Opinions on Mortgage Affordability

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#2383670 1-Jan-2020 15:35

clevedon:

My son, 19 and half way through his degree knows that the first thing he wants do do after Uni is save up and buy a house and is resolved to the fact that he won't be able to afford to do it in Auckland. He is already prepared to have to move to a more affordable place in NZ to do that just to get on the property ladder - and you know, worst house in the best street scenario, do it up and move on and up to the next one.

I really dislike the concept of a 'housing ladder' because it implies that property owners will get endless capital gains to keep funding subsequent house purchases.

It's those endless capital gains that have got us into this mess in the first place.

TwoSeven

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#2383671 1-Jan-2020 15:36

elpenguino:

eracode:

Yes - I agree and was conscious of the couples thing when I wrote that post - which is meant to be sarcastic. I did it based on couples on purpose because the max cost of a house for a single person, using Winston’s brilliant idea, would need to be around $100k to $150k - which is even more ridiculous.

Is it though?

Change the word house to home. Not hard to imagine building apartments or units for that ballpark figure is it?

The issue apartments are ok in dense cities with good public transport and ease of access to local shopping/dining facilities. But mostly I think are out of touch with peoples needs.

in christchurch you have to drive several kilometres just to get to the nearest supermarket. It would be pointless building lots of appartments that no-one can use.

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clevedon

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#2383672 1-Jan-2020 15:48

alasta:

clevedon:

My son, 19 and half way through his degree knows that the first thing he wants do do after Uni is save up and buy a house and is resolved to the fact that he won't be able to afford to do it in Auckland. He is already prepared to have to move to a more affordable place in NZ to do that just to get on the property ladder - and you know, worst house in the best street scenario, do it up and move on and up to the next one.

I really dislike the concept of a 'housing ladder' because it implies that property owners will get endless capital gains to keep funding subsequent house purchases.

It's those endless capital gains that have got us into this mess in the first place.

So how does he buy his first house in Howick where his four previous generations and extended families have and still live? Last time I looked the average price was well over a million.

You gotta start somewhere, or does he say - well there are where my roots are but bugger it, I'll just hang out in Gore for the rest of my life (no disrespect to Gore might I add)

GV27

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#2383675 1-Jan-2020 16:29

alasta:

I really dislike the concept of a 'housing ladder' because it implies that property owners will get endless capital gains to keep funding subsequent house purchases.

It's those endless capital gains that have got us into this mess in the first place.

Yes and the idea that Aucklanders should fund living in Auckland by buying up property in other parts of the country has extremely predictable consequences for the rest of the country.

elpenguino

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#2383734 1-Jan-2020 20:47

alasta:

clevedon:

My son, 19 and half way through his degree knows that the first thing he wants do do after Uni is save up and buy a house and is resolved to the fact that he won't be able to afford to do it in Auckland. He is already prepared to have to move to a more affordable place in NZ to do that just to get on the property ladder - and you know, worst house in the best street scenario, do it up and move on and up to the next one.

I really dislike the concept of a 'housing ladder' because it implies that property owners will get endless capital gains to keep funding subsequent house purchases.

It's those endless capital gains that have got us into this mess in the first place.

I take housing ladder to mean an increase in your house's convenience and utility more than value.

You know, your first place is a run down 2 bed , your next is bigger with a garage, is closer to school/work etc etc.

Geektastic

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#2383740 1-Jan-2020 21:33

As I have said before, if you want to alter investor behaviour, NZ needs to start offering an alternative tax free investment vehicle.

Almost every comparable country offers some alternative (many offer more than one). As long as the only way to invest and pay little or no tax remains housing, people will channel money to housing.

And no, the answer is not "tax housing as well".

eracode

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#2384253 2-Jan-2020 15:45

quickymart: I suspect that eracode is a home owner who likes the high prices, which is great for him, but that does absolutely nothing for anyone who is trying to get into the market (or even just a foot on the property ladder) - especially someone looking to buy on their own. Do you think the current situation is totally fair for new home buyers? And sorry but sarcasm doesn't work for me.

@quickymart.

My wife and I bought our first home in 1978 when we were in our mid-20’s. The absolute numbers were certainly much smaller - but the ratios of price, deposit required, income, servicing etc, were quite similar to those in effect today. However a major difference was that interest rates then were 2 to 3 times today’s 4% levels. In that regard today’s first home buyers have an advantage.

I know sarcasm is the lowest form of wit - but I was sarcastic because it appears that Winston put out one of those populist opinions that sound great but are completely unrealistic and unachievable. And then people latch on to it which gives them some sort of hope - but which is unfortunately false and futile. It also makes him look good - even though he’s only flying a kite. It’s just politics - but it’s certainly not economics. As far as I know NZ First doesn’t have a policy that says “We will get home prices down to 2-3 times personal income” - because they know it can’t be done in the foreseeable future. It’s actually ridiculous - so I thought it was worthy of some sarcasm. Winston knows better than to put his money where his mouth is.

