Mary Holm: How affordable is house market?

Mary, I don't know what circles you move in, but the average New Zealanders I know don't have a lot of change left after paying rent, food, petrol and so on from the $500 per week they earn to be able to save the deposit to buy their own home.

And I am buggered if many would want a 50-year mortgage with zero per cent deposit.

The way the property market has increased over the last five years the only houses the average New Zealander could afford you wouldn't want to live in.

Let's not exaggerate. The average household income was $1260 a week last year and somewhat more this year.

Taxes would reduce that, but there are various Government programmes that lessen the impact of taxes considerably for many people.

Of course, half the people receive below average incomes. And those on $500 a week and the like must indeed find it hard to save. But when you turn up your nose at some houses, you lose my sympathy.

Why not settle for something humble to start out with? Many older houses lack modern features, but families in the past loved them, and modern families can too - if they want to.

I agree that a 50-year mortgage is a daunting prospect. And with such a long term, you pay heaps in interest. Example: on a $300,000 loan at 8 per cent your interest would total $923,000 - not far from $1 million - over 50 years.

Still, many people would find that after a while they could boost their monthly payments and repay the mortgage much faster.

It's a common misconception that most of the poor stay poor. The opposite is true.

Only a little more than half the New Zealanders in the 20 per cent with the lowest income in 1994 were still in that 20 per cent in 1997, Treasury research shows. And that's over just three years. Over longer periods a larger proportion would move from poor to better off.

In the US, "long-term poverty status appears to be the lot of only a tiny minority of the people counted as poor by the official US poverty metric", says American economist Nicholas Eberstadt.

Obvious examples of people whose incomes rise over the years are full-time students who graduate and get jobs. But the fortunes of many others also improve - the result of further education, better jobs, reduced spending on children, inheritances and so on.

If you're down financially now, chances are that won't last.

Another thing: Most people can make their income go further. Read on.

* * *

I read in the Herald on Sunday recently about middle New Zealand's struggle to pay bills. I have no sympathy. Here is my solution:

My car is a Pulsar hatchback which takes $40 of petrol every seven to 10 days. My wife and I have a cafe treat every so often. The combined bill is probably $30-$35. I drink instant coffee which costs probably 30c a cup.

I get books second hand at $10 to $12 a pop max. And I stock up. We belong to Movieshack and pay $40 a month for as many DVDs as we like. We bought our Sony TV and DVD at sale prices and paid them off without a lot of struggle. It saves the nonsense of parking and other costs of going to the movies.

Yes, we have trips out in the car and time out once a year. I'm building my own business now and if I need something done I'll get different quotes.

I never do hire purchase. A new mobile phone costs me $200-$300. I don't need a $1000 James Bond phone.

Translation - I don't need everything I see. My credit card debt is minimal and serviceable.

Sorry to be boring - but it's a lot easier this way. I'm sick of hearing about all those who need a sexy life and are not prepared to sacrifice for it.

If I wrote to the Herald with these views I reckon I'd get a call from some disgruntled "must have it all Kiwi" who thinks I've got no idea.

What about it, you non-savers? There will undoubtedly be items on this man's list that you couldn't live without. But there are sure to be other areas in which you can cut back.

For all our correspondent's frugality, he's nothing compared to the next reader.

* * *

Some time ago you reprinted a parable as if it proved something.

A good writer can prove or disprove anything. The fault with that parable is this: if the 10th man, the wealthy one, doesn't show up, he starves.

And it raises the issue, where does his wealth come from? It comes from the others. It is an interdependent world. The wealthy need the non-wealthy to do the work that brings them their wealth. The non-wealthy need the wealthy to provide the jobs, and to pay for infrastructure maybe.

Do I perceive that the loudest braying for tax cuts comes from those already paying 39 per cent, ie they already have the most, and yet they want still more? The word for that is greed. Taxes are the modest price we pay for civilisation. Evaders, avoiders and whingers can go to Madagascar.

Me? I spend about $1000 a year and consider myself wealthy, coz I don't care about money and don't want to buy the consumer junk that is everywhere.

Cheers from Mangakino!

For those who missed the parable, it's about 10 men who ate lunch together daily. The richest one paid the most, ranging down to the poorest four who paid nothing.

When the restaurant owner reduced their total bill by $20, they allocated the savings more or less proportionately to how much each one paid.

But once outside the restaurant, the men realised that the richest man got the biggest saving and the poorest four got none. So they beat up the rich man. The next day, he didn't show up for lunch. When it came time to pay the bill, they were $52 short.

The conclusion: "That is how the tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much and they just may not show up for lunch any more."

The fault you find, that the richest man will starve, doesn't follow from the story. He was paying $59 and then $52 for lunch. He could get it much cheaper elsewhere.

But that doesn't mean that you're not right when you say that we are all to some extent interdependent, that our civilisation relies on taxation, and that the rich are best able to pay the most. I, too, would like to send some tax dodgers to Madagascar.

The fact remains, though, that very wealthy people often leave high-tax countries, which then receive no revenue from them. Taxing the rich heavily may not be in the best interests of the poor.

I'm fascinated by your $1000 a year spending. Mangakino real estate is certainly cheap. I've found on the internet a two-bedroom cottage with garage and view listed for $85,000 and several other houses for less than $150,000.

Even so, how do you do it? I would be interested to see a rough budget.

* * *

In reply to the woman two weeks ago (can I call her Jane?) with the large term deposits, yes there are independent financial advisers who will review a portfolio for a fee or more usually an hourly rate. I am an investment adviser and I was asked to do just such a review last week.

But I doubt if any adviser could get enough clients who wanted a one-off "independent review" to make a living. Most would also either provide investment products or ongoing advice.

Next a few points: I doubt that Jane has $1 million with term deposits in a bank simply because the pressure from the bank's investment advisers to "be of help" would be immense.

Jane should be aware that wherever her money is, someone is benefiting handsomely (most bank staff are on commission). $1 million in term deposits would produce around $2500 in brokerage a year if it were invested in standard finance company term deposits. For some managed funds, listed bonds or higher risk term deposits the figure might be $10,000 to $15,000.

Given that most financial advisers charge $100 to $350 an hour, Jane should be able to arrange top quality advice for little charge.

One option would be an adviser who would provide recommendations, charge by the hour and rebate any commission or brokerage received.

The other option is to find an adviser who you really trust, work with them to determine what you want and let them manage your entire portfolio.

Sadly the only way I know of finding such advisers is by referral. You are of course welcome to contact Mary for my details if you wish.

If everyone else is getting commissions, do I charge a go-between fee? Just kidding.

Thanks for some inside info on commissions.

Not everyone would think $100 to $350 an hour is a "little charge". But knowledgeable and unbiased financial advice can be well worth that.