Friday, June 26, 2009

Hard choices

What your money buys you in Wellington.

A not-so-surprising interview on Breakfast today, linked to an article in the NZ Herald, seems to confirm much of what we have observed since coming to NZ.

Even 'rich Americans' (did you know we're all rich? Yes, it's true!) like us can't afford to buy a house here, and that's with having some capital to invest from the sale of our previous home. Certainly many Kiwis believe that we (immigrants) are the reason house prices are so high, and I do think that's a contributing factor, but it's only a part of the story.

Mr. Hickey's assertion that this is a reciprocating cycle is spot-on. The lack of a Capital Gains tax in NZ means that there are no penalties for owning as many properties as you like. We rent from a landlord who owns four units in this apartment complex. Four! I'd be willing to bet she owns other properties as well. And on each of these, she's getting $500/week on average rent. $500! This is in Wellington, mind you - not New York, London or Paris. I can assure you that the average wage levels are not in proportion with cost of housing, and we're not the only ones feeling anxiety over it.

Another contributing factor is that landlords don't have to do much to their properties in terms of upkeep. They can be a complete hellhole and still be legal. When we were shopping for a place to rent, we saw many that were not fit for human habitation. So other than being able to charge more rent, there's no incentive (or legal requirement) for any further investment. Just buy it, then start raking in the cash. Not surprisingly, landlords react with outrage when the government tries to impose requirements on them that will meet modern housing standards, threatening "...this will just lead to rent increases." Yeah, right mate like we can afford to pay you more.

To be clear - landlords can afford to charge these rates because housing is in such limited supply, particularly in Wellington. One could argue that the market should naturally set rental prices, and I don't begrudge property investors from getting a return on their bets. But this is a case of the rich getting richer, with no checks and balances. It's really no wonder that Kiwis of all kinds are finding it tough to buy their own home.

This all sounds like a load of whinging, doesn't it? Maybe...

As you can tell from the flavor of my last couple posts, I've decided that it's time to stop sugar-coating things on this blog and start looking at Aotearoa with a more critical eye. Why the change? Well, of course it's because I'm feeling a bit disgruntled. But also it was the surprising realisation that this blog has received 16,000 hits. Even if I subtract 10,000 of them, assuming they are friends, family, etc., that leaves 6,000 people who have visited. Some of them probably want to know what life is really like in NZ...and I mean living here, not just being on holiday. Believe me, they are very different things.

I honestly love some things about this country, but there are some things that trouble me. Increasingly, I am having difficult seeing a long-term future in NZ. Our closest friends here know I've been feeling this way for a while, but this may be news to some of you back home. Aotearoa is a beautiful place - some would argue one of the most beautiful places on earth - but pretty views alone can't sustain a person (unfortunately). New Zealand is looking out for itself, and we have to as well. My thinking on life in NZ was that we would 'stay as long as we could' and when that was no longer feasible, well, it would be time to make some hard choices.


Café Chick said...

As a renter, I can sense how disgruntled you are. As a landlord, I am saddened by your largely generalised comments. I hear of scenarios such as the one you describe, but that's not the only way things happen in New Zealand. I am certainly not "raking in the money"; the only actual way to make money on the residential property market in New Zealand is upon selling, and not during all the years before then. The endless hours I spend looking after my properties, keeping tenants happy, carrying out maintenance, and playing the bureaucracy games with councils and other organisations sound so much easier the way you put it; I wonder what I am doing wrong. Perhaps this is why so many potential tenants come to my viewings and say "wow, this flat is amazing - you wouldn't believe some of the places we've seen so far".

Don't get me wrong: I chose to buy property as a long term investment, just like some people choose to invest their money on the share market, or foreign exchange; I'm not doing it for free. However, there's a lot more to it than what you describe and I'm sorry to hear that you've had some frustrating experiences.

William & Stacey said...

Hi Cafe Chick, and thanks for posting. I really welcome alternative views and as a disgruntled curmudgeon I want people to challenge my beliefs - so was happy you did.

You fairly point out that I am generalizing. Not everyone has a bad experience, and certainly it's work to be a landlord. I completely understand that you've made an investment, and that you expect a return. That was what I was referring to in the post, but perhaps should have been more overt.

I would disagree with you that many landlords are not making money. If you bought a property pre-early-2000's boom, your mortgage is quite low compared to what rent is going at these days. If you are a more recent entry into property management, then you likely paid much more for your purchase and your profit margins are no doubt tighter.

The point of my post wasn't 'landlords are bad people' but rather that the tax laws and structure here in NZ affectively make it very hard for newbies to get on the property ladder.

If capital gains taxes were involved, or if every landlord was required to maintain certain standards, then perhaps we might see fewer people owning 10 properties. Being a good landlord is hard (as you attest), but what about being a lousy one?

You're probably too busy to do this, but sometime just for kicks go out and take a look at what's out there in terms of rental property. Some of it is frankly shocking. But, there's no law that says things need to be otherwise.

Being a landlord is being in business. You spend as little as you can to get the highest return on the investment. I understand the dynamic. But something is systemically wrong when such a disproportionate number of people are forced to rent instead of own.

wombat said...

oh how i love a good whinge.

i felt very similar feelings about living in australia. amazing country -- and yet exasperating in so many ways.

i have two words for you:


Kopi Tozie said...
This comment has been removed by a blog administrator.
Practically Perfect... said...

Thanks for posting about this. My husband & I are moving to NZ in May 2010 for his job, and we've already started to get a bit worried about the cost of living over there. We were surprised at the rents and have thought about buying, but aren't really sure that it's a good idea at this stage. I think we'll probably wait till we've lived there for at least a year and have a better feel for things before making such a big decision.

Again, thanks for sharing your experiences!