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How would you spend an extra $77k

Cars are great for a huge number of things but at the same time they also cost a lot of money, not just to buy but also to keep running. When talking about running costs most people immediately think about fuel prices but that is only one part of the equation as when other things are added e.g. registration, maintenance, insurance, depreciation, as well as possibly finance costs then things quickly add up to the thousands. These running costs tend up be up around the amount of $7k-$8k per car per year. Due to the way that the city and the country in general has developed, it means that for most people not having a car is impractical and of course opponents to projects like the CRL will happily remind us of that. Now I actually agree with some of that line of thought, for example my parents live in a semi rural part of Auckland and without a car there is no practical way for me to visit them, but I think where things fall down is the number of cars that households need.

One of the biggest benefits of having a strong public transport system in a city like Auckland is that it means households can get away with only having one car and by doing so they have the ability to save substantial amounts of money which possibly it might enable them to buy a better house. I am going to look at two situations where having only one car could make a difference in someone’s life.

Situation 1

A young couple are looking to buy a house, both work in different parts of the city and they each drive to work every day in their own cars. Lets say they both earn a salary of $50k so plugging there details into a loan affordability calculator we get this: (note I have used the ANZ calculator simply because it has the number of vehicles built in and I don’t feel like doing a full made up budget)

Being able to buy a house up to $770k is pretty good although most likely people will want to have a lower loan to value ratio than 95%. But what happens if our PT system was was good enough that they could get to work and other activities using that instead of having to drive.

By simply reducing the number of vehicles that the couple have to 1 they can now afford a house worth up to $77k more than they could before which in this particular case represents a 10% increase in affordability. The interesting thing is changing numbers in the calculator around shows that regardless of your income, each extra car you have impacts affordability by the same amount of $77k. The reason for this is simple and relates back to the fact that cars cost a lot of money to run and by not owning a car you have more money that you could use to pay a loan.

Scenario 2

In this case we have a young family that are struggling to get by, they are renting a house and again both adults work in different parts of the city and both drive to get to work. Due to the need to drive they spend a lot of their income on keeping the cars on the road which are primarily for them to get to and from work. This puts a lot of pressure on their finances which means that often their kids miss out on things, an all too familiar story in some parts of the city. Now once again lets think what difference could be made as a result of having a decent PT system, the improved service allows both parents to use PT to get to work and even though they have to pay for their bus/train it still works out substantially cheaper than driving. This allows them to get rid of one of their cars keeping the other one for times when the whole family need to be shuttled around. As a direct result of this the family are able to save thousands per year which is money that they can use to improve the quality of life for them and their children.

 

It is pretty unlikely that we will see the city develop to the point where a large number of households don’t need a vehicle at all any time soon but one of the biggest benefits of an improved PT system is that we should be able to reduce the number of cars that we need. This will reduce the amount of money we each spend on transport and that is money that we can put to other uses whether it be from buying a better house to helping to feed the family. To me this is one of key reasons we need to really develop a quality PT system and it was exactly the reason why my wife and I decided to pick a house within walking distance of a rail station. As a result we have only needed one car which has been a huge saving and I can only think of one or two times over the last 4 years where having a second car would have been useful.

23 comments to How would you spend an extra $77k

  • But, all going as hoped, by 2015/16, many, many, more people will be able to live in many, many, more parts of Auckland either:

    1. without a car
    2. with fewer cars per household
    3. with the option to leave their cars at home more often when they feel like it

    And be able to much more efficiently operate across the wider city.

    Because of the three interlinked changes that AC/AT are undertaking:

    Integrated Ticketing and fares
    Redesigned and Integrated Networks
    Electrification and new Trains

    And this is a total revolution for Auckland as not since the 1950s has this really been even slightly possible for people outside of say Waiheke, Devonport, or the inner city and suburbs. And even then it’s been hard to rely on PT all the time, especially outside of the commuting hours.

