Renting for life: how bad would it be?

After recent conversations with friends who are flathunting (renting) and househunting (buying), I’ve been giving serious thought to a scary and depressing scenario: renting for life in Auckland.

Let me cut you off right here: I don’t want to hear your comments about the pros of renting for life, unless you live in Auckland. I have been a renter since age 17. I know all about the pros, and for me, in the Auckland context, they don’t outweigh the cons, especially because we want to have a family. I am not interested in uninformed opinions from people who don’t have any clue what it’s like to rent, buy, live in Auckland. Okay, onwards…

This post over at The Conversation tackles the state of the property market in Australia, but it could just as well have been written about New Zealand.

“Renters are the losers in the property game. Not only do they struggle with high rents but tenant protection in Australia is among the weakest in the developed world. This is not coincidental: Australia’s 1.8 million and counting property investors support and are supported by tenancy legislation heavily weighted in favour of landlords. This produces a fundamental lack of security in rental housing.”

(I note that the UK is looking at introducing tenancy reforms, recognising that members of ‘Generation Rent’ need more rights. Good for them. We could use some of our own, since “compared with many countries, New Zealand and Australia are some of the most restrictive rental jurisdictions”.)

That piece at the Conversation argues that factors like tax laws and rapid appreciation create “effectively an infinite demand for property in Australia”, which I think is also applicable to us; NZ is right behind Australia in terms of ratio of housing stock to GDP.

A Forbes post recently did the rounds warning of a housing bubble here in NZ, and much as I would like to hope that Jesse Colombo is right (being an aspiring homeowner myself and all), I am more inclined to agree with local writers Brian Fallow and Bernard Hickey’s assessment of the situation. They both lay out some high-level reasons as to why they think a huge crash is unlikely, and while I’m not going to pretend I know anything about the Reserve Bank or exchange rates, here’s my plebeian take: here in Auckland we continue to have a shortage of housing; land is limited; and there are obviously still people with the means to pay current prices – and potentially higher.

The NZ Initiative isn’t afraid to tell it like it is:

“New Zealanders face a shortage of dwellings of just about every description, while paying far more for those we do have New Zealand houses are not only expensive compared to income but their prices too have been rising. New Zealand’s house prices have increased by a staggering amount over the past 30 years, aided by a mixture of policies and social and cultural changes that have forced up the price of building or buying a house.”

Let’s break that down:

“Someone in an inner suburb of Auckland who bought a home for, say, $70,000 in 1975, lived in it for 37 years, and did little but basic maintenance on it might find the house worth $1.5 million plus today. Someone in, say, Torbay on Auckland’s North Shore, who built a ‘standard house’ (land and section) in 1969 for $16,000 and did basic maintenance would find the property worth about $1 million today. The malign effects of the MUL [Metropolitan Urban Limit] that planners produced – believing that constraining the boundaries of urbanisation would work to the advantage of ordinary people, save transport costs, and restrain unnecessary local authority outlays – are absolutely
clear. The MUL has benefitted mostly older people who hath, and hurt younger people who hath not. The MUL favours the old and the rich and it punishes the
younger and the poorer.”

Ain’t that the truth. According to a Salvation Army report:

Housing has become more and more expensive for first-time home buyers and home-ownership rates have fallen. This fall has been aided by tax policies that favour existing property owners, and easily available debt that allows those who already own property to buy up lower-valued houses as rental investments. To some extent, this rental investment has been propped up by Government housing subsidies to low-income households that have now grown to $1.8 billion annually.

We, therefore, have the worst of all worlds when it comes to housing. Housing is too expensive for up to a quarter of all households to afford without Government assistance. Much of the housing is poorly-built and now needs further public subsidies to repair.

Worst case scenario: we are permanently priced out and left with no choice but to rent for life. What would this realistically mean for us?

