I’ve been on a bit of financial planning binge over the last several months. This was prompted by a bunch of books I’ve been reading including the books from the ‘Rich Dad, Poor Dad‘ series and a bunch of investment books (including shares, bonds and property).
Meanwhile there has been a house price spike in Auckland, New Zealand as can be seen from the tail end of the graph below (data from Barfoot & Thompson).
Interestingly, during this period, total returns are 21% or 4.2% per annum. Adjust that for inflation and you got a 1.8% return on your investment, hardly amazing. But that’s a subject for another post.
Average Selling Prices for Houses in Auckland sold by Barfoot & Thompson
Back in 2005 when we bought our current house (a 3 bedroom house on a small section on Auckland’s North Shore) we were able to get it with a mortgage of about 3.5 times our combined income. We then went overseas for a couple of years and came back ready to have our first child. Fortunately, my income had increased, so we could still afford our mortgage (3.7 times income).
These days, with two growing pre-schoolers, a wife who’s just finished studying and is returning to work our mortgage is a very healthy 2.3 times income.
Here’s the issue, like many of our peers (and generations before us) we’re now growing out of our 3 bedroom house on a cross leased section.
In previous generations they may have just added an extension (not possible with so little land) or simply moved to another house with only a marginal increase in their mortgage.
Even though our house price has to some extent kept up with house price increases, acquiring a four bedroom house on a full section in our neighbourhood would require us to increase our mortgage by 82%.
This would mean our mortgage was now 4.3 times earnings, without the likelihood of the dramatic salary increases possible in the earlier years of your career. [Note, this site suggests 2 - 2.5 times gross earnings].
This is actually the house we’ve most liked in our area. Well above the 4.3 ratio though!
So what am I saying?
There’s a lot written about housing affordability and the fact that people can’t afford a first home. I’m looking on one step further, even if you can afford a small first home, based on two incomes, what future can you look forward to when kids come along and you eventually need a bigger place?
The answer is pretty clear to me, either:
- A lot more middle class New Zealand families will be renting their homes in the future (maybe from overseas residents (again a topic for another post))
- A lot more middle class families will be forced to live outside Auckland
- There will be a major correction in house prices as people refuse to pay the unaffordable prices
- Many families will undertake a massive (possibly unsustainable) debt burden that will negatively influence their entire life.
The last point is the one I worry about. What does a society look like where families are toiling under the pressure of their massive mortgages? Unable to take holidays, struggling to put food on the table, unable to even think about supporting their community (either financially or in time)?
That’s why, I would encourage my peers and those just starting out their adult life to seriously think whether the traditional aspiration of house ownership is still relevant.
Loading tweets...
23 comments
Skip to comment form ↓
Jeremy
March 20, 2013 at 11:31 am (UTC 13) Link to this comment
I’m already consigned to this. There is no way that I’ll be able to afford to by a place any time in the foreseeable, and prices just keep going up.
Maybe if I move back to kaikohe, but then it’ll be a four hour commute to work. Each way.
Pete
April 15, 2013 at 2:14 pm (UTC 13) Link to this comment
Never say never…there are quite a few people who have been (wrongly) forecasting the bubble bursting for a long time now. It hasn’t happened, so you can’t live your life hoping it will, but never say never.
Rest assured, when you think it’s the worst time to buy a house, it will probably be the right time.
Plus, there are always other ways of getting financially ahead other than property…think direct investment in any other number of assets (shares, private equity etc).
Życzenia Bożonarodzeniowe
December 13, 2013 at 5:41 am (UTC 13) Link to this comment
This post presents clear idea designed for the new viewers
of blogging, that really how to do blogging
and site-building.
Rosalina
December 15, 2013 at 6:44 am (UTC 13) Link to this comment
This piece of writing is actually a pleasant
one it assists new the web visitors, who are wishing
in favor of blogging.
Index
January 25, 2014 at 4:40 pm (UTC 13) Link to this comment
I do not know whether it’s just me or if everyone else encountering problems with your
blog. It lopoks like some of the written text withinn your content
are running off the screen. Cann someone else please
comment and let me know if this is happening to them
as well? This may be a issue with my web browser because I’ve had this happen previously.
Appreciate it
smokeless nicotine free cigarettes smokers
February 4, 2014 at 3:51 pm (UTC 13) Link to this comment
wonderful points altogether, you simply received a emblem new reader.
What might you recommend about your post that you simply made some days ago?
Any sure?
payday loasn bad credit
February 27, 2014 at 5:07 am (UTC 13) Link to this comment
At this moment I am ready to do my breakfast, after having my breakfast coming over
again to read further news.
My web site payday loasn bad credit
reverse phone lookup
March 3, 2014 at 4:48 pm (UTC 13) Link to this comment
The SEO Elite software can create a comprehensive site map for
you without much stress. Look, this is going to make life easier on your behalf and your website visitors.
It is a process by which optimizes a website with a number
of key words to improve ranking in search engines.
ocena 360
March 8, 2014 at 10:56 am (UTC 13) Link to this comment
I know this if off topic but I’m looking into starting my own weblog
and was curious what all is needed to get set up?
I’m assuming having a blog like yours would cost a pretty penny?
