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MoneyMarch 22, 2017

Show me the money: Four home owners open their bank statements


It’s Rent Week here on The Spinoff, so why are we writing about house buyers? Because the booming housing market is a key driver behind the current surge in renting – and because stories like these demonstrate the enormous challenges faced by those attempting to make the leap from renter to home owner. We talk to four buyers about how they did it.

Forget sex and periods. Boring old personal finance is still one of the biggest social taboos, even between close friends and family. Few people know exactly what their mates earn, or how they afford their lifestyle, and there wouldn’t be much consumer stress about keeping up with the Joneses if you knew for sure the Joneses were actually swimming in debt. We could even solve the gender pay gap if everyone was open about their money. Only those bastards in HR know for sure.

New Zealand has a housing problem; prices are way too steep compared to incomes, and Kiwis are taking on a much bigger and more precarious burden of debt than those in other countries. If you want to save for a house deposit, of course it’s a valuable exercise to spreadsheet every transaction to see if you’re spending your money where you want to spend it. But because of this taboo around finances, if you’re trying to buy a place and watching others scramble ahead, it’s frustrating to compare your income and outgoings with theirs to ascertain if you’re the problem – as people like Tony Alexander and various older commentators like to say – or if it’s housing legislation, the local market, and bank policy mostly holding you back. It’s only been recently that anyone can see what someone has paid for a place, let alone how they got it.

Buying a house is getting to be a privilege of a few, and media stories of the lucky ones don’t help without the how. So The Spinoff has talked to four people who not just told us that they did it, but also shown us their money.

“I bought just five years ago but I couldn’t afford it today”

I bought in November 2012 when I was 36 – a 1960s two-bedroom concrete block in West Auckland. The CV was $250,000 and I got it for $300,000. I was earning about $75,000 then.

I was approved by ANZ (via Squirrel who are great at telling you when you’re being realistic or not) with a 5% deposit – all KiwiSaver and the KiwiSaver HomeStart grant of $5,000. I was approved to buy up to a value of $450k, but I wanted something I could service without flatmates – which was smart because I’ve learned since that my friends who are getting into the property market are happy to live in West Auckland, but my renting friends still want to live in the CBD or central suburbs. I’ve seen others have this discovery after buying something with their budget requiring flatmates, and it’s been difficult for them.

Thanks to Kiwisaver, I had a $30k deposit, so 10%. But I was approved for a deposit of $15k, and used bridging finance from auction day until settlement. About 18 months ago, the unit at the other end of my block of three sold for $465,000. I think if I sold now I’d get $500,000, and my current CV is $350,000. If I was buying now for $500k, requiring a LVR deposit of 20%, that’d be $100k and loan repayments I couldn’t afford.”

“It WAS easier for families in the 80s”

In 1979 in Wellington our house cost $19,000 and we were both in our early 20s working in public service jobs on $5000 and $6000 each. We sold that house for about the same price, and in 1980 bought our two-bedroom 1940 bungalow in a regional area for $21,500. We had an $8000 deposit, so about 37%.

We paid criminally high interest rates but were on one income – my husband was earning about $12,000. It was a table mortgage, one of those things that you never really paid off, it was all interest. But the house price was only double one income – not 12 times one income.

We scrimped and saved of course, like everyone does when they have a mortgage, but I was able to stay home with the three children and only work the odd part-time job for extra money. We didn’t have all the different options to spend money that people do these days, but my husband’s average salary was enough. Now I worry about what my children will do for housing. Prices are way out of reach and I can’t see how a healthy community can be sustained if no-one owns their own homes and people are forced to constantly move around.

“I do everything Tony Alexander tells me to – and yet.”

I bought my first house in 2006 for $153,000. I was working in Wellington at the time; the house was in Featherston – Wairarapa’s most downtrodden wee town, an hour’s commute north of Wellington by either train or car. I’m 43, about to turn 44 – ‘Generation X’.

The house was a tiny two-bedroom native timber cottage, under 80m2, on a 500m2 section. Really well-built and solid, but needing a lot of renovation, insulation, etc. I bought on the Welcome Home government-guaranteed no deposit – the upper limit for that policy at that time was $150,000 (it was lifted to a lot more shortly after), and my dad put in the $3,000 difference.

The KiwiSaver HomeStart grant wasn’t there then, or the ability to withdraw from Kiwisaver – none of that had happened yet. There was only the government guarantee on no-deposit. So by the time I sold eight years later in 2014 for $180,000, it had appreciated enough so that I’d kind of made up the missing deposit – it felt as if I had, although in those eight years I’d also spent about $20k on repairs and garden.

I was a senior public servant, then I went to work for an NGO, so my income has varied but has been about $70k on average. A good enough income for someone with no dependents and no debts (except mortgage) – it was a long dull slog, but I paid everything except the mortgage off. I’m on my own, so I’m not sharing expenses either.