No dogs in our future. It is damn near impossible to rent with pets – maybe cats, definitely not dogs. That said, based on my observations, I am not surprised that many landlords don’t want to rent to dog owners. Compared to the US where even apartments allow dogs, I found the dog culture over there a pleasant surprise – overall I felt most pet dogs were well trained, well behaved, quiet and clean, moreso than my experience of dogs here. I suppose a lot of that comes from having more of an indoor pet culture rather than an outdoor pet culture, as a result of density.

Spending a fortune on heating and dehumidifying. Aside from the top-priced tier of the market, the quality of housing here is generally quite ridiculous. It’s no good having a mild climate if you don’t actually insulate your buildings – might as well sleep under a bridge. Thanks landlords who don’t care about providing healthy accommodation and updating old houses! Longtime readers will recall my stories of mould in bedrooms, in wardrobes (trying to clean spores off your favourite dress blows), being able to see our breath in front of us while INDOORS and mushrooms growing through carpet.

Poor quality housing has been identified as a public health issue of major concern in New Zealand, with evidence that dampness and “thermal inefficiency” (which I’m pretty sure is a bullshit way of saying FREEZING COLD) are more prominent in rentals. Unsurprisingly, these things are associated with higher rates of respiratory conditions, among other icky problems. I don’t think it’s a coincidence that I have gotten sicker more frequently and to worse degrees since I moved out of home. I started having trouble breathing a few winters back. And I know many immigrants who developed asthma for the first time after moving to New Zealand.

Most likely bouncing around and around. Literally almost everyone I can think of who has rented a family sized house for any significant period of time (think your typical 3-bedroom) has been forced out at some point due to the landlord selling. Or, in a few cases, the landlord moving in a family member (in which case the notice period is only 42 days instead of 90 – this seems to happen suspiciously frequently, actually). Of the two larger houses I’ve rented, both were put on the market the year after we moved out. Cash in those capital gains, quick!

This is mildly annoying at best. At worst, if you’re settled with kids in school, I imagine it’s a freaking nightmare. We don’t exactly have an oversupply of rental housing, let alone quality affordable rental housing, and add in our lack of density and it can be a tough call to find a comparable nearby place in a pinch.

Renting is still cheaper, though the gap seems to be narrowing. I was surprised to plug in some numbers and find out that the mortgage on a $500k house would only be $550 a week; rent for a 3 bedroom house would start at about $400 for a crap place and run up into, oh, the 600s for somewhere nicer. (I’m not even talking central Auckland here, obviously, where a starter house is $1 million.)

While mortgage payments may fluctuate with interest rates, rent always goes up eventually over time. Here, rent can be increased as often every 6 months – granted, it usually isn’t raised that frequently, thankfully. And yes, there are additional expenses that come with being a homeowner, but at least they’re going into an asset. The problem of course is that coming up with a six figure down payment is a hell of a lot easier said than done, even if repayments are manageable. Thus, my fading dream of buying a humble house, insulating it, and living happily after with kids and dog. Who even knows how we’d house ourselves in retirement? The Productivity Commission itself states that people in New Zealand who enter retirement while renting may face financial hardship.

Stuff reader Susan Wells is apparently living my future fear:

We continue to rent a tiny 105sqm, three-bedroom, leaking, crooked, mouldy, old house, that barely fits our family of five.

Do we upsize our rental so we are not falling over each other and pay out to a landlord more of what we could save as deposit, or sit tight for three to four years to save that money to reach our dream of getting a small lottery-sized deposit together?

Commentators report that it is better to be renting now than buy, but what happens when we retire in 23 years at 65, and if still renting, will this be affordable on superannuation income?

Could we afford to pay a landlord rent out of our Super or Kiwisaver until our 90s if we live that long? Will we be constantly on the move when rental properties are sold, and have no solid foundation steady home dwelling in which to welcome grandchildren and our children to?

But even if leaving Auckland were feasible work-wise, I simply wouldn’t want to. T threw out the idea of re-enlisting and moving to an army base – and that’s when I realised what I am NOT willing to sacrifice for cheap housing. I would not want to move to the middle of nowhere away from friends and family and my job. Financially I can see that it might make our lives a lot easier – lower expenses, and I could do some freelancing – but I know I would be miserable in all other aspects.

