Rent or buying, – an economists view point

I was fascinated to read the article in NZ herald on line today  – Rent don’t buy, says economist – Shamubeel Eaqub, by Anne Gibson

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10845394

His argument seems to be based on the belief that a home is a business. An interesting view point. In all of my years in lending and finance I have never had a client come and tell me that the want to borrow money to buy a business – a residential home that they were going to live in. Many will ask to borrow money to buy a rental property, and I would totally agree with Mr Eaqub, that is a business. But this is not basis of the article. He refers to your own home as a business.

I also couldn’t understand why Aucklander’s were singled out as having a love affair with property in the article.  During my time as President and on the board of the Auckland Property Investors Association I was fortunate to meet many amazing, astute property investors from all walks of life,  living in all parts of our country. This love affair with property is not an Auckland issue.

So why do we want our own home? We all have our own reasons but for most of us:

Its part of growing up and becoming an adult. To plant our gardens. Invite our friends over for a BBQ, bring up a family, have pets, do the things we like doing at home. Ultimately, we all want some level of certainty. To be able to come home at night to a place we call our own. Owning our own home does that for us.

Only last week I was driving through the North Island for a couple of days skiing at Turoa. I was saddened to see the state of many properties, run down, badly in need of a good paint job. Again this is not a provincial issue, and I am sure there are many homes like it in our major cities. So again Mr Eaqub I disagree, not everybody spends a fortune maintaining their homes.

The article uses buying shares compared to buying a home (business). Well I have very clear memories of buying shares in 1987 when the market was going crazy. Hard earned cash invested in the share market. I haven’t seen a cent of that money since. It was a hard lesson but one I needed to learn. In 1996 I was fortunate enough to buy a block of flats in Christchurch. The total purchase price was borrowed using the security of my own home. I still own the flats today and yes as we all expect they have increased in value significantly.

I don’t have an issue with anybody buying shares. That’s an investment strategy in itself, but I cannot see how us ordinary New Zealander’s would even consider renting for life and investing in a share market that we don’t understand and don’t have any control over.

I’m going to stick to my current strategy of owning my own little apartment and buying rental properties. It works for me.