Will renting become the endgame for Kiwis?

COMMENT: Are millennials going to be renters for life? It's a question that political leaders are grappling with the world over. In New Zealand stats show that home-ownership is at historically low levels and surveys regularly highlight housing affordability as an issue that worries Kiwis.

In many major cities around the world, the balance is tipping away from home-ownership to renting. Some are seeing this as a positive.

A new piece published by the Washington Post highlights this change, reporting the shift in attitudes towards renting among not just millennials but baby boomers too.

The article, by Robert Pinnegar, CEO of the National Apartment Association, states that a growing percentage of Americans no longer view renting as a short-term phase but are "choosing rental housing specifically because it offers a more-flexible lifestyle than homeownership".

"Renting traditionally has been viewed as one rung on the housing ladder: First, you rent an apartment, then move on to purchase a starter home, which is followed by the family home, where most people spend the majority of their years. Renting has always been a step in the process and rarely the endgame," he writes.

"Based on the growing number of renters in major cities throughout the country, it’s clear that attitude is changing.

"This is especially true for baby boomers and millennials, two of the fastest-growing groups of renters. Whether just starting out in their career or settling into retirement, both generations are seeking a lifestyle that offers mobility, convenience and community."

The article quotes the head of a property management company as noting that there has been a shift in baby boomers "actually deciding to forgo a mortgage for rent in high-end, highly serviced" rental properties. "They’re not necessarily moving from the suburbs directly into downtown locations. More likely, they’re staying fairly close to home in communities they’ve known for decades and are opting for nearby town centre locations. Millennials, on the other hand, are enamoured by the eclectic, energetic urban environment and thus love living downtown close to art, culture and entertainment,” Stephanie L. Williams, president of Bozzuto Management Company, tells the Post.

It's an interesting phenomenon, but is it likely to happen in New Zealand, where pockets of the country are feeling pressure due to shortages in rental stock?

There are several noted Kiwi economists and property market commentators who have long argued that renting is better, and more cost-effective, than buying. (Typically, these proclamations have been accompanied by predictions of impending collapses in the property market and calls for punitive measures against property investors, and they are just as un-moored from reality as those who say millennials should simply give up takeaway coffee and smashed avocado on toast if they want to buy a house.)

Renting as a money saver is an interesting notion but one that usually overlooks the different dynamics at play in those countries where attitudes towards renting are positive. Those renting markets tend to be dominated by big enterprises who offer lengthy leases and renters there tend to be able invest their money elsewhere, whereas New Zealand doesn't have access to the deep capital markets that, say, Germany, France or the US have.

Home-ownership is also an intrinsic part of Kiwi culture. In parts of mainland Europe, where renting is the norm, home-ownership just isn't seen as a priority.

In his latest economic update, BNZ chief economist Tony Alexander touches upon the subject, and highlights a flaw in thinking of all those who have advocated renting as a way to save money.

"Cast your mind back to any time over the past three decades when analysts, journalists and economists have run the numbers and concluded that people would be better off renting than buying. Now think – for all those people who opted to forsake purchasing a home for their family and instead focussed only on short-term cash flows – how are they left now?" he writes.

"Rents are rising to reflect increasing costs and decreasing stock availability. Prices have already soared to reflect similar things.

"This exercise of comparing renting with buying can be useful for gauging some short-term pressures in the housing market. But that is completely different from young buyers using such comparisons as an actual guide as to what to do.

"Unless you are in a market of minimal population growth and/or easy supply growth it really doesn’t make much sense to pay strong attention to such cash-flow focussed exercises for family home purposes.

"Personally speaking I have never run such numbers when considering the house purchases which I have made because my focus has been on the end use to which I will put the property and the utility (enjoyment etc.) it will deliver me.

"Those who have done the exercise and bought into potential long-term wealth outcomes under assumptions of minimal house price growth have lost focus on the real target – providing a stable family home."

- Owen Vaughan is OneRoof Editor