This article was published on 28 April 2007. Some information may be out of date.


  • Would-be homeowners may need to lower their standards a bit — with some help from Monty Python.
  • Inflation hits property at least as much as share funds.
  • Californian astounded by our “real estate mania”.

QI have been reading your column for some time now regarding Auckland house prices.

I am in my early forties. My husband and I bought our first home (in Auckland) nearly 20 years ago. It was hard going — we had an old rusty car, a young baby, one income and three mortgages!

The area we bought in wasn’t and still isn’t considered upmarket. We hated the price we had to pay for our humble home. We had friends just around the corner who had bought five years earlier than us and paid half the price we did.

But we were thrilled to be homeowners, even if our do-up didn’t have any fencing or garage. We were paying 14.75 per cent interest. We ate a lot of mince and sausages and didn’t go out much.

The complaining of some would be home owners just irritates me. A lot of these people have spent quite a lot of time overseas.

After years of wonderful travelling and overseas experience they come home to complain that they can’t afford a house. But they can! It’s just some of this group seems to think that a house in an upmarket area close to the city complete with trendy cafés is the least they deserve.

I have read a number of articles bemoaning their “predicament”, including comments like, “The only suburbs we could afford would be in — gasp — somewhere like Avondale or horrors — further out west or south.” You have to start somewhere.

Also, I am tired of the animosity over buying rental properties. Were we just supposed to ignore the dire warnings of a miserable retirement if we don’t take financial steps to look after ourselves? Shares can end up just being useless pieces of paper, but a house is a tangible investment.

Finally, I am amazed at the age of a lot of these frustrated home buyers. Many are only 5 or so years younger than me. But while they were overseas, we were here working long hours, paying huge interest and eating sausages.

Hard work and a bit of sacrifice really does pay off.

AIrritated, tired, amazed — you’ve been on a bit of an emotional roller coaster. I hope writing about it all has made you feel better!

Your views are largely shared by BNZ chief economist Tony Alexander, although he has a more radical solution than Avondale or other suburbs.

In a recent newsletter, Alexander wrote rather colourfully about young home buyers “having to realise that after a lifetime (for them) of easy credit access to consumer goods and services, the reality of struggling as previous generations have done is simply manifesting itself.

“They may have to live further away from their work than they want, as some are doing by buying in Featherston and working in Wellington.”

With work available outside big cities, “The route toward home ownership for the easy credit generation seems logically to be buying and working in the regions.

“After all, how many times have we heard people say you’ll get a coffee in the regions as good as, if not better than, what gets served up in the cities — plus better access to the outdoors, less vehicle pollution, and less road congestion.

“Eventually you’ll build up enough housing equity to help fund a house purchase in a city further down the track if one wants to pursue a career in a bigger smoke.”

Would-be home buyers might also have to consider “cutting down on the cell phone use to limit the monthly bills, cutting foreign travel, putting off getting a modern car, plasma TV, latest gaming console, latest phone, and cutting twenty $3.50 cups of coffee a week until after the deposit is raised for a house,” says Alexander.

He adds, in brackets, “(Written by one who spent the first six months after purchasing a tiny house in 1987 getting four hours of sun a day in winter, sleeping on the couch for want of a bed — with an 18.5 per cent interest rate. …Fade to Four Yorkshiremen skit.)

That wonderful Monty Python skit featured four old men competing with one another for having had the toughest childhood.

It ends with one saying, “I had to get up in the morning at ten o’clock at night, half an hour before I went to bed, drink a cup of sulphuric acid, work twenty-nine hours a day down mill, and pay mill owner for permission to come to work, and when we got home, our Dad and our mother would kill us and dance about on our graves singing Hallelujah.”

Adds his friend, “And you try and tell the young people of today that … they won’t believe you.”

Each generation of oldies seems to think that the young are a bunch of softies. And each generation of youngies think the old are a bunch of whingers. I guess that’s inevitable as living standards rise.

As you say, though, some of the softies are people barely younger than you. And I must say I largely agree with you — that it wouldn’t hurt first home buyers to lower their standards.

It can be an interesting challenge to make a home out of a hovel.

On the rental property issue, the animosity probably stems from some property investors’ gloating about their tax deductions and tax-free gains. If you don’t gloat, you don’t deserve hostility.

