quote:Originally posted by Shrewd Crude

My argument has nothing to do with the outlook on property... it is to do with the first homebuyers outlook on their life long debt ridden goal...
Shrewd Crude you aren't the only person to come to this conclusion. The relative rise in property capital values to take home pay (compounded by a secular demographic shift from single income to dual income households) cannot be sustained. Unless society moves to three or more income households the impetus provided by the 2nd income is reaching maturity and may even go into decline with more family friendly tax policies prompting new mums or dads to stay at home. Home ownership continues to concentrate into the hands of Baby Boomers who largely did not experience the least profitable periods of home ownership in New Zealand. People in their 20 somethings earning closer to the average wage or less have limited scope to buy the same sort of 1st home their parents could afford in the 60s or 70s. I suspect the consequence will be a prolonged demographic "lag" in learning the wealth building disciplines of saving, budgeting and delayed gratification.

The original "mainstream" two income family is unsurprisingly the Baby Boomer family. They have reached a mature earnings profile which is likely to go into permanent decline in the near future (if it hasn't already started). More than ever this demands more traditional (and cyclical) drivers of real estate outperformance:

Demographics (Birth Rates, Survival Rates, Net Immigration).

Productivity Growth (Technological Improvements, Education, Innovation, Employment Environment and a host of extraneous inputs but particularly downstream impacts of the availability of risk capital).

Wage Rates and Employment Levels.

Inflation (Counter-intuitively property underperforms during high inflation as key triggers like Employment, Productivity etc worsen. On the plus the mortgage "decreases" by the rate of inflation adjusted income increases although this may be swallowed by higher interest costs).

Interest Rates and the availability of risk capital (Changes in banking regulations and prudential requirements have had a huge impact on the attractiveness of home lending in the eyes of bankers - with a consequential "blinkered" shift in the true rather than perceived risk as capital values have increased versus incomes and proportional wealth).

New Zealand (and cities like Auckland in particular) have demographic advantages that will cushion some of the consequences of an aging Boomer population. With high'ish immigration, natural economies of scale and productivity benefits concentrating populations in larger centres and a less proncounced baby "bust" here in NZ, high priced locations like Auckland are likely to remain supported. It would require an important external shock (Weather related? War? Health Shock?) to shift this trend.

Can we expect to see the relative "price earnings" multiple of housing continue to expand at a fast rate without the wealth effect of growing incomes (3+ Income Families? Baby Boomers not cutting back their paid hours until well into their 80s - and not dying?)

As long as you maintain focus, I suspect a program of saving and actively investing your rental vs mortgage payment differential will pay better fiscal dividends as long as you accept the inevitable volatility that comes with it. The emotional benefits of financial wealth versus home ownership is still open to debate. There may come a point in life where you just "want" to own a home more. Keep that in mind when considering demographics. You won't be the only one when that time comes. If it's part of a trend, you are better off being in front of it rather than behind it.