Calculator doesn't show the benefits

16:00, Dec 20 2013
Tiffany Foskett and Jamie Bell
MORE OPTIONS: Renters Tiffany Foskett and Jamie Bell say the extra $20,000 added to the house price cap ‘‘allows us more flexibility’’. They are pictured outside their rental home in Ngaio.

It's a debate that has been around for as long as we have had a property market - is it financially smarter to buy or to rent?

The Dominion Post has done its sums on the Wellington property market and come up with the answer - well, sort of.

In strictly financial terms, there's little doubt that renting is the best option. But, of course, it's not as simple as that, which is why people have been arguing about it for so long.

Wellington house
ON OFFER: This Upper Hutt home has an asking price of $329,000.

To work out relative costs in the region, we selected four houses in Wellington city, Lower Hutt, Upper Hutt and Porirua that were listed for sale on Trade Me last week, around the average prices for their area.

We then ran these through the Westpac bank mortgage calculator, assuming a 20 per cent deposit, annual joint income of just under $100,000 - the kind of salary a young professional couple might make - and a 30-year mortgage term. We also found out the rates bill for each property.

To work out the rent, we looked at weekly market rent figures from the Ministry of Business, Innovation and Employment for the relevant type of house in each suburb and multiplied that by 52 weeks. We did not include costs such as maintenance - likely to be about $2000 a year - or insurance.


Wellington home
FOR SALE: This Lower Hutt home has an asking price of $360,000.

On paper at least, renting came out best, which was no surprise to Shamubeel Eaqub, principal economist at the New Zealand Institute of Economic Research, who is known for his opposition to property as an investment.

"Purely on a financial basis, it doesn't make sense. You get a good sense of that if you look at rental yields, especially in Auckland," he says. "You're looking at average rental yields of 3 per cent, or in the city less than 3 per cent . . . you're reliant very significantly on capital gains."

Renters have more freedom to move around, and more disposable income for other investment opportunities, such as the sharemarket.

But he admits the question is not that simple, and our cultural attachment to property ownership plays a big part. "Ownership is seen as a very strong part of who we are as New Zealanders . . . you can't get away from these things very quickly."

Hutt City Professionals real estate owner John Ross says the theoretical couple buying the house we selected in Moera would reap the benefit of capital gain over time.

"After one year, and in this improving market, the owners' property has gone up in value by no less than 1 per cent."

Another non-financial reason for ownership was security of tenure - not being hostage to the whim of a landlord. "There is a cost to tenants every time their landlord decides to move them on."

Harcourts Wellington City managing director Marty Scott says the age-old property debate has little to do with rate of return.

"The financial reality for most people is that paying off a mortgage and building equity in their own home is probably the major plank in their financial planning platform," he adds.

The high-profile collapse of finance companies reinforced the need to keep investments under your own control, he says.

Upper Hutt agent, developer and property manager Malcolm Gillies says the benefits of home ownership do not show up on a calculator. "It gives you a reason to get up in the morning, it gives family stability, a reason to go to work, a feeling you are trying to achieve something."


Aspiring homeowner Jamie Bell is no stranger to weighing up the difference between owning and renting.

The Dominion Post last spoke to Bell in August, shortly before the Reserve Bank brought in loan-to-value restrictions.

He had just moved down from the overheated property market of Auckland to take up the job as head of the New Zealand Cricket Museum.

He and partner Tiffany Foskett had realistic ambitions: a two-bedroom house, happy to commute to the city, and with a decent deposit. They also hoped to use changes to the KiwiSaver scheme for first-home buyers, raising the eligibility cap on house prices, to help them into property. Unfortunately it hasn't worked out yet.

"We had a place we were quite interested in but, when we went to the bank, they weren't interested because I hadn't been in my job for a year," he says. "We're stuck until the middle of next year."

When they have run the numbers on renting versus buying, they've found it generally works out cheaper to pay a mortgage than a landlord."We're thinking a two-bedroom place or even a two-bedroom unit. Looking at the prices they are going for, comparing that to what we currently pay [in rent] . . . in Auckland the numbers were pretty similar, here in some cases you're looking at $75-$80 a week difference, which is quite massive."

Like the experts we spoke to, he thinks buying is something most New Zealanders look to do as soon as possible.

"People associate renting with flatting and having flatmates, they don't see it as a family option," he says. "We don't have a problem renting, but you start thinking about all the money going to somebody else."



2 bedroom

Asking price: $570,000 (Wellington average $529,000)

Mortgage cost over a year: $31,944

Rates: $2498

Market rental cost over a year: $26,936


3 bedroom

Asking price: $360,000 (Lower Hutt average $371,000)

Mortgage cost: $20,172

Rates: $2019

Market rental cost: $19,968


3 bedroom

Asking price: $329,000 (Upper Hutt average $335,000)

Mortgage cost: $18,432

Rates: $2231

Market rental cost: $18,304

The Dominion Post