The unrecoverable costs of buying a million dollar house now equate to around $1730 in rent a week

[resjudicata]

@thestarside Bought a second house ( with my brother ) to develop (we are both builders) for just over 1m$ , covid hit, materials went up 25% and financing a development when mortgaged to the hilt is actually quite hard lol, now interest has more than doubled. The investment which almost broke even (as I rent it out room by room) is now 4K per week negative (which you can’t claim back) .

For us ( me and the wife) it means no way can we develop, which means no way to actually get out of our own tiny home into something that fits 2 teenagers .

What’s funny is, doing exactly what the previous generation did (my father - buy and leverage) has totally backfired and probably fucked us!

Oh well (gen X) what did I really expect!

 

[jonny01]

@resjudicata With investing in any asset someone has to be left holding the bag for another to succeed. Unfortunately it’s like a game of musical chairs, same tunes being going for 40 years now the musics stopped. Parents who got in early have a chair and we’re left standing holding the bag of debt

 

[benjir]

@resjudicata I don’t want to sound like a prick, but as a general rule of thumb there is no reward without risk, just like starting a company/ buying a company etc. you took a gamble and it didn’t pay off, that is just how it goes.

You need to account for this when you start out on a new venture. NZ has become complacent without housing because it’s “to big to fail”.

 

[resjudicata]

@benjir No worries, if it all works out down the line and the development goes gangbusters and we walk away with millions then I guess I was Lucky lol

 

[lilly59]

@thestarside

Is buying an average Auckland property at current prices a bad financial decision, even as a long term investment?

Yes. And has been for some time, if only for the fact that the shoddy uninsulated, cheaply built houses here are clearly not worth $1M.

But you could also look at one of the internationally recognised measures for a healthy economy. An average house should cost 3-4 times the average salary. We are at 10x which shows how far into a bubble we are.

 

[tspidey630]

@lilly59 Is that 3-4X Combined salaries?

 

[lev]

@lilly59 3-4 times salary was back when interest rates was much higher.

Lower interest rates = more affordable. You won't get 3-4x at low rates.

 

[lilly59]

@lev *when rates were the historical average. Which they are again now.

The last decade was an abomination of low rates, it was not normal in any way.

 

[lev]

@lilly59 Rates are going down. Rates are lower than when 3-4x was the norm.

 

[jcarrie]

@lilly59 The houses are very clearly worth one million if people are going to pay one million.

 

[sorrowedhart]

@jcarrie On the other hand, take away some very supportive policy mix and they won't have to. Liberalise zoning to enable more building, and remove tax advantage and subsidy/monetary support and they'll find a much more realistic freer market value.

 

[profiletree]

@lilly59 The land is often worth more than the house by quite some distance.

 

[lourocha]

@thestarside NYT has a good calculator where you can put in your assumptions about growth rates, etc

 

[thestarside]

@lourocha that's a really nice one!

 

[homepage1984]

@thestarside To be honest sometimes just having your own home is more valuable in life that renting forever. I'm about to start a family, I wanted a roof nearby to where we work, where we can LIVE. For us a home wasn't a 100% financial decision.

 

[sharonbaker]

@homepage1984 Lucky.

 

[molllyrouse]

@thestarside If you're going to make that comparison, you also need to take into account extra costs from renting. More frequent moving costs, new patient GP/dentist initial examination fees, risk of losing some of your bond, if you have pets you might face a higher rent, buying crappy new furniture every time you move, etc. These things can add up considerably over the years.

And then there's other things which aren't necessarily costs, but what kind of value do you place on being allowed to put a shelf up on the wall, or hang a mirror without needing permission? Or keeping your child in the same school, being able to build up community ties, having whatever kind of pet you want, and no inspections?

 

[thestarside]

@molllyrouse Sure,
There are also other costs to be taken into account wrt housing such as increase risk in a single asset, insurance, risk of bad neighbours and flooding, and less ability to move and respond to better job offers in other cities/countries as easily.

The tool is obviously not all encompassing and people have individual situations and goals.

The point is a rule of thumb financial calculation where an equivalence can be made.

 

[akkol]

@thestarside Ben Felix does a great podcast every week as well over at https://rationalreminder.ca/# with lots of chat about the behavioural side of money. Selective zoning out for the Canadian and US specific stuff is recommended though.

 

[connorhastings]

@akkol His videos are awesome and full of great advice that is well researched. He frequently quotes the relevant papers so you can read more and his podcast shows he really knows what he's talking about. More people should watch him.