    Potentially transformative of many households’ finances at all sorts of levels. And therefore of the economy of the city as a whole too.

  • Harvey Specter

    Prior to getting a car recently, I was reliant on Public transport and my wifes car.

    Similar to your calculations above, I use to justify being able to catch the odd taxi home ($30ish) on the basis if I had a car, it would cost $2k+ before I even drove it anywhere.

    Unfortunately now that I do have a car, I dont have that excuse so end up waiting around for buses (I catch PT most days still) which can be annoying if you just miss one and the next one isn’t for 30 minutes.

  • Peter M

    Great post Matt. Access to PT is a critical consideration when I choose where to live or work primarily because I really don’t want to have to become a 2 car family.

  • I was car free for the last five years living overseas, and as I figure it the money I saved in that time was enough to pay the fees on a university degree and half of a six month overseas trip. That was a very worthwhile trade off living in a place where driving was usually more of a hassle than taking public transport.

    I got a car shortly after coming back to Auckland, but I’ve recently chosen to move to a place where I won’t need one (which in Auckland basically means the central city, a little unfortunately) so I’m looking forward to flogging it again. Selling my cheap car will free up a small sum, enough to finish building my bike and buy a couple of pieces of new furniture for the new place. But more importantly like Matt has outlined above I’ve factored transport costs into my ability to service a mortgage. Without a car and living centrally my transport costs are going to plummet to about a hundred dollars a month (most of that discretionary too, I will be able to walk to work and the supermarket), which means I’ll have an extra three hundred or so a month for repayments. I worked out that in my entry level market sector, that reduced outgoing allows me to afford a place 35% more expensive than if I had to run a car.

    Admittedly I don’t have a family to run around and I’m more enthusiastic than most in regards to public transport, walking and cycling so it is easy for me to make that choice… but even if I lived in the suburbs with a family I’d have a real hard time justifying more than one car, particularly if I worked in the city. How many families have a second car they only really need to get one person to work on weekdays?

    Here’s another aspect that one might have to factor in to the equation: the cost of parking at home. Now some people have the luxury of free council subsidised roadspace to park in out front of their home, but in many cases you have to park on your property. A single carpark needs about 15m2 plus usually as much again for access to it. Allowing for two cars on a property consumes perhaps 60m2 of land area in parking and driveways. It’s usually pretty hard to work out the cost of a carport or a large garage, but at the end of the day you pay for it one way or another. It’s easier in the apartment sector, a standalone carpark in the city will cost you $40k to $80k depending on the position. A carpark in the basement of an apartment building adds about $60k to the price. In that context an extra car costs you $60 to $110 a week just to have somewhere to keep it. Of course that’s the upper extreme across the city due to the high land prices in the CBD but land, or garages or basement structures, still costs money no matter where you are.

    • Harvey Specter

      Buying a second car is definitely a luxury and my choice of wheels indicates it is more of a toy than a practical family vehicle.

      We could have got by easily selling the small car, buying a bigger family wagon and having plenty of coin left over to pay for my occasional taxi from Newmarket to the Shore ($40+, compared to $30+ when I worked in the city).

      Life isn’t aways about making the sensible decisions, you need to enjoy life aswell.

      Note: Before I went over seas, I also did 4 years living in a CBD apartment without a car and then 3 years in the UK without a car so I feel justified with my toy.

      • Sure, so that puts the ‘toy’ car on the same level as overseas trips or a flasher house. Turning money lost to basic transport into luxury discretionary spending.

    • Vinny

      Thanks Nick for doing the sums re offstreet parking. The first thing we did when we bought our house in Te Atatu was to smash up the car pad, that took up 50% of our small garden, and leave a path in its place. Naturally many of our fellow Westies were horrified to see us doing something that was not V8 friendly but now we have space for our daughter to run, play and imitate Dora the Explorer.

      • Owen Thompson

        So instead of parking on your own property, you park on the ratepayer-funded road? Your daughter could actually have played on concrete.

