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Over-valued properties and the under-supplied housing market are going to continue in 2016. What are homeowner’s burden and how to manage them?

 

 

Under-supplied Housing Market

Home Owner’s Options to avoid Suffocation

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Owning a home gives people a sense of pride and liberty. Traditionally the home-ownership logic is still seen as proven model to acquire wealth and to secure family or retirement. Now, mid 2016 finding a house in a desired location and with an affordable price is as difficult as never been before. The shortage of housing and buyer’s competition drives market values up. In the previous blog post we summarized the amount of money you will pay for finance and the costs of ownership.

 

 

What are  homeowner’s options?

 

Well, don’t fight the human nature. Choosing a home is an emotional thing like falling in love with something. As they say “Love is blind”, and that changes people’s perspective and perception.  Frustrations kick in as soon as you miss out for various reasons.

 

In contrast I see the obsessive pre-occupation with home ownership, misused by  politicians to attract voters and bad stories in the media. At the moment the headlines are about greater numbers of building inspections, which failing as new house construction ramps up

 

Conversant with NZ’s housing market you might know about the issues with asbestos, low material quality in the 70s, leaky homes in the 90s - only to name few issues. Nothing is new right now, homeowners have to deal with these symptoms for decades. The option for homeowners is like going out in bad weather, be prepared.

 

 

Housing affordability home owner’s burden?

 

Since the taxation rules for developers, home owners and investors have changed  New Zealand’s housing market is chronically under-supplied and that with adverse implications for housing affordability. Tax burden for home owners result in lack of cash for upgrading dated residential properties and escalate health adverse conditions (cold, damp, disrepair).

 

In contrast media commentators and cheap propaganda ride the horse for more obstacles to reduce the demand for housing. Examples are Land Tax, Capital Gains Tax and restrictions for home loans. Why would that be helpful when you need housing for your family?

 

Not seen by most people the inflation is a hidden tax on consumption to pay for the deficit of government spending.  Actually, it is double dipping because higher prices resulting in additional business costs which are passed on to consumers. On top of it everyone pays accordantly the  goods and service tax (GST).

 

Unfortunately it doesn’t end here. Well driven argumentations are to restrict immigration, foreigner buyers and of course stopping investors. When taking away the boosters of the economy, are you prepared to go back to the Stone-Age and build your own accommodation?

 

 

Under-supplied housing & affordability—Rational response

 

It has never been easy for home buyers and home owners in NZ. That is visible when looking at the state of maintenance and repairs. The devastating impacts of poorly new-built homes (keywords: leaky homes, overpriced  & unfinished developments) are existence-threatening for many New Zealanders.

 

If you follow the discussion about the disadvantaged Gen Y versus Babyboomers and politics about (un)affordability - you risk going lost. Try the rational approach; as long as two or more willing buyers compete, only one party wins by pushing up market values. Each generation struggled to get onto the property ladder. That has worked for people who made sacrifices in the past. To change that where should the money come from?

 

Under these public mood swings, home owners in debt sell as soon as they can obtain capital gain to escape the slavery to the bank. I would recommend a planned approach toward long-term home ownership by setting priorities  as below:

 

 

 

Be concentrated of earning money when spending it on housing

People get in hot water by dreaming of capital gains and realize the weight of asset liabilities. I talked here about the limitations of stretching income from a job.

 

 

Make long-term decisions without fear

Fear is good if you take it as a compass. Fear shows you the weakest points to deal with.  Money is a valid point and that problem is largely due to the tax burden on housing. Only renters can contradict while the property owner pays on their behalf.

Avoid bad debts and work on your income, invest in skills or change your career (or location) for better income opportunities.

 

 

Find compromises to reduce risks

Compromises in favor of stepping up the ladder towards goals is an effective way. In real life nothing is “perfect”.  In terms of housing start smaller to manage costs. Prune your expectations such as location, floor space, or time frames to meet the market conditions and circumstances. Debts without owning a financial buffer mean risks and likelihood to fail. Your job, the economy, interest rates - everything out of your control can change in the blink of an eye. Banks simply do what is necessary to maintain their profit margins in the face of the ever increasing cost of funding. Don’t let financial stress backfire into your family and relationships.

 

 

To take away

Home owners can't get away with three things in life - death, taxes and the bank. That is why risk management (being prepared) is the main issue to avoid getting bankrupt and to enjoy home ownership. Plan towards opportunities, lucky people try harder, be one of them. Good luck

 

For the actual buying process, making an offer and due diligence, visit the blog library, plenty of articles out there.

 

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