Buying vs Renting a House - The Definitive New Zealand Guide

Our guide provides a comprehensive comparison of the advantages and disadvantages of buying vs renting a house, key factors to consider, such as upfront cost and flexibility, and top considerations when buying or renting a home.

Updated 24 January 2024

Summary:

With property prices sliding in many parts of the country, more Kiwis are reconsidering their financial and housing situation to see if they should capitalise on the current housing market turmoil.
However, many current renters looking to buy may not know the key factors (and unforeseen costs) to consider when transitioning from renting to buying.
Our guide explores the trade-offs between buying and renting a house in New Zealand and provides you with the key information you need to make an informed decision. We also walk through the top facts you need to know and the most frequently asked questions to help build an understanding.
Deciding whether to buy or rent a house in New Zealand is a personal decision that requires careful consideration of your financial situation, goals, and needs. Both options have advantages and disadvantages, and what may be right for one person may not be right for another.
It's important to carefully weigh the pros and cons of each option and do your research before making a decision.
No one knows where long-term rental costs will go, and the fear shared by many New Zealanders is that they will be priced out of the market unless they buy sooner rather than later. While the steep initial deposit requirements (due to record-high house prices) pose a significant obstacle, saving, sacrificing, borrowing and/or being lucky enough to make a deposit gets you away from renting. However, the reality is that this approach will likely create a medium-term financial struggle in pursuing a long-term housing solution.

There is a lot to consider, and as such this guide is separated into four parts:

The first section compares and contrasts buying versus renting
The second section focused on the top considerations when buying a property
The third section focused on the top considerations when renting a property
We also cover frequently asked questions

The Must-Read Realities of the New Zealand Housing Market

In New Zealand, property ownership is highly valued and considered important for a reason - it provides security in retirement. Unfortunately, secure rental options are rare anywhere in New Zealand, and it is unlikely that the situation will improve any time soon.
Additionally, successive governments' on-and-off efforts to increase immigration add to the pressure on housing availability, making it challenging for renters to secure housing for everyone. Land prices are flat or decreasing around many parts of New Zealand while building costs increase, meaning it's not as profitable as it once was to build new homes. This could mean a shortage of rentals later on.
New Zealand superannuation operates under the assumption that retirees own homes free of mortgage payments. We know the reality is very different but the payments do not offer a buffer for rent payments. This NZ Herald article from 2021 confirms 1 in 5 retirees are renting which can be difficult and stressful with no way out.
The prospect of renting for life does not inspire a sense of security. Renters are often (and unfairly) viewed negatively throughout New Zealand and have almost no say in the decision-making regarding their living arrangements. They are often limited to what they can afford and have little power. Property ownership avoids having one's life disrupted by the whims of an apathetic landlord.
The decision to rent for life may seem like a good idea now as it's convenient, but it is impossible to predict how much rental prices may increase. However, rental costs increase over time, whereas mortgage payments remain consistent. Many regret not buying as property prices go up; owning a property provides security in terms of not being subject to sudden eviction, which can be a costly and challenging experience.
At retirement, those who have rented may have to use their retirement funds to pay rent rather than use that money for their leisure and enjoyment. Being debt-free at retirement is crucial, and owning a property increases the likelihood of achieving this goal.

Our View: The decision to own or rent is subjective, and it is important to calculate and evaluate what works best for your circumstances. For some families, owning a property is arguably essential, especially for those with kids and pets, as it provides greater security and the ability to decorate and renovate as desired. Nevertheless, the decision ultimately depends on individual preferences and finances; our guide is published to highlight important factors to consider, not to persuade one way or the other.

Know This: Comparing rental costs to mortgage payments on a dollar-for-dollar basis is not an accurate assessment of the financial benefits of owning a property. Every mortgage payment contributes to building equity, essentially savings in the form of a house rather than a bank account. It is important to consider whether the interest component of the mortgage payment is significantly higher than the current rent, as this is the true expense at play.

MoneyHub Founder Christopher Walsh shares his views on this sensitive topic:

The question of whether to buy or rent a home is something of a luxury, given the current state of New Zealand. Owning a home is moving further and further away for many people as the cost of living makes life harder and harder. The cost of building a home - consents, consultants, materials, land and builders - are at record highs and 'affordable housing' is not a focus.

