OPINION: One of the sad, but predictable, aspects of any booming housing market is the tendency of many to look for someone to blame for rising house prices. During the last Auckland housing boom it was the turn of foreign investors to get the blame for these increases, but over the decades the finger has variously been pointed at baby boomers, immigration, "ghost homes", property investors and Aucklanders as the drivers of evil capital growth.
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This "blame and shame" culture is both childish and pointless – because not only do none of these things actually cause house price growth, but also it casts capital growth as a bad thing when it most definitely is not.
Inevitably, however, with the start of the next Auckland housing boom already underway – the prophets of doom are out and looking for their next scapegoat and the early indicators are that, this time (and in the absence of anyone else to blame) they have property investors in their sights again. Already we’re seeing headlines suggesting that first home buyers are being closed out of the market by investors who are not only pushing up house prices but also snapping up most of the available housing stock.
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As usual, the claims are nonsense, achieving little more than to pitch first home buyers and investors against each other in some sort of imagined class warfare that doesn’t actually exist. There’s no denying that it’s difficult for first home buyers to get into the market, right now – particularly in Auckland – but no more so than it has been for the past couple of decades. In fact, in many respects, it’s easier to buy a home now than it was in the 1980s due to the dramatic drop in mortgage interest rates.
First home buyers and investors aren’t in conflict with each other. Both groups play an important role in the market – with the latter providing housing to the section of the market which can’t, or doesn’t want to, own a home, and the former driving growth in our housing supply and underpinning the collective wealth of the next generation of Kiwis.
More to the point, they’re not necessarily mutually exclusive groups. Given the recent (and now temporary) changes to the Reserve Bank's loan-to-value-ratio restrictions there’s actually no reason why your first home couldn’t be an investment property. This is an idea which should be seriously considered, particularly by first home buyers in Auckland, who are struggling to buy a property within a limited budget and watching house prices getting even further out of reach.
That same deposit could potentially buy you something much more substantial in another part of New Zealand where house prices are lower and, if you do your research, you could buy a property which is positively geared – which simply means that the rent on the property covers all of its outgoings so that it doesn’t end up costing you anything to own it.
As with most things, there are advantages and disadvantages to this approach. On the plus side, in addition to getting more house for your money, buying an investment property means that you would get your foot onto the first rung of the property ladder. That first property would increase in value, over time, and you could use that increased equity to trade up to your own home – in the city in which you live - at some point in the future when you’re probably also earning more than you are now.
On the downside, not all banks will allow you to do this, you won’t be able to access kiwisaver grants for an investment property and there’s a (small) risk that your investment property won’t appreciate in value as quickly as an Auckland property would so, even with an increase in value, you won’t have enough to buy that coveted Auckland home at some time in the future.
If you can look past the emotional reasons for buying your first property and treat it as a step toward securing your future – this is an option worth investigating. My advice would be to have a chat to your mortgage broker and see whether it’s an option for you.
- Ashley Church is a property commentator for OneRoof.co.nz. Email him at [email protected]
