Rent or buy? That's the question. For so many of us, buying our own house still remains a dream, whereas some people are just happy renting.
The internet is filled with "Rent Vs Buy Calculators", almost none of them tailored for the New Zealand housing market. No worries, in this article, we'll discuss the current situation in the housing market here at home along with the pros and cons of buying vs renting.
Current state of play
According to Department of Building and Housing, as of March 2019, the national median house selling price has decreased to $585,000 whereas the median rent for a three-bedroom house remains the same as last year, which is $450/week. Also, the median rent in major cities is generally higher than $450/week.
Here are the median rents in major cities in New Zealand (May 2019):
|Location||Rent per week|
|Auckland 3-bedroom house||$650|
|Auckland 2-bedroom flat||$480|
|Wellington 3-bedroom house||$667|
|Wellington 2-bedroom flat||$455|
|Christchurch 3-bedroom house||$430|
|Christchurch 2-bedroom flat||$325|
Pros and Cons of Renting
The pros and cons of renting a house are as follows:
1. Can be cheaper in the short term
As of March 2019, it takes 27.5% of the average household's after tax income to pay the median rent in New Zealand, whereas it only takes 26.8% to pay the monthly mortgage payments. But since you don't have to pay a large sum of money as down payment for renting, you can save some coin in the short term.
2. Easier to change location
When your lease ends, you can either extend it or move elsewhere. You have the flexibility to choose the new location based on your lifestyle. This means you can move closer to your new work location or potentially live in an area where you can't afford to buy.
3. Owner takes care of maintenance
Given that you don't intentionally break things, the landlord is supposed to take care of the maintenance when you rent their property. So if the deck starts to rot or the ceiling gets mouldy during winter, it's your landlord's duty to fix it.
4. More money to invest elsewhere
The money you save by not paying a down payment for a new house can be used for other investments.
1. Rent usually increases over time
Most people who go for renting a house think about the short term. The reality is, rents will increase with time, often annually.
2. Inability to build an asset
When you live in someone else's house, you're paying for their asset - not yours. Two decades from now, you might end up wishing that you had your own place to call home.
3. Forget about renovation
You'll have to live with what's given to you, unless the landlord agrees to let you customise the house.
Pros and Cons of Buying
The pros and cons of buying a house are as follows:
1. It's a good investment
A house is one of best assets you'll ever have. Once you pay off the mortgage, it's yours forever. You can stay there as long as you want or maybe rent it out to a tenant and create a passive income.
2. No more landlord restrictions
No more house inspections or landlords asking you stupid questions like, "you're not poking holes in the wall, are you?" You are the landlord now.
3. Ability to renovate
Don't like the wall colour? You can change it. Want to install new carpets? Do it. Having your own house gives the flexibility to modify it as you wish - something you can't do when you rent.
4. The personal satisfaction of owning your own space
That's why having a house gives you a sense of pride and accomplishment and improves your self-esteem.
1. Long-term financial commitment
Buying a house requires a huge down payment followed by monthly home loan payments.
2. The owner is responsible for maintenance
Whether it's renovation or maintenance, it's a home owner's responsibility to take care of the house. It's not that things will break every day, but every once in a while, prepare to get your hands dirty to fix the leaking sink or a broken window.
3. You cannot change the location
If a grumpy neighbour moves next door or if the area in which you have a house loses its appeal for any reason, you won't be able to do much. Although it's unlikely, there are still chances that it could happen so closely study an area before buying a house.
Of course, while we can lay out some of the reasons why you should or shouldn't buy a home, we know that the main consideration often boils down to cost and affordability - which is where we can help.
If this is your first time going through the house-buying process or if you simply want some help and guidance regarding home loans, download our free Your Home, Your Mortgage guide now.