Rental shortages are forcing prices up, and food and transport costs are rising while wages stay relatively flat. Our research team continues to hear from many New Zealanders who are trapped in a situation earning reasonable salaries but have very little left to save for a deposit (or pay a mortgage) once bills are paid.

It's sad that saving for a home deposit becomes near-impossible without a long period of savings (e.g. many years), windfalls such as inheritance, gifts from parents, or similar. But unfortunately, New Zealand has never been more unequal, and things are not heading in the right direction.

We've published this guide to offer some basic framework and to make people aware of both options to consider the pros and cons of each option and do your research before making a decision. Owning a home does not guarantee that you'll be financially 'free' and 'set for life'; many people have lost money in housing.

Christopher Walsh
MoneyHub Founder

Buying vs Renting in New Zealand

When deciding whether to rent or buy a house, there are many factors to consider. Both options have advantages and disadvantages, and what may be right for one Kiwi may not be right for another. Generally, there are two main hurdles that New Zealanders run into when considering purchasing or renting a house:

1. Upfront Cost

The primary trade-off between buying and renting a house is the upfront cost. When you purchase a house, you need to come up with a deposit (generally 10%-20% of the total price of the house) and pay moving in costs, which can be a significant financial burden.
With the blistering pace of house price rises, particularly in the major cities of Auckland and Wellington, it can feel like prices are running away faster than Kiwis can save even if there is house market price instability.
On the other hand, when you rent a house, you typically only need to pay a security deposit and the first month's rent. Renting has a substantially lower upfront cost, making it a much lower hurdle for people that don’t have a spare few hundred thousand in the bank for a deposit to buy a house.

2. Flexibility

Another trade-off to consider is the level of flexibility. For example, when you own a house, you're tied to that property and can’t easily move to a different location without incurring high costs such as selling, listing and legal fees.
On the other hand, when you rent a house, you can move to a different location relatively easily and without the need to sell your property.

What are the main benefits of buying a house over renting?

1. Building Equity

When you make mortgage payments, you're not only paying off your loan but also building property equity. This equity can be used as collateral for future loans (such as buying an investment property, bach or second home) or cashed out when you sell the property.
In contrast, paying rent each month to your landlord doesn’t build any equity (with some referring to this monthly payment as dead money). While you still get benefits from renting (outlined below), you won’t be able to build equity with the money you’re contributing towards rent payments.

2. Property Customisation

Another benefit of buying a house is the ability to customise and make changes to the property. When you own a house, you have the freedom to make any changes or improvements you desire without the need to seek approval from a landlord.
In contrast to renting, you’ll likely have certain restrictions on what you can and can’t do with the property. Additionally, you’ll have to request express permission to make any changes that you do want to make.

3. Stability and Belonging

Finally, owning a house can provide a sense of stability and a sense of belonging to a community.
When you rent a house, you're at the mercy of the landlord and may be asked to vacate the property at any time - a massive problem for renters all over New Zealand who don't have certainty.

What are the main drawbacks of buying a house over renting?

1. High upfront cost

One of the primary drawbacks of buying a house is the upfront cost. As mentioned above, you need to come up with a deposit and pay legal and moving costs, which can be a significant financial burden.
This upfront cost can be especially difficult for first-time buyers who may not have much savings and will likely take many years to save up the minimum 10-20%. There are ways to get around this high upfront hurdle (such as the KiwiBuild scheme and other support schemes) that we’ll break down later on.

2. Maintenance and upkeep

Another significant drawback of buying a house is the maintenance and upkeep required. As a house owner, you're responsible for maintaining the property and paying for any necessary repairs or renovations.
This maintenance can be time-consuming and costly, especially if you're not handy or don’t have the time or resources to take care of the property yourself.
Additionally, you’ll need to pay yearly council rates which arguably only seem to increase year after year around New Zealand.
All of these costs add up and contribute to the ongoing expense of owning a house in New Zealand.
Know This: Many Kiwis overlook the financial burden of maintaining a home, so ensure the numbers work out if you do decide to buy a house. For a comprehensive tool that works out what size mortgage you can afford, check out our mortgage calculator.

