Is it better to rent or buy in New Zealand?
Ah yes, the age-old rivalry. Is it better to buy and pay for your own home or spend a life of paying another’s bills but reaping the more intangible benefits this bestows? The answer is surprisingly complex. Even the financial aspect of it is not as clear-cut as you might expect. However, when you throw in personal preferences, lifestyles, and expectations into the mix, it starts to get really interesting. At the end of the day, it is a conundrum only you can solve. We are here to arm you with the needed knowledge to do that. Is it better to rent or buy in New Zealand? Let’s find out, shall we?
Ah, if only life were like a game of Monopoly, then it would be obvious what you should do!
The Economics of it All
Whether we want to admit it or not, this is what comes to mind first – the financial side of the equation. So, is renting cheaper than paying off a mortgage? Well, it tends to depend on where you live. Furthermore, we cannot view these costs as being permanently fixed. Interest rates are relatively low but are expected to rise. This will increase mortgage payments. Let’s complicate things a bit. If you have a fixed-rate mortgage, this will not affect you. But then again, interest rates do not affect rent either. Renting is more stable but is vulnerable to an increase once the lease is up. Still, for argument’s sake, let’s say it is cheaper to rent in your area. You start thinking about all the money you are giving to someone else, and it may feel like it is being wasted. After all, many people invest in real estate for a variety of reasons.
Going One Step Further and Looking Beyond the Obvious
Sticking to the financial viewpoint, when you are paying off a mortgage, you are also investing in a home of your own. Furthermore, there are ways to cut the cost of your mortgage if you are smart about it and have the possibilities. Yes, the interest being paid to the bank is ‘dead money’, but the rest is coming back to you. In a sense, a parallel could be drawn between it and a savings account. Let’s say house prices do not continue to increase and, at the end of a thirty-year period, you have a lump sum equal to the value of your newly paid-off home. This seems like great news for somebody who struggles to save money – a sort of forced savings plan.
Seems like renters get the short end of the stick here, but do they? Here it gets interesting. Renters will usually have better cash flow, right? They are not pumping money into an asset that is not generating any kind of income. If the renter is savvy about it, they may open a savings account and put a little bit away each month for a rainy day. Maybe they will invest the money, buy some shares, diversify their portfolio. Maybe, at the end of the ballad, they will not have a house but more money in the bank than the house. There’s something to ponder over.
It Doesn’t Stop There
It’s starting to look a little murky, and we haven’t even finished with the first point. Money tends to be interesting; there’s always more to say about that particular topic. Let’s take a look at several more factors that should be considered when asking yourself if it is better to rent or buy in New Zealand:
- Houses aren’t cheap – Because the most expensive step to buying a home is, well, buying it, people overlook the expenses to come. But my oh my, can they add up. When you are renting, that broken stove and cracked window are the owner’s problem. When you are the owner, that leaky roof is your problem. Putting nerves and time to one side, these repairs are costly. By the by, home insurance is a thing too.
- Down payment – When buying a home, a 20% deposit will be expected by most lenders. This is quite a hefty sum. Not only do you have to accrue this amount, but some more economically minded among you could also be thinking about alternative investments that could be made with such a sizeable amount.
- Landlords – The savior and bane of many a renter. See, long-term leases are not so common here (Europe, for example, does this much better), and rent prices seem to rise when it’s time to sign again. Furthermore, if the landlord decides to sell or ‘kindly asks you to leave’ once the contract ends, moving and looking for a new place is costly, especially if it means paying more for the new home.
Making a financially sound decision consists of putting all the right pieces in the right places.
There Must be Other Factors that Determine if it is Better to Rent or Buy in New Zealand
Indeed, there are. As if calculating house prices, interest rates, income, insurance, and maintenance wasn’t enough, there are other factors to consider. The main one is stability vs. flexibility. You cannot have both. Buying seems like the obvious solution for those looking to start a family, not planning on moving anytime soon, and people with a clear long-term plan. Still, many people are marrying and having children at a later time. We live in an age where, when you hear the words’ digital nomad’, you understand what it means and entails. For those who do not want to be tied down, who change jobs and cities frequently, renting offers them the kind of freedom they crave.
It doesn’t end there, though. Renting offers the possibility to live with others. If they are close friends, this can be amazing. If they are strangers there to help cover the costs, this can be – risky. The landlord will be called to fix any problems – what a relief. The landlord decides when he will do it – what a hassle. Renting has yearly rental increases and inspections. Buying has 30+ financial obligations. A problem in New Zealand currently are tenant rights, or rather, a lack thereof. Changes are being made, such as the Residential Tenancies Amendment Act 2020, but it is slow. Psychologically speaking, buying a house feels like you are moving forward in life. Someone advocating renting as the better deal will state renting doesn’t tie you down. Is your head beginning to spin? Good, I was worried I was the only one feeling dizzy.
Is it better to rent or buy in New Zealand? If you see your new roommate hauling in his drum kit into the adjacent room, the answer could be pretty straightforward!
Let the Current Take Your Current Worries Away
I hope I haven’t formed a whirlpool of contradicting thoughts in your head. It’s just a matter of calmly considering all the variables. If you are planning on moving to New Zealand, use the transit time to ask yourself what makes more sense for you. Still, before you do that, there is another small matter you need to take care of – getting your belongings to your new accommodation. Moving in the same area code can be tricky; shipping goods overseas from one part of the world to another can be extremely difficult. Just like choosing between renting and buying, you need to think about the best option for you. Who you should hire and what mode of transportation to pick. Carefully organize the overseas transport of your belongings to New Zealand, and they should all make it one piece.
At The End of the Day, It Depends on You
Here we are, at the end of the article. So, is it better to rent or buy in New Zealand? The best piece of advice I can give is, paradoxically, for you to not listen to someone else’s advice. What I mean by this is, people will say you’re throwing money away by paying rent, while others will claim you are losing your freedom by buying a house. Good intentions are there, but they see things from their perspective. You now know what factors to take into consideration. Wants and needs always differ. Make sure to fulfill your own while thinking about what makes sense long-term, not just short-term. Told you the answer is surprisingly complex!
By Mary Aspen Richardson