You mention in a response to a reader's letter last week that it is more difficult to buy a house now than in her day. I'm not so sure.
When I bought my first house in Auckland in the early 80s, it cost about six times an average graduate's starting salary. Today, that same house would cost about 18 times, so three times as expensive relatively.
But that is somewhat overstated, since income tax rates were much higher then than now, and the area, which at that time was considered cheap, is now more sought after, and so not a fair comparison in terms of value.
Regardless of that, my first mortgage interest rate was around 18 per cent, and you could only borrow a portion of the property's value (maybe 60 per cent) at that rate. The rest was either on second mortgage or credit cards, at over 20 per cent. So let's say three to four times current interest rates.
And to be even considered for a mortgage, you had to have a long savings history with your bank, or an influential employer or parents. Interest-only loans were unheard of, and typical repayment terms were 25-30 years. This is a contrast to today's readily available cheap loans.
I agree that a deposit is now relatively harder to save, and exacerbated by low interest rates. But with that exception, I believe that it is financially easier for a couple to buy a house now than 30 years ago.
My observation is that there has been a definite shift in priorities for young people in terms of how they spend their money and what compromises they are prepared to make in order to buy a property.
I'm not judging that, but you can't have it all. And with gross rental yields commonly at 2 to 3 per cent in Auckland, maybe the benefits of owning a property are less in any case.
A: It's not easy for the layperson to weigh up higher house prices versus higher mortgage rates. So I went to an expert, Dr Susan Flint-Hartle, who puts together Massey University's housing affordability index.
Her data, as shown in the table, tells us that between 1989 -- the oldest data she has -- and now, New Zealand house prices have risen more than fourfold, and in Auckland it's more than fivefold. Meanwhile, pay has not much more than doubled.
In 1989, people paid nearly four times their annual before-tax pay for a house in most of New Zealand, and a bit more than five times in Auckland.
These days, it's eight times in the rest of New Zealand, and nearly 13 times in Auckland -- and that seems to get worse with each passing month. Average pay is a little higher in Auckland, but still ...
The numbers for Auckland, then, more or less confirm your threefold increase.
On the other hand -- as you also observe -- mortgage interest is about a third of what it was back then. That makes a huge difference to mortgage payments and the total cost of a house.
So how much would monthly payments be, relative to the average wage, if you made a 20 per cent deposit on an average house and took out a 30-year mortgage?
In New Zealand, in 1989 the payments took up 46 per cent of before-tax pay. Now it's 43 per cent.
In Auckland, in 1989 the payments took up 65 per cent of before-tax pay. Now it's 70 per cent.
Note that in many cases a couple buys a house, so the percentage of a couple's total pay would usually be considerably lower.
By that measure, then, things haven't changed a lot. It's become a bit easier to make mortgage payments outside Auckland, but somewhat harder in Auckland.
Mind you, Flint-Hartle points out that earlier in the 1980s, mortgage interest rates were even higher. But then they decreased in the 90s, so you would have found things easier then.
On balance, and until and if I can source older data, I'd say it is harder now to afford a home in Auckland than it was, but that it's never been easy. I can remember mortgage rates over 20 per cent.
Who knows what will happen to interest rates these days, but it feels more likely that they will rise than fall over the next few decades.
Another factor, as you mention, is the ease of getting a mortgage -- and the fact that non-bank second mortgages were at even higher interest rates in the 80s.
"In the 1980s, because mortgage rates were higher and wages lower -- NZ was in an economic slowdown until 1990 -- banks were wary of lending and required mortgage payments to be under 33 per cent of income, if I recall," says Flint-Hartle.
"Demand hadn't really kicked in -- fewer homes were being built but the levels of demand were nowhere near what they are now. New Zealand was relatively isolated, it was NZ for New Zealanders and so competition in the market was gentle. Sale methods were gentle."
By contrast, "Auckland prices have shot away from the rest of the country since 2012 -- now 59 per cent less affordable; competition to buy is fierce given Auckland is now an international city, and the NZ economy is attracting increasing overseas investment."
She adds that there have been "huge population increases from both internal and external sources. Access to government assistance is now targeted and out of reach of most first home buyers -- for example, everyone used to be able to capitalise family benefit -- does KiwiSaver compensate? You'll know that."