I’m not very web smart so I’m not 100% certain. Any suggestions or advice would
be greatly appreciated. Kudos
web hosting companies list in jaipur
March 19, 2014 at 2:51 pm (UTC 13) Link to this comment
I love what you guys are up too. This sort of clever work and exposure!
Keep up the great works guys I’ve you guys to blogroll.
how to play keyboard free
March 22, 2014 at 12:03 am (UTC 13) Link to this comment
Hey I am so excited I found your website, I really found
you by mistake, while I was researching on Digg for something else, Regardless I
am here now and would just like to say kudos for a incredible post and a all round
interesting blog (I also love the theme/design), I don’t have time to browse it all at the moment but I have bookmarked it and also added in your RSS feeds, so when I have
time I will be back to read more, Please do keep up the superb work.
your love never fails it never runs out on me
March 28, 2014 at 7:01 pm (UTC 13) Link to this comment
First of all I want to say fantastic blog!
I had a quick question which I’d like to ask if you do not mind.
I was curious to know how you center yourself and clear your mind before writing.
I’ve had a hard time clearing my mind in getting my thoughts out there.
I truly do take pleasure in writing but it just seems like the first 10 to 15 minutes are
generally lost just trying to figure out how to begin. Any ideas or tips?
Thanks!
Grosfillex Restaruant Furniture New Orleans
April 8, 2014 at 12:11 am (UTC 13) Link to this comment
Replacing wood garden furniture due to a few scratches is wasteful.
Buying wicker plastic furniture will also ensure that you
don’t have to change it out for cosmetic reasons as
wicker looks as good today as it will 20 or 50 years from now.
Furniture is of many types, but most common are the
wooden and plastic furniture.
spectacle
April 19, 2014 at 9:05 am (UTC 13) Link to this comment
Hurrah! After all I got a webpage from where I be able to truly obtain valuable facts concerning my study and knowledge.
Youtube.com
April 22, 2014 at 1:11 pm (UTC 13) Link to this comment
Τhis process basically requires having skilled people
and the best technology put to proper use. What is a low-cost, high return
on investment for your SEO budget. The bots often spider web (the most widelү used of these).
Check out my ԝeb blog buy vpѕ For Seo, Youtube.com,
Best captcha solving service
April 22, 2014 at 8:58 pm (UTC 13) Link to this comment
Aոd then tɦere are those times when writing takes a lot more effort.
What is a low-cost, high return on investment fօr your SEO budցеt.
A website which is on the first page of a leading search engine is
preferred and normally judged abovе the others.
Ӊere iѕ my weblog: Best captcha solving service
theplacestation.org.uk
April 30, 2014 at 9:07 pm (UTC 13) Link to this comment
Way cool! Some very valid points! I appreciate you penning this article plus the
rest of the site is really good.
www.revleft.com
May 3, 2014 at 8:01 pm (UTC 13) Link to this comment
I’m not sure exactly why but this site is loading injcredibly slow for me.
Is anyone else having thus issue or is it a issue oon myy
end? I’ll check back later on and see if the problem still
exists.
My blog post: omega juicer frozen banana (http://www.revleft.com)
customer feedback iso 9001
May 7, 2014 at 7:05 am (UTC 13) Link to this comment
hey there and thank you for your information – I have definitely picked up something new from right here.
I did however expertise several technical points using this site, since I experienced
to reload the web site a lot of times previous to I could get it to load correctly.
I had been wondering if your web hosting is OK?
Not that I am complaining, but sluggish loading instances times will often affect your
placement in google and can damage your high quality score if ads and marketing with
Adwords. Well I am adding this RSS to my e-mail and can look out for much more of your respective interesting content.
Make sure you update this again very soon.
Grosfillex Wholesale
May 17, 2014 at 2:09 pm (UTC 13) Link to this comment
Royal Blue Stripe grosfillex bahia stacking deck chair finish.
Sometrimes you have this new Transitional that’s gooing on.
Sold in grosfillex bahia stacking deck chair package quantity of 10, priced each.
You ought too also fluff your cushions too assist kdep them in great form.
As with the tabletops manby different themews aree offered for customersThe company offers a range
oof utilities for restaurants. Identify more on ouur partner paper
Navigate to this webpage: Sanders Jacobsen Metal Awnings
An Economical Solution To Cool Your Home about.
Feel free tto surf to my page … Grosfillex Wholesale
best anti wrinkle creams
June 17, 2014 at 7:56 am (UTC 13) Link to this comment
I savor, result in I discovered just what I used to be
taking a look for. You’ve ended my 4 day lengthy hunt!
God Bless you man. Have a nice day. Bye
Feel free to visit my blog post; best anti wrinkle creams
Grosfillex Resin Chairs Miami Lowback
July 6, 2014 at 4:48 pm (UTC 13) Link to this comment
Help your pergola grosfillex bahia deck chair cushion so that it provides.
If you are using our outdoor grosfillex bahia deck chair cushion stuff, them
really is not necessarily the case. Outdoor furniture
cushions don’t acquire bird droppings, yet warm, sunny days.
penile enhancer
July 9, 2014 at 10:49 am (UTC 13) Link to this comment
Howdy! I could have sworn I’ve visited your blog before but after looking at a few of the articles I realized it’s new to me.
Anyhow, I’m certainly pleased I came across it and I’ll be book-marking it
and checking back regularly!