I sold and moved north again – a bit over an hour north of Masterton now, out in the hills east of Woodville. It’s a three hour commute to Wellington, so it’s no longer possible to work full time there any more. Palmerston North’s in a reasonable commuting distance (40 mins).

The land I bought in mid 2014 was $140,000 for nearly 9 acres, with a little bit of bush and a stream, but with no house. It has a little cabin on the property, that has power and internet to it now – I had them installed.

The challenge now is to try to put a house on. I only want something very small. With good income and no debt, I expected to have no trouble with this. It’s been three years, looking at different options. I allowed for a project cost of about $120,000 (60m2 at average construction cost of $2k/m2) – it also allowed for the fact that I only have 20 years (and counting) to pay the mortgage off.

I am about to order a log house kitset from Finland. It’s the only affordable option I can find, that I actually want to build – that’s not an ugly little cardboard box, and justifies taking on the extra $120,000+ debt. Bringing it in from Finland is difficult, but better quality and cheaper than any of the equivalent NZ options. We will put it together ourselves (my dad’s practical, my uncle’s a qualified builder), saving on building costs.

The living area of this tiny little house is about 30m2 (interior) – there’s some outdoor living space as well – about 50m2 altogether. Realistically, it will probably cost about $150k to finish it off, with onsite wastewater services &c.

I am only able to do this because my parents – who are not wealthy – have cleared out their tiny amount of retirement savings to help get it over the line. They own one house – the one that they live in – in a regional North Island town. They have managed to get this freehold before they retire. There’s nothing else. And I don’t want this responsibility of taking their savings, but there’s no other way to get it across the line. It is that, or keep living in the shed.

I read Tony Alexander’s thing (like everyone else) and he just has no idea. I mean, I made the choice – to trade a town house for land that I can do something with, and solitude. I have no regrets at all about the choice.

I’m following Tony’s sage advice. I live really simply. I drive a 10 year old car, try to grow my own food… I’m living in cabin, while trying to “spend the next few years” building just a very little humble home (with just the one toilet), WAY out of town to a distance that is impractical for almost anyone and certainly antisocial, on the kind of bankrupt clay lot that he mentions. I haven’t travelled. I paid off a (small) student loan (with interest in the late 90s). I don’t have the cost of kids, I don’t have a TV – of any kind, let alone a flat screen one. It is a humble, rundown little piece of land that I bought, in the back of beyond. I have worked and worked and worked, and I’m still working, and I am exhausted. I have had a small amount of government help, and the security of being able to earn well. I have a head start on anyone trying to start out now.

And yet. Still, it isn’t enough. It is just a battle, to get anywhere, all the time – and basically, by yourself, you can’t.

“I went through this panic buying in 2001”

We bought our house in the regions after the last price jump in 2007. I didn’t have a fulltime job – I was studying – so I wasn’t in a position to get a loan, but my wife was working with a salary of about $60,000. I had nothing because I’d spent everything on my tuition – my parents had also paid for two years of fees and I had a student allowance of $74 a week because my parents didn’t earn much.

I finished studying in 2001 and in 2002 my wife and I looked at house prices and they were around $150,000 for a starter home. But then they jumped to $350,000 in some cases so we decided to go overseas for three years. You couldn’t get into an open home, much like what’s happening now. There was that huge spike and there was panic buying.

After returning from overseas my wife and I bought our 1960s three-bedroom plus sleepout property in Nelson for $277,000. We had a $50,000 deposit, which was what we’d gone overseas with – we’d travelled a lot. My parents gave us $50,000 which was my inheritance, so our mortgage was only $177,000. The interest rate on the mortgage was 8%. My wife was on $62,000 in her new job and I was studying, and then a year later I started working, on $68,000. We had two good incomes going, no kids, and we were able to blitz the mortgage, but we did go without a lot to do that. In 2009 we had a child and went down to one income, but the mortgage was about $80,000.

It took us five years to pay off the mortgage. Even though we had higher interest rates than today, the deposit was what helped the most with paying it off, and we were lucky with the lower prices compared to our income.

We had started young, and were also lucky my parents had given me my inheritance early. We didn’t need that money – we had 25% in savings and could have done it without it – and that seems to be the difference today. In some areas the prices are so high you absolutely need parental input or it doesn’t happen. Now, if I was going to do the same thing, I couldn’t buy a place on my own, even in a regional area.

Today I drive around the subdivisions and see the massive excess in single-family home building. Other people are going towards tiny homes and I think that’s a great idea. But I looked at buying a section recently and the cheapest in my area was $110,000 – but I had to put a $400,000 house on it due to covenants. I wanted a small, recycled house, but I couldn’t use recycled materials and it had to be a certain floor area. The snobbery in some of those newer areas isn’t helping anyone, nor helping the housing problem we have in this country. Who is going to be able to afford some of these homes in the future? It’s going to be wealthy immigrants.

This post is part of Rent Week, our week-long series about why the experience of renting a home in NZ is so terrible, and whether anything can be done to fix it. Read the entire series here.

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