Thinking about housing

BY BRUCE SHEPPARD

Basic human needs: food, clothing, shelter - housing is the shelter.

However rather than thinking of housing as the satisfaction of a human need, we now think of housing as a mixture of an investment, a status symbol, an adornment, almost everything except what it is actually,  being the satisfaction of a human need.

For your very first house purchase remember the lessons you learned when you bought your first and subsequent consumer durables, remember the things you considered when you bought a washing machine, functionality, price reliability etc.

Housing has become a competition, let us see who can have the biggest house, cause if you have the biggest house you are the biggest man. Interestingly Hotchin is short. Why do we think like that? Here is a quick straw pole for you to run in your work place, ask the women, “when choosing a man, what do you pick big heart, big house or big …?”
 
Well in most groups when I run this politically incorrect survey the house wins by a country mile. So it is the woman’s fault, they want the man that can provide the best for them and his kids. Now don’t be surprised by this, as the role of woman since time began is to replace themselves, and in doing so they want to pick a mate that can produce more mammoths and a safer bigger cave because then the chances of the kids surviving well is enhanced. It is again the powerful force of survival of the fittest, human nature at its essence.

Has the lot of women got better over the last century do you think? Woman can now do anything? What does this mean, it means woman can and do, do everything. Now who is the smarter of the species do you think? Woman or man?

If woman can do everything it means men don’t have to do anything. But despite woman now being enlightened, what has happened over the last 50 years?

Woman work, they clean ever bigger houses, and they still have to nurture and bring up kids, they are now doing everything they did before and much of the historic male work as well, and males are doing less.

Most families are now two income families and have to be just to survive, and this is not to do with the price of food or clothing which is less than it was 100 years ago, it is to do with household wants and a big part of those wants is housing.

Houses have got bigger, with more adornments, they have become less practical, and way more expensive, and this is mostly driven by our soft emotions around housing, mostly driven by the mating ritual and women. So despite all the crap nothing has changed since time began.

So back to buying the first house, the number one point in selection, don’t start playing the big dick game, remain practical in assessing your real human needs. You can and probably will play the game when you get older but if you can avoid this silly game for your entire life you will be much happier. 

Here is a thought to humiliate the big house owners, the bigger the house the bigger the personal insecurities. Bugger my house is quite big I should stop now! But at least I can say that Hotchin is the most insecure individual in all of NZ judging by his house size. Poor sad sod. Let’s send him a sympathy card.

The next big pressure in housing and this is pervasive in NZ thinking is that housing is an investment. So when buying a house instead of thinking about how we are going to live in it we think about how we can add value to it and what might be attractive to the next owner.

Tell me what have I missed, it is you and your family who will live in the house, your thinking should be around how you will do that and what is important to you, not some other git you are yet to find. If you are adding to the house, what should be the driving force of that, not value improvement but what works for you and your family.

There is also a presumption that housing unlike other consumer durables holds its value and in fact rises continually fuelling the expectation that housing is an investment. Now this has been true over the long haul but there have been long periods in human history where it has not been true, but the world is changing and quickly.

The baby boomer phenomena which will break like a wave on the beach in the next 15 years is a first in human history. Also a first for human history is for the last 50 years western society has not produced enough children to replace themselves. Rising housing values are predicated on rising populations.

Think also of the structural distortions around the nature of housing, do big houses suit old people, what do young people want to live in, will there be more family homes on the market than families to occupy them in the future, and as life does tend to go on, and this is largely fuelled by immigration, what types of housing do immigrants want.

These are big and worrying questions around the quality of housing as an investment, but when buying your first home if you focus on your families needs you don’t even have to think about these matters. You do however have to think about house purchasing the same away you thought as a teenage when you bought a second hand car, you do have to buy well as that is the moment of value in housing, not the point of sale.

So re cap the things not to think about when looking at your FIRST house.

Don’t skite, don’t over commit, you already have found a spouse you don’t need to pretend that you’re better endowed than you are by buying a bigger house. The Jones' that you might be thinking about trying to keep up with, don’t give a toss about you, and why do you care what they think about you anyway?

Don’t think about resale; don’t think about it as an investment.

Things to think about:

What are my needs, and is it cheap and can I afford it?

Shall I now assume that you have got your thinking about what you are buying and why right?

Now buy or rent?

Unless you can pay cash for your first home, which most can not, it is really a cash flow issue, rent or mortgage payments, but not quite.

Pluses of renting

Your weekly commitments are fixed but may go up over time. If you sign a fixed term tenancy you are locked in for up to 12 months, but you also have a locked in cost over that time.

Anything that breaks in the house is your short term problem but it is someone else’s cost to fix including the aggravation of organising the repair.

If you change jobs or your circumstances change, if you have an at will tenancy you can up sticks and move on three weeks notice with no ongoing commitments.

Minuses of renting

Rent is dead money, but so too is interest so don’t get hung up on that. If you are undisciplined after a life time of renting you will have nothing to show for it, the owner who pays off his mortgage over 30 years will own a house, whatever it may be worth. If you have learned the lessons from the previous blogs you will not be undisciplined, but most are.

You can’t alter a rental property and really make it home.

You will have a landlord that might restrict you on what you can do in the house, for example no pets. And worse you might have a snoop landlord with hidden cameras.

You can be evicted on as little as 42 days notice, so you can’t really make long term commitments to a community. This said as rental stock increases, which it is, there are more houses available in your chosen location.

Moving costs, and quite a lot, so if you rent from a landlord who is likely to either evict you or sell up you need to factor into your costs the cost of moving and the aggravation.

The pluses of owning

So long as you don’t default on the mortgage payments, you have greater security of tenure.

You can do what you want with the property, you can make it your home.

If you have a mortgage that is affordable and it includes the paying down of principal it is a forced savings regime and each dollar you pay off your mortgage gives you a completely risk free and tax paid return of the interest rate you would otherwise have paid on the debt. You will struggle to find a better return anywhere than the 6 or more  percent tax paid you make on paying off a  home mortgage.

The negatives of owning

If you need to move you need to sell, the transaction costs of selling are high and in a flat market you may well end up selling for less than you bought it for if you do not stay in a home for a long time. So buying is a substantial financial burden and a restriction. If you are not settled in your work, and you think you might have to sell soon, don’t buy.

If anything goes wrong it is your problem you have to pay to fix it. When you own, your costs are not fixed.

Some things that can go wrong are big, eg leaky building stuff. Just as you would not buy some cars because you know they are likely to be dogs sadly some houses are also likely to be dogs, so avoid buying them, unless the price is so cheap that you have enough left over to turn a skoda into a commodore.

If you are borrowing to buy a home which most are, you will have fundamental uncertainly over the long term on your monthly costs they can vary enormously over the economic cycle.

In the words of my wife there is no such thing as an asset, everything you own is an obligation and if you have debt as well that is a double obligation.

You are now ready to go house and mortgage shopping, next blog, issues to consider when selecting a first house, and a mortgage, and by no means complete.