Kiwis love to invest in houses – both financially and emotionally. Home ownership is seen as a significant marker of success and wealth. It’s the achievement that sets you up for life.

But is it the only way to build financial security?

When you’re not on the housing market, especially when your friends are, it’s easy to feel like a failure, and to worry about how you’ll build your wealth.

More than 1.4 million people lived in rented houses at the last Census and a 2020 survey by Renters United found that 50 per cent were ‘concerned or worried’ about their financial future, with 13 per cent saying they were ‘scared’.

But although houses are the most popular way to build wealth, they’re far from the only strategy.

How to bridge the gap

“When you see everybody around you buying houses, you can feel like you’re falling behind,” says Tom Hartmann, personal finance lead at Sorted.

“In terms of retirement planning, it all comes down to understanding what NZ Super provides, what lifestyle you want, and what the gap is between the two.

“There are many different ways to bridge that gap, and everybody needs to find the way that works best for them.”

It’s a kind of forced saving

Home ownership is sometimes seen as a kind of ‘forced savings’ because homeowners usually make paying the mortgage their number one priority.

Over time, this investment compounds and helps them build wealth, giving them a place to live in retirement without the concern of rising rents or being asked to move out.

Owning a house over several decades does build equity and provide security, but it isn’t necessarily a golden ticket.

On the flip side, while renting does have inbuilt instability, it doesn’t have to put you on the back foot financially.

“Our retirement system wasn’t built for renting, but there are ways around that – though it takes some forward planning,” Hartmann says.

“On paper it’s been proven numerous times that owning a home can be a liability and you can do better investing outside that.”

When you’re renting and trying to build your wealth, one way is to commit to your investments with the same kind of determination that homeowners commit to their mortgages.

Make investments a priority

“It’s the same advice as always,” says Shamubeel Eaqub, the co-author of Generation Rent.

He rented for many years before starting a family and buying a home in 2017.

“Save a sustainable amount of your income regularly, in a relatively low-fee and right risk product, for example, if you’re young, saving more of your money in growth or aggressive funds.

“And use any other tricks you can to increase your contributions, like investing a big chunk of your pay increases before you get used to the money being in your bank account.”

Eaqub has previously said that renting was the best use of his and his wife’s money, because it gave them the opportunity to invest in businesses that not only grew their wealth, but also created jobs and profits for other New Zealanders.

But while owning a house has given the family stability, that comes with opportunity costs.

Hartmann, too, points out that investing in business has the potential to provide far better returns than property.

Look at it like a business

Joel Oliver, director of SuperCity Mortgages, and his partner rent and have no plans to buy a home.

“Kiwis are so ownership-driven, but if you can take the emotions out and look at the numbers, there can be major advantages to renting,” he says.

Instead, he’s invested his money in their businesses, plus a diversified portfolio which includes shares and rental properties.

“I can rent a $4 million home on a clifftop with an ocean view for the same price as a mortgage on a $1.5 million home,” Oliver explains.

“Some people will say that’s throwing money away, but then I can use my capital to invest elsewhere. I can diversify.”

It’s all a matter of personal choice, he says.

If you want to commute for two hours a day just to be on the property ladder, that’s up to you. But is the lifestyle sacrifice worth it?

Taking into account your mortgage, rates, insurance and maintenance costs, it’s possible to live in a better location, have more free time and still build up a strong financial position over the years.

“I meet people who say, ‘I don’t want to pay someone else’s mortgage’ and that’s as far as the conversation goes,” he says.

“But look at it like a business, rather than being emotive. It all goes back to your investment goals. The numbers don’t lie.”

Don’t compare yourself

The Real Estate Institute of New Zealand identified FOMO (Fear of Missing Out) as a big driver of recent house price hikes. First-home buyers were overbidding just to get on the property ladder. However, FOMO’s hard to avoid.

Renters can feel envious when they see TV advertisements and newspaper stories about people scraping their way onto the housing ladder or see social media posts from friends and family members looking blissfully happy in their homes.

Trying to avoid the comparison trap can help you focus on making the best financial choices for your situation, whether you own a home or not, says Hartmann.

“One of my favourite quotes is: ‘Comparison is the thief of joy’,” he says.

“There are some advantages to owning a home, but that does not categorically place renters at disadvantage. On paper, provided you have a good savings rate, you can do even better over time.”