3. Outsized risk of loss

Finally, buying a house can pose a significant financial risk to your wealth in a few ways, especially if the property's value decreases or you cannot make your mortgage payments. Almost all properties in New Zealand have some mortgage component, meaning their “investment” (which in this case is their deposit) is leveraged.
For example, anyone putting down a 20% deposit and borrowing 80% is technically 5X leveraged. In reality, there are other variables to consider (such as the mortgage interest rate, how fast you’re paying down the mortgage and opportunity cost of not investing), but taking a simplistic example, leverage doesn’t change the risk/reward profile of an investment, it only amplifies the gains and losses. This characteristic means that if house prices increase, their gains will be amplified by 5X. On the other hand, if house prices fall, their losses will also be amplified by 5X.
Know This: One of the biggest risks to many Kiwis is that housing in New Zealand has generally continued to rise over the last few decades without any periods of significant decline in prices. However, things are changing and price falls will see their equity they’ve spent decades building up.
For example, if you purchased a house for $1 million with a 20% deposit ($200,000 down), you would be borrowing the other 80% ($800,000) from a bank and would be 5X leveraged. If house prices (and the price of your house) dropped by 20%, your house would only be worth $800,000 whilst you would still owe $800,000 to the bank, meaning your equity would be wiped out. In this scenario, because you were leveraged (through bank debt), your losses were amplified by much more than if you had just purchased the property with all cash.

Transitioning from renting to owning a house

Many Kiwis that are currently renting eventually want to own a house. However, one of the biggest blockades for these Kiwis is the ability to build up a large enough deposit (amongst other things). Therefore, many New Zealaners wonder how to transition from renting a house to buying their place more easily.

The reality is the cost of living is making this harder and harder. Rental shortages are forcing prices up, and food and transport costs are rising while wages stay relatively flat. Our research team continues to hear from many New Zealanders who are trapped in a situation earning reasonable salaries but have very little left over once bills are paid. Saving for a home deposit becomes near-impossible without windfalls such as inheritance, gifts from parents or similar. New Zealand has, arguably, never been more unequal, and things are not heading in the right direction.

For this reason, we cannot suggest quick-wins to save for a home. It's unlikely to be possible without a partner or parental support, and in some cases, you'll need both. This Reddit post from March 2023 explains how hard it is to save for a deposit as a single person in New Zealand.

Here are a few standard steps to transition from renting a house to buying their place:

Save for a deposit: A larger deposit can result in a smaller mortgage and potentially lower interest rates, but it may also require more upfront savings. However, if you’re struggling to save a large deposit, check out our definitive guide to low-deposit home loans.
Determine your budget: It’s important to carefully consider your budget and determine how much you can afford to pay down on the monthly mortgage.
Research mortgage options: Shop around and compare mortgage terms and rates from different lenders to find the best option. Check out our comprehensive mortgage calculator to determine how much you can afford.
Get pre-approved for a mortgage: Talking to a bank in advance and getting pre-approved for a mortgage can help you understand your budget and what you can afford, and it can also make the process of buying a house smoother.
Research the housing market: Look for properties that fit your budget and needs, and consider the potential for the property's value to increase or decrease over time.
Outsource the house-buying process to a real estate agent: A real estate agent can assist you in navigating the process of buying a house and provide valuable advice and guidance.

Related reading: For other top quality tips on buying a house in New Zealand, check out our definitive guide.

Buying a House in New Zealand

Firstly, before doing anything related to buying a house, it's important to consider your budget and financial situation, including your deposit, moving costs, and monthly mortgage payments. It's also a good idea to get pre-approved for a mortgage so you have an idea of how much you can borrow and what your monthly payments will be.

Getting a mortgage is one of the first steps to sort out when you've decided to buy rather than rent. Most home buyers in New Zealand take out a mortgage when they purchase a house. Some considerations when taking out a mortgage include the following:

Affordability: It's important to carefully consider your budget and ensure you can afford the monthly mortgage payments.
Deposit: A larger deposit can result in a smaller mortgage and potentially lower interest rates, but it will require more upfront savings.
Interest rate: A lower interest rate means lower monthly mortgage payments, but you'll likely need a higher deposit.
Mortgage terms: Carefully consider the terms of the mortgage, such as the length of the loan and any fees or penalties, to ensure that it meets your financial goals and needs. If you decide to fix a rate, you'll need decide whether that's for one year, two years, three years or five years. Our guide to fixed vs floating mortgages has more details.

Our view: Buying a home can be stressful; we suggest talking to a mortgage broker to understand your options.

