Building new vs Buying existing

[outspoken]

I am constantly seeing young (sometimes not even young) couples looking to build or buy their first home.
Most of the time they are on good income circa $100k and can get approvals from lenders for loans around $350k - $400k.
Even with 10%-20% deposits, this means their lending is around $280k-$350k and the servicing is often 30% - 50% of their after tax income.

What do these people do?

To build, they are having to look at areas sometimes 10-20 minutes drive from the city, in very boring looking expensive for what they are subdivisions.
To buy existing they have to look at 15-20 year old houses with poor to no insulation, weather board exterior, generally pretty run down houses in the city limits.

Are properties going to come back in price enough for them in the next couple of years? Is the cost to build going to get any cheaper? Is land going to have to come down in price? or more of it be released at affordable prices?
Has the kiwi love affair with property investment causing inflated prices pushed home ownership to unaffordable levels?
Do these people just have to try and save more deposit, and then realise that in the time it took them to save another $20k the house has gone up by $50k?

Are these people forced to rent for the rest of their lives?

Will wages rise enough that it becomes less of a problem?

Or a combination of all of the above?

[alhoon]

They start at the bottom like most of us. (Apart from the ones with rich parents to help them out)
We started out in Papakura I was working in Puke and my wife was working on the shore. 1 hr in the car for me a day and 2 for my wife.
Next opportunity came up in Waiuku by then I was working in Meadowbank 3 Hrs a day for me 3.5 for my wife.

If you want to get ahead you have to make sacrifices
We now have a new house central Auckland 5 mins to work and the wife stays home.

House price are high but it has never been easy to get your first home

Allan

[outspoken]

Thanks Allan

That's a really good answer.

[alhoon]

I just wonder if you look back 10 maybe 20 years how many people had a new house for they first or second home and at what age?


I have not work for many customers for a long live but 5 or 6 years ago most of they were retiring and this was their first new home.
Average had owned one or two houses they whole life paid off the mortgage.
Today people want to go straight to the top.

Allan

[outspoken]

In lots of cases the choice is:

1) Live out of the city in a new house that costs the same as
2) Living in the city in an old house

[essence]

We bought our first house 1/2 hour from town but travelling times usually stretched that to 1 hour each way.

It was a Beazley-type box, three bedrooms, no dishwasher, up a reasonably steep drive-way. Nothing flash.

We eventually moved on from that, made money thankfully in a slowly moving up market. We've moved approx every 6 years (roughly) and have always JUST managed to get into the next price bracket of house without (and sometimes not) adding to the mortgage.

We've never built and can't see us doing so in the near future either.

The problem is that many people (and not necessarily the kids either) want it all in the first home - dishwasher, heated towel rails, under floor heating and all the bells & whistles.

There's nothing wrong with starting out with a smaller home. It forces you to appreciate life and you should have a better chance of paying down the mortgage quicker.

[dnos]

My partner and I have just been through this same thing. Not in the city though so possibly a bit different.
We looked at existing houses and decided that we could build a new home for pretty similar money. There are differences however, the house we built is actually bigger than what we could afford if buying existing (190m2 instead of probably only 130-150m2.) The banks were not willing to lend as much of course, and there was the issue of finding somewhere to live whilst building.
We have been in our house now for one year and have come to the conclusion that we really don't need such a big house but are still glad we took the plunge and built new.
It took a lot of research into the local market and building options to come to our decision, and if doing it over right now would probably be a different outcome.

[Wayne]

build v's buy - often depends on how hungry builders are as to what it costs to build. Work dries up, prices come down and the equation shifts more in favour of building. Build what you can and do the landscaping yourself as time and money permits. After a few years you will have learned a lot and added value. I would always build over renovate - renovating is twice the work (have to undo then do) and compromised (doesn't quite fit, isn't quite straight).

[67910241]

Will wages rise enough that it becomes less of a problem?

Or a combination of all of the above?

I don't think they will be.

The prices went out of whack in 2005 or so, and now they're correcting back to a more historical level where burdening an average dual income household with an entry-level mortage is stressful and hard, but not irresposible or reckless as it was in 2006-2007.

In my opinion, there was at least one more culprit (apart from the obvious cheap credit and speculative continued run on the limited supply). It's the scarcity of land.

There's nearly endless land around Auckland to the North, South and East. It's still kept inside the tightly controlled "green belt" for the established urban landholders to enjoy its scenic benefit, but even more so the artificial scarcity of their landholding. You didn't hear the grandparents of the today's X-ers complaining about "endless suburbia" or "absence of greenery" when the parents saw the today's suburbia built back in the 50s, 60s and 70s "just in time" for their financial freedom building. Nah, suburban sprawl was all good back then.

Nowadays, not only is it bad, but if you try to increase the density of the already developed areas or go higher up, you get endless community groups whinging about the "loss of character", "loss of sushine", infill housing, not enough money for infrastructure (unless the developers are charged both for the new infrastructure and the old one, subsidies are always welcome). A quarter of urbanised Auckland Central is in semi-rural densities like 5 or 2, and almost a half is in relatively modest 375m2 per unit 6a.