But I can’t let you away with your comment about shares becoming useless pieces of paper.

It’s true that a tiny proportion of shares become worthless. But I always advocate buying a wide range of shares, or investing in a share fund that owns many shares. If you do that, you are practically guaranteed not to lose the lot — and you might well do better than with rentals.

But let’s not start that argument. I’m already worried enough about your blood pressure.

QPresently I don’t own any residential property, lodging with my parents.

I have about $700,000 to invest, and various banks are trying to encourage me to let them invest it for me.

Using calculators, which I think are supplied by Morningstar, their investment advisers tell me it could be worth about $2 million if it was invested for 20 years in a growth fund, predominantly of New Zealand and overseas shares.

However, one of those advisers also pointed out that in 20 years’ time, with inflation at 2.5 to 3 percent, that $2 million would only be worth $1.2 to 1.3 million based on today’s values.

If share investments are going to be devalued like this, wouldn’t it be better to invest in a reasonable house some time soon, assuming that land will probably hold its value better than a share fund will?

AWhere did that assumption come from?

The prices of both property and share funds will almost always grow faster than inflation, over the long term.

Funnily enough, it seems to me that the advisers you have talked to have rather undersold their share funds. What a breath of fresh air.

Using the lump sum calculator on the Retirement Commission’s website, we see that if $700,000 grows to $2 million in 20 years, the average annual return, after fees and taxes, must be 5.4 per cent.

That’s pretty low. I reckon you could expect about 7 to 9 per cent returns, in which case your money would grow to $2.7 million to almost $4 million.

We can allow for 3 per cent inflation by subtracting 3 from 7 and 9 per cent. That gives us totals of $1.5 million to $2.2 million in today’s dollars. Not bad.

What about property? Historically, its value grows about 2 or 3 percentage points faster than inflation — which brings us to a somewhat lower total. But who knows what the future holds?

My advice to you is to invest in whichever you prefer, for non-financial reasons. If you would like a home of your own, go for it. If that doesn’t appeal, share funds are a great idea over long periods.

If you choose the latter, I do hope you pay your parents some board!

QThanks for your cool-headed analysis of the housing market. As a recent immigrant from California, I am astounded by the real estate mania that has set in throughout the country — from endless TV shows, newspaper inserts, etc.

My favourite bubble sign is the supposedly desirable neighbourhoods whose commercial centres are chock full of real estate agencies (think Mt Albert).

In California I had the first hand opportunity to witness a mania. Conversations were littered with fallacies:

  • If you don’t buy now, you’ll be priced out of the market.
  • Real estate only goes up in California.
  • If it doesn’t go up, it will just plateau.
  • If you rent you’re throwing your money away.

By the way I love the ‘property ladder’ saying in New Zealand. It essentially summarizes all the misconceived notions about real estate.

If you haven’t already seen this, I highly recommend the blog

It has documented the spectacular rise and beginning fall of the market in the United States.

P.S. Happily renting for about half the price.

AThe blog looks interesting. But I bet many readers won’t look at it. They don’t want to know.

Funnily enough, in the article I quote above, the BNZ’s Tony Alexander says, “house prices might be exactly where they should be.”

His reasons include: higher immigration; lower and less volatile interest rates than in the past; strong job security; and high constuction costs.

He concludes that it’s “very unlikely” that house prices will fall sharply.

On the other hand, we keep being told that house prices are at record levels, relative to rents and incomes. And that more and more people can’t afford their own homes — even if they will settle for west of Avondale or down country. That all suggests downward pressure on prices.

To be honest, I don’t know what to make of it.

Like you, though, I could never have the blind faith in property that some New Zealanders have. How quickly they have forgotten house price falls in the 1990s. And how reluctant they are to take note of bigger falls in other countries.

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Mary Holm is a freelance journalist, a director of Financial Services Complaints Ltd (FSCL), a seminar presenter and a bestselling author on personal finance. From 2011 to 2019 she was a founding director of the Financial Markets Authority. Her opinions are personal, and do not reflect the position of any organisation in which she holds office. Mary’s advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it. Send questions to [email protected] or click here. Letters should not exceed 200 words. We won’t publish your name. Please provide a (preferably daytime) phone number. Unfortunately, Mary cannot answer all questions, correspond directly with readers, or give financial advice.