What are some common questions to ask when buying a house in New Zealand?

Buying a house is likely your most significant financial decision ever. If you've decided that buying a house makes sense for your financial situation and stage of life, it's important to ask the right questions to ensure you choose the right house. Some common questions to ask when buying a house in New Zealand include the following:

What’s the age and condition of the property?
What’s the size and layout of the property?
What are the council rates and insurance costs?
What are the parking and storage options?
Are there any zoning restrictions or development plans for the area?
What are the heating and cooling options?
What’s the neighbourhood like?
What are the appliances and fixtures included in the sale?
Does the property come furnished?
What is the potential for the property's value to increase or decrease over time?
Are there any repairs or renovations needed?

Helpful tips to help your search include:

Determine your budget and get pre-approved for a mortgage: This will help you determine the maximum you can borrow and your mortgage payments.
Do your research and carefully consider the property's location, size, and features: Consider factors such as proximity to amenities, schools, and public transportation, as well as the overall safety and desirability of the neighbourhood.
Consider a smaller or less expensive property: A smaller or less expensive property may have a lower deposit and monthly mortgage payment, which can help you save money.
Consider a mortgage with a lower mortgage rate: A lower interest rate means lower mortgage repayments, which can save you money over time.
Make a larger deposit if possible: A larger deposit means a smaller mortgage, resulting in lower monthly payments and potentially lower interest rates.
Consider a mortgage with a shorter term: A shorter-term mortgage means higher monthly payments, but it can also result in paying off the mortgage faster and potentially saving on interest.

Related Guide: Our guide to buying a home has more factors to consider and is a popular resource for first-time home buyers.

Common mistakes made when buying a house in New Zealand:

The top mistakes to avoid when buying a house in New Zealand include the following:

Not doing your research: It's important to carefully consider the location, size, and features of the property, as well as the potential for the value of the property to increase or decrease over time.
Offering too much: 2020-2021 was a property frenzy, but things are changing and with high interest rates, it's a buyers' market.
Not shopping around for the best mortgage rates and terms may involve speaking with multiple lenders and comparing offers.
Not understanding the terms and conditions of your mortgage: Carefully read and understand the terms and conditions of your mortgage agreement to avoid misunderstandings.
Not considering the ongoing costs of ownership: As well as the upfront costs of buying a house, there are ongoing costs such as council rates, insurance, and maintenance that you will need to consider.

Renting a House in New Zealand

Before renting a house, it's important to consider your budget and financial situation. This review includes considering the monthly rent and any additional fees or deposits that may be required. When searching for a rental property, consider the location, size, and features that are important to you.

Before signing a lease, carefully read and understand the terms and conditions of the agreement. This review includes any rules or restrictions on the property and any penalties or fees for breaking the lease.

Some other considerations for renting a house in New Zealand include the following:

Affordability: It's important to carefully consider your budget and ensure you can afford the monthly rent payments.
Credit score: A good credit score may help you qualify for a rental, but it's not always a requirement.
Security deposit: A security deposit is typically required when renting a house and may be equivalent to one or two months' rent. It's important to understand the terms and conditions for returning the deposit at the end of the lease.
Lease terms: Carefully consider the terms of the lease, such as the length of the rental period and any rules or restrictions on the property, to ensure that it meets your needs and budget.
Maintenance: As a renter, you're typically not responsible for maintaining the property, but it's important to understand who is responsible for necessary repairs or maintenance.
Flexibility: Renting a house may offer more flexibility than owning a home, as you can move more easily if your circumstances change. However, it's important to understand the terms of your lease and any penalties for breaking it early.

What tips for renting a house for the first time?

Some tips for renting a house in New Zealand for the first time include:

Determine your budget and what you can afford: This will help narrow down your options and avoid overspending.
Shop around and compare rental options: This may involve speaking with multiple landlords and comparing offers.
Consider the location, size, and features of the property: Consider factors such as proximity to amenities, schools, and public transportation, as well as the overall safety and desirability of the neighbourhood.

Negotiate the rent: If you can negotiate a lower rent payment with your landlord, you can save money on your monthly expenses.
Consider sharing the rental cost with roommates: If you have roommates, you can split the cost of the rent and utilities, which can help reduce your expenses.
Consider renting a house or apartment that includes utilities: Some rentals include utilities in the monthly rent payment, which can help reduce your expenses.

