As mortgage rates rise again, the property ladder will be pulled yet further away from some aspiring owners, at least for now. The good news is that, for many, the cost of renting is substantially lower than the cost of purchase.
Average weekly rents in the Auckland region were $325 and $423 for two- and three-bedroom properties respectively in January, the latest research from property agent Crockers shows. That works out at $16,900 and just under $22,000 a year.
The median price of an Auckland home in January was $432,750, according to the Real Estate Institute of New Zealand. At that price, a purchaser needing a 90 per cent mortgage would require a loan of just under $389,500. At today's mortgage rates of around 10 per cent, the cost would be nearly $38,950 a year, leaving little change out of $750 a week. That is before any principal is repaid on the loan or the owner pays for insurance, renovation or maintenance.
Little wonder that home ownership in New Zealand is falling. At 66.9 per cent, the rate is the lowest since the 1950s, says a report by the Centre for Housing Research, a research organisation set up by Housing New Zealand.
Report author Professor Philip Morrison says a smaller proportion of people under 40 are buying and are taking longer to do so.
He says as a nation, we need to know more about the possible social and economic consequences of this trend.
Property ownership has delivered wealth virtually automatically to home owners in the 40-plus age groups. But will ownership matter to their children and does it even make as much economic sense as in the past, now that prices are faltering? If you can rent for half the cost of ownership, why bother tethering yourself to a mortgage?
Two immigrants from Britain, Paul and Stella Winstanley, asked themselves those questions when they began to live here intermittently a few years ago. The Winstanleys noted that they could rent well-maintained, high-quality properties and retain the freedom to move with their work - within the country and overseas - for much less than they would pay to own.
In their book Buying a Home Isn't Everything, the couple explored some of the disadvantages of ownership, including the possibility that New Zealanders were relying too heavily on property for long-term prosperity. At the time of writing (the book was published in 2006), 45 per cent of the value of New Zealanders' assets was in their homes and other properties.
"If residential properties were to experience a significant downturn or collapse, almost 43 per cent (ignoring the small percentage of commercial property) of all personal wealth in New Zealand would be adversely affected," says the book.
"If you knew a couple who told you that they had bought $350,000 worth of shares in one company [and this included all their savings of $35,000 plus $315,000 worth of borrowings], you would most likely think them unbelievably reckless."
The Winstanleys did not argue against home ownership as a permanent life choice, but suggested it might not be the only route to financial security. The key, though, was that money not put towards the cost of purchasing a home should be invested in other wealth-creating assets.
This presupposes that those shut out of the property market have money to spare after paying their rent. For some, even the cost of rent is a stretch now.
Among those who do have cash to spare, the slowdown in the property market that some commentators suggest is turning to a slump, is certainly reducing expectations of capital gains to subsidise the cost of expensive mortgages.
Gareth Kiernan, managing director of economic forecasting organisation Infometrics, agrees that those who are not in the market will not feel they are missing out at present.
He thinks it is unlikely that New Zealand will see a permanent shift away from home ownership, though renting could remain substantially cheaper than ownership for eight to 10 years.
Traditionally, property has been the first asset people aspired to but there may now be a change in attitudes. The increased availability of different investment options, including the changes to the taxation of managed funds, could encourage a broader view. KiwiSaver, with its government and employer incentives, and the potential for first-home assistance, is worth considering.
Building a business can be difficult, but if you succeed, the returns might outstrip what you could have earned from property.
Financial planner Lisa Dudson, director of financial consultancy Acumen, lives in a rented property and this suits her for a variety of reasons. But Dudson also owns property and is convinced that ownership will remain an important form of investment for many people.
Rents are probably going to go up in the next few years, she says, perhaps by 6 to 10 per cent a year. Ownership is a form of compulsory saving and only a minority of people are astute and organised enough to make money long-term by renting rather than owning.
"There is a big difference between what you can do and what you will do. Very few people make financial decisions completely on a technical, financial view. Just because people rent does not mean they will be better off long-term."
Professor Bob Hargreaves, director of the Massey University real estate analysis unit, believes it won't be long before every second home in Auckland is a rented dwelling unless there is a structural change to the market.
But home ownership has its attractions.
In research exercises regularly undertaken by his students, ownership comes out on top over the long term. "Over 10 years or more, it's usually a no-brainer; you are better to go for ownership rather than renting."
The break-even point is usually reached between three and five years. For less than three years - based on conservative estimates of capital growth - renting usually works out cheaper, partly because of the up-front transactions costs involved in purchase.
"Over a long time horizon, history shows us it's more sensible to own."
But there can be variations, depending on where you own, and some areas will offer better prospects for capital growth than others.
Hargreaves is generally optimistic about the property market because he is optimistic about prospects for the economy. But then, he adds, he is an optimist and "a property guy".
* Maria Scott is a Christchurch journalist who specialises in personal finance.
Rent per week:
Mortgage payment per week:
Weekly rent on average Auckland two- or three-bedroom home vs cost of a 90 per cent loan on an average Auckland home.