently about an economist who also worked out that it was cheaper to rent than buy in Wellington. The only benefit was the security of owning your own home and you could do with it what you wanted.

I think it's entirely understandable that many people would choose to buy a house because it has particular advantages to them over renting. However I get sick of people looking down on me because I choose to rent and put my wealth somewhere other than property.

If landlords aren't getting a capital gain, then they still need to make money if the rent they receive only just covers costs. The amount they need to make needs to be at least as good, as if they had that money in a bank account. I have looked at the rental returns of some houses being used as rentals in Wellington, and the amount of incoming rent just doesn't justify the asking price. It is nowhere near enough to cover costs and also make reasonable return, and I can only assume they are relying on capitial gains for the profit, and rent is only covering costs and inflation.

A rental owning colleague of mine recently showed me his tax return and it was quite fascinating. After all the expenses on the property were taken into account the net return was stuff all, but there was a big advantage to him in that all the expenses are tax deductable. I suspect that's one of the reasons why renting is such good value compared with owning.

Here is where people get it wrong... tax deductible.

Here is how it works.
If you earn $1000 and you have $1000 expenses you "tax deduct" your expense so you have nil income and therefore pay no taxes, but equally you have no income.
If you earn $1000 and you have $2000 expenses you "tax deduct" your expense so you have -$1000 income which depending on how your rental is structured may see you able to transfer that to your wage and therefore get $300 back in tax, however you are still $700 out of pocket.
Tax deduction is not a gift from the government.

When you make a profit, not only do you pay tax, landlords also pay ACC even if your accountant does the lot, the fact that your "thought" about the rental is enough for ACC to charge you.

sir1963

3260 posts

Uber Geek

Subscriber

#869548 31-Jul-2013 20:24

mattwnz:
nate:
macuser: Probably because a family home is not traditionally an investment, and isn't tax deductible like an investment property. That said, I'm not an accountant...

But surely something that you earn value on (like tax on interest on cash deposits) should earn tax?

My concern is it that property investors will circumvent it. A blanket approach makes it easy to administer and hard to avoid.

+1, that is why I am all for a blanket CGT. People will still make a profit, but just not as much of one, and that tax goes to pay for things like schools and health anyway.

How do you know they will not make as much of a profit ?
The flip side is that landlords will also not invest in maintenance and build to a lower standard.
Also if they do not make as much through capital gain they will do it directly through rent, so rents will increase to compensate.

With higher cash flows property investors will be able to have higher debt levels which will limit the amount of direct tax they pay and also use
other "assets" like carpets etc with higher depreciation to offset income. Ultimately they will be able to acquire the same if not more property
with little real impact. If anything if property prices remain static it will allow established developers to reap huge gains.

gzt

17127 posts

Uber Geek

Lifetime subscriber

#869552 31-Jul-2013 20:33

There was a comment much earlier about first home buyers saving longer and starting out with an apartment before looking at a 750K house (so stop moaning lol ; ). Apologies for the missing quote just could not find it.

I agree with that view to an extent but there are problems with it. One of them is the current approach of the banks due to the immaturity of the apartment market. Buyer will often need more deposit for a $350K apartment than for that $750K house.

Immaturity = the banks know a huge part of the market can't tell the difference between good stuff and crap and there is a lot of crap out there.

ajobbins

5052 posts

Uber Geek

Trusted

#869555 31-Jul-2013 20:34

sir1963: The flip side is that landlords will also not invest in maintenance and build to a lower standard.
Also if they do not make as much through capital gain they will do it directly through rent, so rents will increase to compensate.

If they increase rent, that's income for them too, so they would have to pay income tax on it. Same if they skimp on maintenance. That would increase their tax burden at the same time as potentially minimising their capital gains.

The argument that raising taxes reduces investment is a proven fallacy.

Twitter: ajobbins

1 | ... | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11