A long view at the status quo
What does the status quo cost society?
When we buy a house we incur costs over and above the house price.
I will like to talk about what average society is spending on a $500k house...
For this conversation, let's leave capital gains and inflation out of the samples.
In March 2019, Core Logic reported that New Zealanders changed ownership of houses every 7.4 years (88 months). If we look at wanting a home from our 20s to our 70s we could look at 7 average cycles of buying and selling a house, over 52 years.
When we buy an entry level house it is likely that we are entering with 80% lending. When we sell it at the average of 7.4 years we are lending in the expensive part of the mortgage. (shown as the yellow patch of the graphic)
On the Sorted website 23 July 2023, I used the mortgage calculator to project $400k of lending over 25 years. The first 88 months of payments totalled $279884 with only $49048 of that being principal paid back.
$230,836 of interest in 88 months
When we repeat that at the average rate for 52 years, we spend $1,685,152 in interest costs. AND!!!! at that point we sell the house off again without ever owning it outright.
In summary.... 7 different buyers never get to own the house outright within 52 years and an estimated $1.7million is paid in interest.
If I asked people what they wanted, they would have said, "A faster horse" Henry Ford
Also on the Status Quo is Change of Ownership Costs. (COOC)
Let's look at what people are spending for our $500k sample house when it is offered for sale.
The non exhaustive list below finds $24950.00 might be a common budget for acheiving COOC.
In summary.... 7 different buyers never get to own the house outright within 52 years and an estimated $174,650 is paid in COOC.
Market costs estimate may include, but not limited to:
Photography and marketing contribution (vendor)
Mortgage application fee / establishment fee (sometimes multiple buyers)
Real Estate Agent's Commission 4% on first $400k and 2% on balance
Conveyancing fees for both sides of the deal (2 x lawyers fee)
Interest $1,685,152.00 & COOC $174,650 totalling $1790502.00 on one very ordinary house that never makes it to being owned outright, are expenses that many New Zealanders are struggling to pay...
Imagine if you will..... putting most of that $1.8 million back into the hands of New Zealanders?
Imagine for each ordinary house, putting most of $2,906.66 monthly back into the hands of people
Now imagine the impact on more homes!...... and maybe one day all homes!!!