Dr Susan Flint-Hartle: Homeownership dreams need to get with the times

It will take 10 years for many young people to save the deposit for a property. Photo / Glenn Jeffrey

Despite the growing gulf between household income and the cost of entry into the residential property market, New Zealanders refuse to give up dreams of home ownership. But in our biggest urban areas it is becoming impossible for many - is it time to reframe our expectations?

We surely need to redefine our perceptions of home ownership as a birthright, and to remain open to different market entry strategies. The New Zealand mindset is founded on the back of multi-generational expectations of home ownership. But ownership is not a right. It requires a planned approach that may include deferring some personal, short-term lifestyle expectations.

Potential homebuyers also need higher levels of financial understanding - from a broader view of the ways in which property can increase personal wealth, to the differences between the fundamental value of a property and its market value.

The widely reported and sometimes excessive market values being forced out of certain 'hotspot' markets have skewed the national median house value. These increases have led the Stern Business School's 2014 Housing Affordability Study to describe New Zealand as "severely unaffordable".

Yet the issue is complex and focusing on market sales levels is not always helpful for aspiring first homebuyers. New Zealand has changed dramatically in the last 20 years and so must our approach to property as an asset.

As a co-author of a new report released by the Westpac-Massey University Fin-Ed Centre today, it is clear to me that home ownership is the top priority for most people - hardly surprising when you consider how tied up it is with concepts of independence and status.

For the report we surveyed nearly 800 18- to 45-year-olds to gather their perceptions of the rent/buy decision and the corresponding advantages and disadvantages

Most respondents listed the ability to take part in capital growth and stability of accommodation as important advantages of homeownership. But home ownership is not without its problems. There are building insurance and maintenance costs and the necessity, especially for first homebuyers, to hold large mortgages.

Renting, on the other hand, allows many to live in their area of choice and provides the ability to move easily if required. Long term though, renters fail to grow equity in the way owners do and may be seriously disadvantaged at retirement.

The buying experience is another area of concern. I've watched from the sidelines as people I know have tried to enter the market. The frustration of being buyers in the Auckland market is heartbreaking.

Real estate marketing methods and the inability of salespeople to advise values with any degree of accuracy is worrying. The expense of employing expert advice in relation to legal, building and lending issues adds to the expense of buying.

Under such conditions sale prices are being forced higher and higher - as are the stress levels of would-be buyers. Negotiating the auction process in places like Auckland, in the face of extreme, competitive demand, and where 2014 capital values still bear no relation to sale value, is bewildering for most first homebuyers.

The difficulty people have in saving enough deposit to buy a home, especially since the introduction of loan-to-value restrictions, is revealed clearly in the Fin-Ed Centre report. For a portion of respondents who are saving from income this can take up to 10 years. Just under one-third of first homebuyers get family help, but this is not possible for many.

What most young couples fail to consider is purchasing an investment property before purchasing a home. This pathway offers a possible solution as buyers can purchase a rental property at the cheaper end of the market.

This strategy takes a long-term perspective and requires deferring lifestyle choices. But it allows young people to become property owners and benefit from the tax advantages associated with an investment property, as well as capital and equity growth. A desirable social benefit is the provision of accommodation for that section of the population who will remain lifetime renters.

Dr Susan Flint-Hartle is a property researcher with Massey University's School of Economics & Finance. She is currently surveying property investors - go to http://bit.ly/property-investment-survey.

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