Is a house really an investment?

Owning your own home is the dream of many people.

While it usually requires a lot of money, can it really be considered an investment?

Here are some arguments for and against.

It does not provide income

Graeme Fowler, a property investor and author of 20 Rental Properties a Year, said people’s own homes should not be seen as investments because they will always need somewhere to live.

“Whether you’re renting or buying. If you own your home now and it does go up 30 per cent in value over the next five to 10 years, then when you go to buy another home, the other homes you want to buy will also go up by a similar amount. So it’s not really an investment.”

He said an investment is something that someone else pays you to own.

“You own the house, you pay for it yourself, so it’s not an investment.

“Examples of ‘investments’ include residential rentals or commercial property. You pay a small deposit upfront – which may not be necessary if your asset is in good shape – and the tenant then repays the mortgage. This of course only applies to principal and interest loans, not interest-only loans. Your own business can also be an investment.

“Generally, your own car isn’t an investment, but if you use it as a taxi or Uber, then it is an investment. The same goes for fridges, washing machines, TVs, etc. I used to own a Mr Rental franchise and we rented these and many other items to customers. That made them ‘investment’ items.”

He said investment assets should put money into your bank account, while liabilities should take money out.

But Westpac chief economist Kelly Eckhold said a house could bring returns in the form of a place to live.

“You receive housing services throughout the period you own your home.

“You don’t have to pay the rent you would have to pay to have a place to live.”

Initially, the cost of owning may be higher than the cost of leasing, but over time, the situation usually reverses.

While the full rent is a cost to the tenant, part of the mortgage payment also goes toward paying down the loan principal, which increases the owner’s equity.

Use rights

Auckland Property Investors Association general manager Sarina Gibbon said a home was a huge, exploitable asset for many people.

Once a homeowner has built up equity, they can often finance other investments or purchases through a mortgage.

“It makes sense to think of accumulated equity as a possible springboard to financial health.

“On the other hand, I firmly believe that home is home. It should be a sanctuary that you return to every day for comfort and recharge. You can decorate your nest however you want.

“I think housing has leverage potential that most New Zealand households cannot ignore, but I would hate to see anyone go so far as to forgo reasonable comfort purely to maximise their wealth.”

A solid foundation for retirement

Having a paid-off home with no mortgage will go a long way when you are living on your savings or pension in retirement.

Accommodation subsidies are sometimes provided to retirees who struggle to afford accommodation, but Greypower has previously said rent can eat up a large portion of a superannuation.

Researchers at Massey University investigated the housing conditions of retirees and found that most retirees live comfortably and are happy.

But when housing conditions are poor, it can lead to poor mental health, reduced quality of life and increased falls.

Downsizing options

Some plan to sell their existing homes and buy a smaller one or a home in a cheaper area to help fund their retirement.

Kelvin Davidson, chief real estate economist at CoreLogic, said he suspected reality sometimes differed from theory.

“You may have planned to downsize, but discover when retirement comes that you still prefer a bigger home and a better location.

“Despite this, we are still seeing it happen. Of all ‘home movers’, we estimate that around 21% have recently downsized, which is higher than the 19% average.

“The large amount of equity created in the wake of the pandemic is likely to have helped, as is the development boom which has created more small dwellings. A trend towards smaller dwellings will also be natural in the long term due to an ageing population.”

No guarantee of value increase

Judging from recent years, prices are not necessarily guaranteed to rise.

Although home prices will most likely be higher after a lifetime of homeownership, future price increases may not be as large as in the past — and the market may be soft by the time you want to sell.