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Are you better off to rent or buy?

By Bob Mountfort

The excerpt below is from Tony Alexander’s Weekly Overview of 10 May.  Tony is the Chief Economist at the Bank of New Zealand. 

Cast your mind back to any time over the past three decades when analysts, journalists and economists have run the numbers and concluded that people would be better off renting than buying. Now think – for all those people who opted to forsake purchasing a home for their family and instead focussed only on short-term cash flows – how are they left now? Rents are rising to reflect increasing costs and decreasing stock availability. Prices have already soared to reflect similar things.

This exercise of comparing renting with buying can be useful for gauging some short-term pressures in the housing market. But that is completely different from young buyers using such comparisons as an actual guide as to what to do. Unless you are in a market of minimal population growth and/or easy supply growth it really doesn’t make much sense to pay strong attention to such cash-flow focussed exercises for family home purposes.

Personally speaking I have never run such numbers when considering the house purchases which I have made because my focus has been on the end use to which I will put the property and the utility (enjoyment etc.) it will deliver me. Those who have done the exercise and bought into potential long-term wealth outcomes under assumptions of minimal house price growth have lost focus on the real target – providing a stable family home.

To receive the Weekly Overview each Thursday night, sign up at www.tonyalexander.co.nz

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