I don't really. KiwiSaver and other government assistance is certainly helping many families into their first homes. But the $550,000 house price cap in Auckland for the Home Start Grant -- which you get through KiwiSaver -- is a problem.
Continues Flint-Hartle, "Twenty per cent loan-to-value ratios mean $170,000 deposits. The 1991 RMA has restricted greenfield development and introduced a layer of inefficiency -- arguable -- in the guise of local authority control on development and costs. The demographics of Auckland have radically changed -- more ethnicities, smaller family groups -- and this has increased demand exponentially."
It's exhausting even reading the list. And the conclusion has to be that many factors affect house affordability.
"To add my weight to your reader's social comment," says Flint-Hartle, "I think we have got used to living in bigger houses with all the bells and whistles, and first-home buyers in 2016 may not be as realistic or willing to settle for a basic standard of housing as first-home buyers in the 80s were. On balance, and until and if I can source older data, I'd say it is harder now to afford a home in Auckland than it was, but that it's never been easy. I can remember mortgage rates over 20 per cent. But the input variables have changed now and it's hard to compare apples with pears."
I would add that the rate of home ownership is declining in New Zealand, from nearly three-quarters of households in 1991 to less than two-thirds now. I suspect the proportion of people who prefer to rent long-term has risen. But still, the trend tends to confirm that it's harder to get into the housing market these days.
Disclosure: I'm a money coach. I work with people to help them overcome the behaviours that sabotage their financial well-being.
In answer to your question about whether spending is addictive: yes, it can be, for some people.
It's a lot like emotional overeating -- people feel bad because of their weight -- debt -- so to stop feeling bad, they eat -- or spend. Which helps temporarily, but leaves them feeling worse about themselves almost immediately after.
And they know they're being illogical. Their behaviour is emotionally driven, not rationally driven. Asking for help usually leads to them being questioned about what's wrong with them -- more shame. Which doesn't help.
I appreciate your asking to hear from someone caught up in this situation, rather than someone who is passing judgment on them. What is needed is compassion and understanding of backgrounds and beliefs that often include a lot of deprivation.
I'll be interested to see if anyone who considers their own spending to be problematic answers your question. One of the signs of addictive behaviour is avoidance and denial. My prediction would be that the very people you want to talk to are the least likely to read your excellent column.
A: Thanks for writing. As one who would much rather be at the beach than in a mall, I can't imagine being addicted to spending. You've helped me and others to better understand it. Your point about deprivation in a person's past is particularly interesting.
Despite your prediction, a few brave big spenders have fronted up, one in the next Q&A and others in next week's column.
Keeping up with Joneses
I read in your latest column about the woman who was in a lot of debt, and you asked, is spending addictive? I feel like it absolutely is.
I've always been the type to spend every penny I earn, and then some. I like things that are much nicer than I can realistically afford, and buying them gives me such a rush. I almost get into a trance, shopping without even thinking, until my card declines, pretty much. I've managed to dig out of most of the debt by cutting off my access to it, but saving is still very hard for me.
In contrast, my brother has always been very sensible with money -- we have been this way since back when we were getting $2 a week pocket money.
Spending in order to keep up with the people around you is a very difficult behaviour to un-learn. I'll be interested to see what other people say about this.
A: Good on you for writing, and for cutting off your access to debt.
The differences between siblings -- on spending or any other habits -- can be fascinating.
If you find yourself spending to keep up with others, would it help to discuss it with them? They may feel under the same pressure -- spending to keep up with you! Maybe a group of friends could all agree to spend less. After all, what is friendship all about? Or is that dreaming?
Dual life policies
Just wanting to quickly ask: is having two life insurance policies with two different providers illegal?
I have one each for ASB and Westpac, and someone told me that my family may not be able to claim as this is not allowed. I didn't know about this when I joined both.
Appreciate your answer.
A: As is often the case, the "someone" who told you is wrong.
"Yes, you can hold multiple life insurance policies with different providers," says Therese Singleton, AMP's general manager insurance and investments.
"There may be benefits in doing so depending on the terms of cover or pricing structure of different policies, some of which may change as you get older or through policy enhancements made by a particular provider."
Having two policies would help you keep track of the changes and enhancements, to see who's offering a better deal.
Singleton adds, "As a holder of multiple policies, you or your family would be entitled to claim on more than one policy if a need arises."