January 19, 2022

Coffee and houses

The idea of cutting down on lattes to be able to afford a house has cropped up again. The proximate cause is a Newshub story that doesn’t quite go there — but it does talk about rent costs and mortgage rates and about satisfying a home lender under the new CCFA credit provisions, so it’s pretty close.

Now, first, I will agree that there are almost certainly people out there who haven’t emotionally grasped that buying 200 flat whites, one per day, costs (say) $900 that you could have spent on a $900 thing instead.  I don’t know if those people are likely to be helped by the story, but maybe it’s worth a try. At the level of housing, though, $900 in a year — or even two coffees every single day, for (say) $3300 — gets you nowhere in comparison with housing price inflation.  The same is true for avocados — maybe avocado toast in a cafe costs more than a coffee, but you don’t have it every day.

You might say that coffee (or avocado) is just one example, and that the point is to pay continuous and obsessive attention to shaving the costs of everything you buy. But to keep up with the rising cost of a mortgage deposit many people would have to save more than their entire discretionary income; shaving pennies isn’t going to get you there.

Perhaps most importantly, though, these approaches can’t work for most people because the housing crisis in New Zealand isn’t due to a shortage of money to spend on housing. We’re collectively spending too much money on housing. Cutting down on coffee or avocado or any other discretionary spending, so as to put more money into the real-estate sector, isn’t going to make housing more affordable on average, even if everyone does it.

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Thomas Lumley (@tslumley) is Professor of Biostatistics at the University of Auckland. His research interests include semiparametric models, survey sampling, statistical computing, foundations of statistics, and whatever methodological problems his medical collaborators come up with. He also blogs at Biased and Inefficient See all posts by Thomas Lumley »

Comments

  • avatar
    Nick Iversen

    The Spinoff makes the same point https://thespinoff.co.nz/society/20-01-2022/save-for-a-house-deposit-with-these-foolproof-tips “These are all simple tips and this one will see you stepping over the threshold of your new home in 2124.”

    Things have changed slightly for the better since I bought my house in the 80’s. In those days with interest rates at 20% not only did I have to scrimp and save to get a deposit I had to lick my bank manager’s bum to get a mortgage. Sorry, two bums because everyone needed a “second” mortgage. Nowadays no licking required.

    PS – the 1980’s

    2 years ago

    • avatar
      Megan Pledger

      I know a few people who have bought first homes recently and the dive into their spending habits was incredibly intrusive. The more things change, the more they stay the same.

      2 years ago