Owning a home doesn't have to mean owning a patch of land.

We lament how hard it has become for people to get on the housing ladder, especially in Auckland. But why?

Is it the ladder to financial security or to years and years of debt servitude?

Infometrics economist Gareth Kiernan, in a paper on Auckland's housing market problems, argues that there is more to them than a cyclical issue of the tension between a surge in net immigration and a sluggish supply-side response from the building industry.

There are underlying structural issues, evident in the financial premium people put on home ownership as opposed to renting and the ingrained assumption that owning your own home means owning land.


Between 1993 and 2003 there was little difference (nationwide) between the interest costs of servicing an 80 per cent mortgage on the median-priced house on the one hand, and the average weekly rent on the other.

But on average over the past 10 years - Kiernan takes the average to smooth through fluctuations in interest rates - the premium on ownership has been $11,300 a year or $217 a week.

That is a stiff price to pay for the difference between renting the roof over your head and renting the money required to buy it.

It is a big enough number to be carrying some information, but what?

Part of it is a deeply embedded cultural preference for owning a patch of land, even if it is a fraction of a hectare in suburbia.

Perhaps it comes from settlers (as we used to call immigrants) with generations of tenant farmers as ancestors.

But this is the 21st century and we need to face up to the fact that a scarcity of land, within a tolerable commuting distance, means the traditional model of suburban housing is simply unaffordable for many Aucklanders.

"By clinging to the dream that we should all be able to own our little piece of New Zealand, we are constraining our own housing options and effectively pricing a significant proportion of society out of the housing market," Kiernan says.


"The reality is that, in larger urban areas overseas, having your own private yard is simply not viable for most of the population." In Auckland the median house price now equates to more than 11 years of the average personal income. In effect, two incomes are required and there is a social cost to that.

"A 20 per cent drop in Auckland house prices over the four years to 2020, which would be more extreme than any forecaster's central projection, would mean that the average house price would still be equal to 8.3 years of personal income. That ratio is higher than Auckland's post-1992 average of 7.5 years." Auckland's housing issues are more than cyclical, Kiernan concludes, and will not be resolved simply by an increased residential build rate.

And when you factor interest rates into the affordability equation, even at the low mortgage rates prevailing these days, the cost of servicing a mortgage (the interest on 80 per cent of the median house price) would gobble up 70 per cent of the average weekly wage in the city.

That is almost as high a proportion as we briefly saw on the eve of the last recession, when the official cash rate was a full five percentage points higher than it is now. As relentless inflation in land prices drives Auckland's house price inflation, the conclusion is that we need to abandon the assumption that owning your own home necessarily means owning a few hundred square metres of land. Or as the slogan has it, density is destiny.

A second reason there might be such a high financial premium on owning, as against renting, is that you are not comparing like with like in terms of the quality of the housing involved.

The properties available for rent do not represent a clean slice though the strata of the housing stock as a whole. The timidity of the moves recently announced to regulate the quality of rental housing tells us that politicians still see rental properties more as a landlord's investment than as a family's home.

And it is, of course, shameful that in some areas the Government itself seems to have become a slumlord, providing lethally poor-quality accommodation.

Shamubeel and Serena Eaqub, in their book Generation Rent, have a lot of useful things to say about how to make renting a more attractive option for people. It should be something people can reasonably choose to do, rather than settle for.

It should be possible to strike the balance between tenants' rights and responsibilities at a higher and more civilised level.

A third reason for the premium on ownership over renting relates to the attractions of real property, including owner-occupied housing, as an investment. But buying a house, and labouring for years to pay it off, is not the only way of accumulating equity.

Relying on house price inflation and leverage is a rational but economically rather sterile way of accumulating some wealth for your old age.

People more productive and richer than we are - the Germans and Swiss - don't have the same hang-up about home ownership that we do. And those two things may be connected. They invest in other things.

"Being tenants in our own country" is a phrase that pushes a lot of buttons.

But on the face of it, it is odd that there is so much moral panic about foreign buying of Auckland property or farmland when people happily rely, and heavily, on borrowing foreigners' savings. Some 35 per cent ($115 billion) of New Zealand banks' lending is funded by non-residents.

Owners have rights, of course. But so do creditors. Just ask a Greek.