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.