Is it really cheaper to buy on the city fringe and commute?

This article is about one of those issues which only affects those of us who are foolish enough to live in one of the bigger cities in New Zealand – so if you live in Napier, Timaru, New Plymouth, Palmerston North, Nelson or one of a dozen other idyllic towns throughout our great nation you can stop reading now, secure in the knowledge that your wise lifestyle choice has elevated you above such nonsense.

For the rest of us, particularly those living in Auckland, Wellington and Christchurch, I want to talk about the economics of buying a house on the fringes of the city v buying a place which is more central. It’s an increasingly common consideration for two buyer groups in particular: those seeking to balance “lifestyle” with the benefits of living in a large city, and those who believe that the cost of commuting is more than offset by lower housing costs because, in theory, houses of equivalent amenity value tend to be cheaper as you get further away from the CBD. Put another way, a well-appointed, modern, three-bedroom home in a location like Rolleston, Papakura or the Kapiti Coast should generally be cheaper than the equivalent home closer to the city centre.

To be fair, for some of this latter group, it isn’t really a choice. For these people their circumstances are such that they can either buy on the fringes in order to get into the market, or forgo buying a house altogether.

But assuming you do have a choice, let’s look at the economics of the two options. The traditional wisdom suggests that the savings to be made in buying a house on the city fringe more than offset any additional costs associated with commuting. But is this true?

For the purpose of this exercise let’s say we have homebuyer couples in Auckland, Wellington and Christchurch – all of whom work in their respective CBDs and that each has chosen to purchase houses on the fringes of their cities – Papakura, Rolleston and the Kapiti Coast.

The Papakura homebuyer will pay around $3,000 per year, on the cheapest fare option, to travel into the CBD by public transport – or between *$8,100 and $10,000 per year to maintain, and travel to work in, a smallish car. The Rolleston homebuyer will pay around $1,850 per year to travel by public transport – or between *$6,700 and $8,000 per year to do the trip by small car. And the Kapiti Coast homebuyer will pay around $3,350 per year to travel by public transport – or between *$13,000 and $15,000 to do the trip by car.

So how much more house could that transport spend have bought them? In the case of the Kapiti buyer, and assuming that they travelled by the most expensive means, their $15,000 travel spend could have allowed them to borrow an additional $220,000 at 4.5 per cent, over 24 years, but would this be enough to get them close to the CBD? Yes it would! The median house price for a 3 bedroom home on the Kapiti Coast is $525,000 whereas the equivalent home in, say, Johnsonville, would be $670,000, so that $220,000 would more than bridge the gap making it well worth a reconsideration of the “commuting” option.

Sadly, the news isn’t so good in Auckland. The median three-bedroom house price in Papakura is $585,000 vs $1,020,000 for the equivalent home in, say, Ellerslie, so the extra $150,000 their transport spending would buy them would hardly make a dent in the difference. In Christchurch, the median price of a three-bedroom home in Rolleston is actually higher than the price of an equivalent home in, say, Riccarton at $500,000 vs $480,000, so, in that city, the extra commute might be a smart lifestyle option, but it isn’t necessarily a smart economic one.

Of course, these are extremes, and not everyone travels these distances or works in the CBD. To do the calculation for yourself, work out what it costs you to travel between your home and place of work by calculating the distance at 54c per km (if you drive) or the actual cost of your public transport. Convert this to a monthly figure and plug it into the mortgage calculator on the website of any of the major banks. You may be surprised at the result.

- Ashley Church is the former CEO of the Property Institute of New Zealand and is now a property commentator for Oneroof.co.nz. Email him at ashley@nzemail.com

* Broadly based on figures obtained from the AA website which estimate the cost of owning, insuring, maintaining, registering, parking and fuelling a small vehicle