The Salvation Army recommends creating an affordable housing agency with meaningful and long-term budgets actually to execute its mission, but we all know what happens to these kinds of reports. I don’t think anyone who lives here would disagree with the following:

“Any ambition Auckland has to become the world’s most liveable city will be defeated if the housing future being offered by current trends continues to play out. Access to safe, decent and affordable housing is already the single biggest issue facing hundreds of thousands of Aucklanders. This problem will grow in size if the present wishful approach of Auckland Council and the present wilfully negligent stance of Government continues.”

But any fix is probably not going to come in time for us.

“Auckland’s housing problems are at least a generation in their gestation and most likely will be a generation in their resolution. There are no short-term answers or quick fixes—the problems are too big and the causes too ingrained in our social and economic fabric for that.”

Auckland, I love you, but I’m not feeling the love back. Let’s figure this out, stat.

19 thoughts on “Renting for life: how bad would it be?

  1. I don’t know the housing market there at all, but aren’t homeowner’s assessed property taxes? One sure bet about taxes is they always go up, too (just like rent) and you never escape them.

    It’s astonishing how bad the housing situation is there. Something has to give, eventually. It may not be a housing bubble, but it’s close. Are there any co-housing options in Auckland?

    1. I think the fluctuating interest rates here are the bigger concern than property rates, really. True, buying is not as attractive as it is in some countries, but renting is also way less attractive. Lose/lose. For me, wanting kids and a dog and a warm, dry place to live, renting really doesn’t offer a solution.

      There is one in Auckland that I know of but not in a location I would want to live in (close to a bad suburb, lack of good public transport), and it doesn’t look like their accommodation is particularly affordable either.

      A report just came out this week about Auckland urban planning, the need for more housing as the population grows, and how our limited amount of land and narrow isthmus complicates that. Not particularly hopeful stuff imo.

  2. If your partner is considering re-enlisting, what about the navy? You can then have a three bedroom house in central Auckland for mind-blowingly cheap rent.

  3. I’m sorry the housing situation blows – I had no idea and never would have expected. I remember an advertising campaign about 10 years ago where they were encouaging immigrants to come to New Zealand. We actually toyed with the idea. Over here in Canada, it seems the laws are more in favour for the tenants. Mind you, most middle income are homeowners.

    1. Even 10 years ago I’d say things were probably okay on the housing front (at least for buying) or at least nowhere near where it is today. It was only about 15 years ago my parents bought land and built their house. Today that land would cost at least twice as much.

  4. Sigh. Tell me about it. I’m currently looking for a flat that allows dogs, has a garden, is affordable, and close to Uni. I’m losing this battle.

  5. I’ve been hearing a lot about the ‘rent generation’ in the UK press over the last couple of weeks. It’s crazy if you stop and think about it – if you told my grandparents 30 years ago that within their lifetime people would actually be considering renting for life their jaws would have dropped! Now it’s a regular conversation and something that people are really considering, or having no choice over!

  6. Hm. Depressing…in a way.

    My parents rented during their most of their 32-year marriage (second for both of them), except for the 10 years we spent in Saudi Arabia, living in company housing. You wanna talk about living in the middle of nowhere? :-D They didn’t buy a house until my father retired, at which time he was in a position to pay for it in cash.

    I personally detest apartment living and would not be happy either renting or owning what are now called, euphemistically, “condos” in this country. Are you able to rent a house? That might at least allow you to have a pet, even if it’s not the greatest structure ever banged together by a contractor.

    Do they have rent-to-own arrangements in NZ? Here in the US, they’re usually a rip — it’s a way for a landlord to extract a lot more money than he could get with a straight rental. However, if you’re smart and you negotiate a decent contract, it could be a way to get into your own house, eventually.

