Opinion & Analysis
OPINION: I have come across an interesting split in the attitudes of those in the housing market centred around whether one should rent or buy.
People often ask me this question but giving an answer is not easy because for someone like me, renting was never an option for anything other than the period it took me to raise a deposit.
My preference has always been for my own patch of dirt no matter how small (it turned out to be 4 hectares), for raising a family, stability of occupancy, and allowing the choice between repairs, maintenance and development using tradespeople or my own limited skills.
So, for me, ownership is optimal because it suits my living desires. For others, the situation will be different. They may face uncertainty regarding how long their job continues in their current location so renting may be optimal in order to avoid real estate fees and housing search costs.
For some people it comes down to a simple matter of current cost. They do a comparison of rent versus ownership costs including insurance, rates, debt servicing and find the equation favours one or the other often depending upon the location.
One of the factors taken into account and that I find accounts for some of the strong split in conclusion is expectations for what prices will do.
Some people are scared by what they see overseas and expect there will be global recession and a decent fall in New Zealand house prices. Others, however, focus on the sort of things I have been pointing out here for the past few years and conclude that prices can only go up.
Here are the things that I feel will tend to push house prices up and that limited price declines during the global financial crisis, with prices almost back to their late 2007 levels come late 2009.
Through the biggest global financial shock since the Great Depression, our prices fell only 11 per cent.
Prices have not collapsed following rule changes affecting investors such as LAQCs and depreciation.
Prices have been rising in Auckland recently in spite of net negative migration flows.
Construction last year was at a four-decade low and this has crimped supply.
Supply was slightly below requirements going into the 2008 recession.
The ratio of sales to listings is climbing strongly as buyers find stock unavailable and vendors continue to feel no great pressure to sell.
Construction costs keep rising and no strong measures have been taken to boost land supply for residential development.
Such development is constrained by a shortage of finance now that finance companies are either absent or a lot more cautious.
A shortage of builders will further boost construction costs next year when the Christchurch rebuild is humming and Auckland engages in a period of catchup construction.
There are other factors. But what they add up to is an imbalance between demand and supply at current prices - but mainly just for Auckland.
In much of the rest of the country, prices remain flat. This is because whereas the housing boom of the 1990s was led by Auckland, in the 2000s it was led by the regions.
Will the deteriorating situation overseas impact on the housing market here in New Zealand? Yes it will. However, with a likely rise in the number of migrants coming here to escape anticipated years of woe in Europe and Britain, there will be an offsetting migration flow.
This leaves me still content to conclude that generally prices will rise and that were I contemplating the rent or buy decision, my inclination would be to buy unless I anticipated shifting soon or would have to take on major financial risk to raise a deposit.
Tony Alexander is the BNZ chief economist
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