What common mistakes to avoid when renting a house?

Some common mistakes to avoid when renting a house in New Zealand include the following:

Not doing your research: It's important to carefully consider the location, size, and features of the property, as well as the overall safety and desirability of the neighbourhood.
Not understanding the terms and conditions of your lease agreement: Carefully read and understand your lease agreement to avoid misunderstandings or surprises.
Not asking for clarification: If you have any questions or concerns about the rental property or the lease terms, be sure to ask for clarification to avoid misunderstandings.
Not getting everything in writing: Ensure all agreements and terms are clearly stated to avoid any disputes or misunderstandings.

Related guide: Our Tenant and Landlord Obligations & Rights for Rental Property explains more.

Frequently Asked Questions

Can I purchase a house with a smaller deposit (less than 10%) in New Zealand?

It's possible to buy a house with a low deposit (<10%) in New Zealand, but it may depend on your credit score and financial situation. Some lenders may offer low deposit mortgages to help buyers with limited savings. However, you’ll likely have to pay Lender’s Mortgage Insurance (LMI) and a Low Equity Margin (LEM) if you’re putting down a lower deposit.

Our view is the best starting point is talking to a mortgage broker to explore your options.

Can I rent a house with poor credit in New Zealand?

It may be more difficult to rent a house with bad credit in New Zealand, as landlords may be hesitant to rent to individuals with financial difficulties. However, it's not impossible, and some landlords may be willing to work with you if you have a stable income and can provide a larger security deposit. It may also be helpful to have a co-signer or guarantor with good credit to help increase your odds of being approved for a rental.

Is buying a house riskier than renting?

As outlined above, there are significant risks when buying a house, mainly due to the leveraged nature of a housing purchase:

This risk exists because the value of the property can fluctuate, and there is a risk that the value may decrease. If this happens, you may be unable to sell the property for as much as you paid, resulting in a financial loss.
Additionally, there is a risk that you may be unable to make your mortgage payments, which could result in the loss of the property through foreclosure.
However, it's important to note that a house can also be a good investment if its value increases over time. In this instance, you might be able to sell the property for a profit.

Is it better to buy or rent a house in a high-priced market like Auckland?

Whether it's better to buy or rent a house in a high-priced market like Auckland depends on your financial situation and goals.
Renting is a feasible option if you cannot afford the upfront costs of buying a house or are not ready to commit to a long-term mortgage.
However, buying a house may be a good investment if you can afford the costs of owning a home and have a long-term plan to stay in the area.
It's a good idea to consider the pros and cons of each option and do your research before making a decision. New Zealand is an expensive place to live - owning a home is not a guarantee that you'll be financially 'free' and many people have lost money in housing.

What are some alternatives to buying or renting a house in New Zealand?

Some alternatives to buying or renting a house in New Zealand include:

Renting a room or shared accommodation can be more affordable than renting a whole house or apartment.
Living in a retirement village or assisted living facility: These options may be suitable for seniors or those needing assisted living.
Owning a recreational vehicle (RV) or tiny home: These options may offer more flexibility and mobility, but it's important to consider the ongoing costs and any zoning restrictions.
Living with family or friends: This can be a more affordable option, but it's important to carefully consider the impact on your relationship and the need for privacy and independence.

Will renting prevent me from buying and owning a home in the future?

No - however, it's important to consider your financial situation and whether you can save for a deposit and afford the costs of owning a home.

If you can't save enough for a deposit or afford the costs of owning a home, it may be more financially feasible to continue renting. However, if you can save and afford the costs of owning a home, it may be a good idea to consider buying a house.

Is renting a house more costly than buying a house long-term?

There is no definitive answer. In some instances, renting a house may be more costly than buying a house in the long term. This cost exists because when you rent a house, you're paying for someone else's mortgage and building equity for the landlord rather than yourself.

However, it's important to consider the upfront costs of buying a house, such as the deposit, moving and legal costs, as well as the ongoing costs of ownership, such as council rates, insurance, and maintenance. These costs can add up over time and may make buying a house more expensive in the long term.

It's also important to consider the potential for the value of the property to increase or decrease over time. If the value of the property increases, you may be able to sell the property for a profit. If the property's value decreases, you may be unable to sell the property for as much as you paid for it, resulting in a financial loss.

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