For god sake, even that's not rural enough, now I understand they introduced a new law requiring any subdivision on 6a's and 6b's to have at least 800m2 to split in two. The powerful "anti-infill" lobby is fighting urbanisation really, really staunchly. I guess they regret not seeing enough bush and lifestyle blocks around Queen Street and K Road.

So, they're against densification in the existing cities. They're also against more suburbia further away (you name a problem, they'll abuse it, bad traffic, bad for the environment, too much land used up etc). They also regret young NZers leaving. So where are they gonna live - with their mum and dad? Up their self proclaimed environmentalist de-facto landholding monopolistic a*ses?

Even where they allow it, they've pretty much passed much of the cost of rebuilding existing infrastructure onto the new land needing subdivision, and then added a truckload of costly bureaucratic hurdles to slow the things down and keep the councils busy and well paid (ultimately, by the unlucky new home owners).

I am not talking some "top level" business conspiracy. If anything, big business is a friend of development. The less money people spend on mortgage on land, the more they can spend on corporate produced gizmos. I am talking anti-development small land bankers, meaning about 40-50% of NZ population, that's your firm Labour voters, your firm anti development core.

They screw construction people like Allan, who struggle to maintain a margin decent enough to live on when the land costs more than 50% of the total end product, and they screw all new home buyers, and by extension even old home buyers (with fewer competing substitutes being built).

[outspoken]

Wow, a very heartfelt post 679... I don't think I've seen you swear before!

Totally agree with most of your well thought out writings, especially the land component costing upwards of 50% of completed product.

Thanks for the contribution...voting National by any chance are we? :-)

[67910241]

voting National by any chance are we? :-)

Yes, but only to help get rid of the current set-up.

[princess]

Firstly 10-20 minutes out of the city is hardly harsh. 50 minutes is not fun though
Secondly many potential home buyers are HAPPY to rent, not FORCED to rent. Why not - half the cost of owning, leave when you want, and call someone else to fix it if anything goes wrong.

As for old vs new, i have two properties in "Sprawling suburbia" which is historically where many first home buyers start. Property one, a 20 year old house with minor renovations, 536m site, 3 beddy, 1 bathroom, big rumpus room - would sell for $300k. Property 2, same size site, formation of this section via subdivision cost nearly $100k in fees, driveway, drainage, more fees. The value of the actual land is around $65k so the section is fairly valued at $169k. A new house of the same size as the other one would cost AROUND $170k plus deck and driveway lets say $200k. So new is already costing a lot more.

However NEW home buyers want 2 bathrooms, underfloor heating, granite benchtops and a generally higher quality of build - so realistically add another $15k onto that (I have plans costed at $186k)

As i have said elsewhere, many first home buyers don't want to start at the bottom.

PS love your prior post 679, very articulate.

[Jumpin]

.............if you try to increase the density of the already developed areas or go higher up, you get endless community groups whinging about the "loss of character", "loss of sushine", infill housing, not enough money for infrastructure (unless the developers are charged both for the new infrastructure and the old one, subsidies are always welcome). A quarter of urbanised Auckland Central is in semi-rural densities like 5 or 2, and almost a half is in relatively modest 375m2 per unit 6a.

For god sake, even that's not rural enough, now I understand they introduced a new law requiring any subdivision on 6a's and 6b's to have at least 800m2 to split in two. The powerful "anti-infill" lobby is fighting urbanisation really, really staunchly. I guess they regret not seeing enough bush and lifestyle blocks around Queen Street and K Road.

So, they're against densification in the existing cities. They're also against more suburbia further away (you name a problem, they'll abuse it, bad traffic, bad for the environment, too much land used up etc). They also regret young NZers leaving. So where are they gonna live - with their mum and dad? Up their self proclaimed environmentalist de-facto landholding monopolistic a*ses?

You're onto it 679..
We have a choice - urban sprawl, or denser cities. Only one of which is remotely sustainable. The truth is those "anti-infill" lobbyists really cant think straight. What they really want is to kill off half the population and return to the 50's. I'm hoping it won't come to that.

[princess]

Suspect they are the same tribe that buy cheap Grey Lynn houses by Western Springs, then get the council to all but close down the speedway cos its too noisy.

And the Epsom-ites who dare to think they can control the tree-growing decisions of their neighbours.

ick. don't get me started.

[Baron Silas Greenback]

Made a post about this a few months ago, so wont rehash it.. but.. people have been spoilt, our first house was decidely average and was dead cheap as it looked really ugly, but it was what we could afford (not what we get a mortgage to afford)...

Most people are just victims of the 'have it now' culture. They see a vision of a nice new house in a nice area, with a new car out the front and they dont see it as a goal, but as a need for now.

Another factor is the difference between renting costs and buying costs, people can afford to rent in much nice areas than they can buy, but this is compounded by the fact that the houses they rent in this area, are not houses they would buy in this area (you accept faults more reasily when you are not going to pay to fix them, and dont have to live with them long term), so you get young kids living in Mt Eden in a small house/flat... and when they look to buy... they want to live in a nicer house than they rented.. but in a similar area.

Then the appear in newspaper articles crying how unfair the world is....