  • Ash

    NZ’s over-reliance on cars is tantamount to a very stealthy tax on all productive citizens. I think the reason cars are not seen as such is that they provide a very convincing illusion of the freedom that is portrayed in car advertisements. Another reason is that people, perhaps unsurprisingly, are quite partial to the ‘extension of living room’ notion that cars provide them in their door to door journeys.

    Fewer than 50% of households in London own a car at all. Whilst London’s transport is ‘beyond the horizon’ in terms of what is realistic for Auckland in the short to medium term, there’s a huge amount of low-hanging fruit. First it will be downsizing family vehicle ‘fleets’ (chuckle!) and for some citizens, going car-free.

  • greenwelly

    @Ash “Fewer than 50% of households in London own a car at all”

    Close but not quite true,

    The percentage of households with no car ownership was 43% in 2009/2010, 42% have one car, while 16% have two,

    http://www.dft.gov.uk/statistics/tables/nts9902

    • I assume you mean two or more for the last figure?

      And for Auckland (2006) the percentage of households with no car ownership was 7%, 33% have one car, 55% have two or more.

      • And even a small shift in the frequency that all these cars are used will save the country a fortune in imported fuel and billions in deferred/cancelled highway overbuilding.

        And do so much more to reduce congestion than building more roads to the width and condition of their potential peak use.

  • Stu Donovan

    Very interesting post – and yup big savings to be made here. Especially if the economic cost (as opposed to financial) of parking is included.

  • Sean - Sydney

    No wonder people are up their eyes balls in debt and housing prices are so high in NZ when it is determined that 2 people on a very low salary of $50k can afford a $770k mortgage! These ratios need to be bought down a little and maybe house prices will become affordable again.

    • Owen Thompson

      The combined income of my wife and I is much less than $50 000. So to me this is a high income and realistically something I have no hope of obtaining, based on the fact that I am “lucky” to work two days per week.

  • Hamish O

    I don’t know the exact statistics, but NZers definitely spend a lot more money on transport than in other parts of the world. You would think that this would stand on it’s own in explaining to our more right-wing parties that building more and more motorways does not work, and that their political ideology is at the expense of our quality of life – something that in car dependant NZ is supposed to be high.

    Not to mention the economic cost of all the urban sprawl this generates.

  • Grum

    Matt if you would buy an 850 k house on 100 k joint income with 5% deposit you are one way out crazy man.

    • Matt L

      No I wouldn’t but the whole point is to show the difference it makes by not having that extra car. As I said in the post, I don’t think that most people would want a loan at 95% LVR if they can help it.

  • SteveC

    not only will they lend you more, your deposit went up by $4k!

    • Scott

      The calculator is working on a 95% loan to value ratio, so more deposit is required to maintain the 5% equity stake. Of course I think taking out the maximum loan a bank will give you with only 5% deposit is nuts (despite it seeming to be common in NZ).

  • Ak-Sam

    I’ve heard young couples try to justify $100k extra on a house mortgage because it has a double garage, or off-street parking for their second car (which is likely worth less than $10k).
    Double garages for new homes are the norm – but a perhaps a bit wasteful when you consider that they add about 3m to the width of each new lot. Then you have the impervious surface, driveway cost, etc. Cars don’t rust away easily these days – it’s time to kick them to the kerb!

    • Scott

      It would be interesting to know what percentage of garages in NZ are actually used for car storage (rated number of cars). Ours is mostly a workshop and general storage (yachts (and associated bits), kayaks, bikes etc). I would guess many houses in NZ are the same.

      If you own a trailer or two you need to put them off street. Legally you can only leave them for a few days on street in NZ (which is great, in the likes of pittwatter (Sydney) the roads are littered with wheel clamped trailer boats that look like haven’t been used for months.

      The skeptic in me says so many housed get built with a double garage as you can add area (square meters) cheaply by avoiding expensive bits of the building code like insulation etc.

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