Cheaper to rent than buy: Economist

Friday 20 July 2012

New Zealand Institute of Economic Research economist Shamubeel Eaqub says his friends don't listen to him when he tells them not to buy houses.

By Susan Edmunds

The 31-year-old told the Herald on Sunday that he had never wanted to buy his own house and was happy to rent.

"Houses are very expensive compared to renting."

He said in the areas he wanted to live, it was much cheaper to rent a $1 million house than to service a mortgage on one.

He said he and his wife invested the money they saved by renting so that they could provide for their retirement.

"New Zealanders' obsession with property is madness."

But David Kneebone, executive director at the Commission for Financial Literacy and Retirement Income, said for the majority of New Zealanders who were not as financially savvy as Eaqub, not owning a house at retirement age could leave them vulnerable.

"If you're paying rent in retirement, and are reliant just on New Zealand super, your standard of living is going to be considerably different to if you were living in a mortgage-free home."

He said a freehold home at retirement age was an important goal for most New Zealanders.

Kneebone gave the example of a property that would rent for $800 a fortnight, with a mortgage of $1500.

"The challenge is, can you save the $700 difference and invest it?"

People saving and renting would need to be sure they would never dip into the pot, Kneebone said.

He said it was hard to predict what would happen in the real estate market. It was possible that in a few years rents would have increased markedly, while a mortgage payment taken out in 2012 might not.

He said homeowners also had an asset that could appreciate in value more than other assets and having the mortgage payment to meet reined in the part of human nature that liked to satisfy short-term needs.

"The mortgage payment is good for us, it happens automatically, reducing debt. Can you maintain the discipline over a lifetime of being a renter to build up that sum? If you can, go for it."

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