    Have you thought about seeking work in other countries? Since you both enjoy traveling, maybe the expat life would work for you. For what you could earn, you might find a higher standard of living in a country where the cost of living is lower.

    1. Aside from one year in an apartment, we have always rented houses. This is what most people do as most of our dwellings are houses. Still doesn’t matter, 99.9% don’t allow dogs.

      Rent to own in NZ from what I hear is also pretty dodgy.

      Of course we’ve thought about living in other countries, and every city we visited last year I was asking myself if it was somewhere I could see myself living. But overall we still want to stay in Auckland.

  7. is it a requirement to have a 20% down payment there? And if not, would you ever consider having a lower down payment?
    Eric and I are saving as much as we can, but I doubt that I’ll want to wait around several years to have 100k in the bank. At this point, I’m hoping to save around 50k, which still would barely maybe be 10%.

    1. Right now it basically is a requirement to have 20% under current rules. They may loosen that again but who knows when.

      There is a first home buyers programme that allows 10 percent down if your income and house purchase price is under a certain limit which I will be all over if we qualify when it comes time to buy. Things are pretty uncertain right now with T unemployed in terms of being able to save and what our combined income will be. But obviously less down will mean a way higher mortgage payment.

  8. I forget how good we have it in the US with our pet policies. It’s about 50/50 with dogs and cats, but you can find something with a pet if you’re willing to pay a pet rent or pet deposit.

    We’ll probably rent for the next 10 years. Depressing, but with me working for myself, my husband not having consistent employment, and home prices so high here in Chicago; it’s what we have to do.

  9. In my naive mind, I never associated NZ to relatively expensive property prices (to salaries). In my head, NZ = loads of open green space, hence cheap property prices. If I think about it though, it obviously will depend on whether you live in a big city (like Auckland) and also, how much of the green spaces I see around are actually farmland (i.e. privately owned).

    For me, the goal was always owning my own flat/house. Renting for life is a no go – it just doesn’t make good investment sense. Obviously it depends on the country you live in, but for me, property is the one asset class that pretty much guarantees decent REAL returns over the long term (whilst obviously giving you personal security i.e. knowing that you’ve always got a place to stay). It makes sense in the UK, a small island, where there’s a perpetual housing shortage, especially in London. Also, as someone who rented for 8 years in London, moving almost annually…well, it was a no-brainer.

    I would tell everyone to do whatever they can to amass that deposit to get on the housing property ladder (assuming it’s a good property of course), even if it means pain / isolation / non-ideal circumstances for now. It won’t matter in the future when you’ve got your own bit of land to call your own. Better for a bit of short term misery than misery for life IMO. :P

    1. Similar issues here. Small island, limited land, desirable place to live (some smaller towns obviously excepted, where houses may be affordable but that’s because there are few jobs and nobody wants to live in nowheresville). Like I said, those nondescript villas I pointed out to you in central Auckland, those are at the million dollar mark, which if you stop to think about it is insane for what they are, but this is what’s normal for us now.

      I suspect being from the UK and specifically London (just think that Auckland = London but prices are a little lower) you GET this, unlike a lot of Americans who are blinded by the fact they live in middle cities where the housing market is totally different and imploded in the GFC. And people who haven’t rented here just don’t understand what it is like. I am not just being a whiny entitled, millennial, I just want to live somewhere dry, warm and where hot and cold water come out of the same tap. This is a tall ask in Auckland, alas.

      For me wanting to buy a house is first and foremost a personal choice, for all the reasons I’ve laid out here. Finances are secondary. I personally think property in Auckland is about as sure a thing as property can get, but even if it wasn’t it wouldn’t matter, it’s not about cold hard investment but security of housing, type/quality of life (garden, pets) and quite frankly, physical health, as I covered in the post.

  10. Move to Wellington – it’s much cheaper to buy a house here and there’s plenty of jobs for people like you.

  11. Nothing wrong with renting for life. It gives you the ultimate in flexibility when deciding on a move and the management of your rental is a lot lower than something you would own.

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