He might equally say something like “The maximum personal income tax rate should be no higher than 25% so that [whatever]“. Then people might latch on to that - and say “Hmm, he’s on to something there.” The above negative comments would equally apply to this - and any other populist but economically unrealistic and unachievable ideal. Our current government has plenty of those.

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eracode

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#2384268 2-Jan-2020 16:32

TwoSeven:

elpenguino:

eracode:

Yes - I agree and was conscious of the couples thing when I wrote that post - which is meant to be sarcastic. I did it based on couples on purpose because the max cost of a house for a single person, using Winston’s brilliant idea, would need to be around $100k to $150k - which is even more ridiculous.

Is it though?

Change the word house to home. Not hard to imagine building apartments or units for that ballpark figure is it?

The issue apartments are ok in dense cities with good public transport and ease of access to local shopping/dining facilities. But mostly I think are out of touch with peoples needs.

in christchurch you have to drive several kilometres just to get to the nearest supermarket. It would be pointless building lots of appartments that no-one can use.

I think you’re right but more important is the fact is that, no, apartments cannot be built for ballpark selling prices of $100-$150k.

Sometimes I just sit and think. Other times I just sit.

TwoSeven

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#2384302 2-Jan-2020 18:14

Well they can sans land. Thats what flatpack houses are.

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Handle9

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#2384303 2-Jan-2020 18:15

eracode:My wife and I bought our first home in 1978 when we were in our mid-20’s. The absolute numbers were certainly much smaller - but the ratios of price, deposit required, income, servicing etc, were quite similar to those in effect today. However a major difference was that interest rates then were 2 to 3 times today’s 4% levels. In that regard today’s first home buyers have an advantage.
.

What a load of nonsence. In the 1970s average income to price ratio was around 2-3. Saving a deposit was not just possible but reasonably straight forward. Yeah you had to go without a few luxuries but it was doable. You could also buy an entry level house in an area relatively close to work.

Today you are looking at 9 times average household income. Of course you had high interest rates but you also had significant wage inflation. Today you have eroding household income due to stagflation.

We bought out first house in the early 2000s. It cost $225k for a smallish 3 bedroom. Today that house is well over $800k. Incomes haven't kept pace with that in anyway, which makes saving the deposit less and less attainable.

No one said buying a house was easy in the 1970s but it was a realistic goal for an Auckland family on a modest income. Today it's almost a pipe dream.

Tabuti

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#2384352 2-Jan-2020 19:29

Hi Paul

Happy to have a chat, i'm a Financial Adviser and long term Geekzoner :)

15 years in the banks and self employed for the past 3

Send a private message if you want, lots of people will have opinions but would pay to have a qualified one.

Cheers

quickymart

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#2384359 2-Jan-2020 20:12

eracode:
TwoSeven:

elpenguino:

eracode:

Yes - I agree and was conscious of the couples thing when I wrote that post - which is meant to be sarcastic. I did it based on couples on purpose because the max cost of a house for a single person, using Winston’s brilliant idea, would need to be around $100k to $150k - which is even more ridiculous.

Is it though?

Change the word house to home. Not hard to imagine building apartments or units for that ballpark figure is it?

The issue apartments are ok in dense cities with good public transport and ease of access to local shopping/dining facilities. But mostly I think are out of touch with peoples needs.

in christchurch you have to drive several kilometres just to get to the nearest supermarket. It would be pointless building lots of appartments that no-one can use.

I think you’re right but more important is the fact is that, no, apartments cannot be built for ballpark selling prices of $100-$150k.

What would you consider a fair price then? $40000? 5? 6?

alasta

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#2384369 2-Jan-2020 20:51

quickymart:
What would you consider a fair price then? $40000? 5? 6?

Out of curiosity I just did some very rough calculations based on the following assumptions:

$80k average household income.
40% of income spent on rent.
2% capital gains.
$10k opex for the property.
7.5% ROI before tax.

The above assumptions would derive a property value of $400k.

If you can tell me which, if any, of my assumptions you disagree with then I'm happy to recalculate.

quickymart

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#2384474 3-Jan-2020 03:39

I don't disagree, just can't figure it out :(

rhy7s

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#2384480 3-Jan-2020 07:48

mudguard:
In NZ history has anyone earning minimum wage been able to afford a home? I agree the price to wages ratio is way out of whack, but owning a home is still tough work, so expecting to cater to a minimum wage earner may be tricky.

Around our way there are a fair few that paid their house off on a benefit, high interest rates really weren't so bad in absolute terms against lower prices and inflation adjustment increased earnings vs borrowings.

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