Is housing really unaffordable?

There has been a lot of talk recently about how unaffordable housing is in New Zealand, and what the Government should do about it.

The reality is that it has always been a struggle to get a foot on the property ladder.  Even when my parents bought their first home back in the 1970s, it required serious saving and sacrifice to raise the deposit.

I have to agree with the statement below:

“It has always been hard to buy your first home.  What we really appear to have is a Housing Expectation Problem and a Housing Priority Dilemma.  We expect more house than we can afford and we prioritise other spending ahead of saving.” – Andrew King, President of the NZ Property Investors’ Federation.

It does seem that these days young people all have smart phones, tablet computers, MP3 players, and Playstations/Xboxes.  I suppose back in the “old” days these things were not around to distract from the goal of saving for your first home.

Today people come out of University with a Government student loan, and a tertiary overdraft or credit card from their bank.  Then once they start work, they go and take out a personal loan to buy a car for $10,000 or more.

No wonder it is hard to save for a first home when you’re starting from less than zero!

I believe it is still possible for you to buy your first home after seriously saving for at least 5 years.  There is no quick way to save a deposit.  It is, and always has been, a sacrifice.  The journey just makes you appreciate your first home even more when you get it.

The younger you are when you start saving, the easier it will be.  Create the habit early on and don’t waste money on things you don’t need.  It’s easier to save money when you live at home with your parents, or even while flatting.  Once you are caught in the trap of renting a whole house, it is much harder.

Don’t have children until you have bought your first house!  The extra expenses associated with having dependents won’t help you save your deposit, and will hinder your ability to make repayments on a home loan (banks take dependents into account when calculating serviceability).

Once you have a deposit (aim for at least 10% of the purchase price) approach your bank and arrange pre-approved finance.  That is the easy bit!

The hardest part is choosing that first house.  To set yourself up for the future, you should attempt to buy a standalone house (if you can afford it) in an outer suburb of a main city.  This is your first step on the ladder, so don’t saddle yourself with a huge debt to be in the “right area”.  You are not aiming for the area that your parents can afford.  You are just starting out.  This is a mistake that many first home buyers make.  Instead of buying in a cheaper area and starting to pay off a home, they continue renting because they “can’t afford” to buy a house in an expensive central city suburb.

It makes financial sense to stop renting as soon as you can.  Buy that first home, start paying for it, do it up, and then (if you must), you can upgrade.

The best time to buy a house was always yesterday!


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