How Much Should You Really Spend on Housing Costs?

The question of how much to spend on housing has no single correct answer. What works for one household might be completely wrong for another, even at the same income level. Family size, location constraints, career stability, other debts, savings goals, and personal priorities all influence what is genuinely affordable for you. That said, some guidelines and frameworks can help you evaluate whether your housing costs are sustainable.

Beyond the Mortgage Payment

A mortgage payment is only part of the cost of owning a home. Include the property’s actual council rates, insurance, maintenance and repair needs, utilities and any ownership-specific charges rather than relying on a generic monthly allowance.

For a realistic budget, use the repayment schedule, current rates and insurance bills, average utilities, known maintenance and repair needs, and a provision for irregular costs. Property age, condition and planned work matter, so no fixed percentage of property value is a reliable maintenance allowance for every home.

If you own a unit title property, body corporate fees add another significant cost. These fees can be substantial, especially for properties with lifts, pools, or other amenities, and they can increase significantly over time. Always factor in actual or expected body corporate costs when calculating total housing expenses.

The Traditional Guidelines

Housing-cost-to-income percentages can describe part of a household budget, but they do not establish what is affordable for a particular borrower. Gross-income ratios omit tax and do not capture household size, essential expenses, debts, irregular bills or likely changes.

A higher housing-cost share leaves less income for other uses, but no single percentage predicts whether a household will experience hardship. Check the cash surplus after essential expenses and debts, and test the effect of income disruption and unexpected costs.

Lenders must make reasonable inquiries and be satisfied that repayments are likely affordable without substantial hardship. Their methods and credit policies vary. Reserve Bank DTI restrictions are bank portfolio limits and do not replace the lender’s affordability and suitability assessment or create an entitlement to a particular loan amount.

Stress Testing Your Budget

Interest rates and repayments can change. Model the loan using the actual terms offered and several higher-rate scenarios, and include likely changes in other household costs and income.

There is no universal two- or three-percentage-point stress test that proves a loan is affordable. Compare scenarios with the full household budget and ask the lender how fixed-rate expiry, fees and repayment changes would affect the proposed credit.

Consider the reliability and likely changes of each income source rather than assuming that a particular number of earners is safer. Test the budget for reduced or interrupted income and record what contingency options are actually available.

What Gets Squeezed

When housing costs leave too little cash after essential expenses, households may defer savings, necessary maintenance or other goals and may struggle with irregular bills. KiwiSaver contribution effects depend on the member’s current settings and circumstances, so check the current rules before changing contributions.

“House poor” is an informal description, not a financial threshold. Warning signs can include repeated payment difficulty, reliance on new debt for essentials, deferred necessary maintenance, or no capacity for irregular bills; seek help early if repayments are becoming difficult.

Children add significantly to household expenses, and these costs are often underestimated by first-time parents. If you are planning a family, consider how childcare costs, reduced income during parental leave, and ongoing child-related expenses will affect your ability to manage housing costs. What seems manageable as a working couple may become a struggle with children.

Finding Your Personal Balance

Rather than blindly following percentage rules, work through what housing costs actually mean for your life. Start with your after-tax income and subtract fixed commitments: housing costs, insurance, minimum debt payments, and transport to work. What remains is what you have for everything else: food, healthcare, clothing, children, savings, entertainment, and unexpected expenses.

If the remaining amount does not cover essential and irregular costs, revisit the housing budget and proposed credit. A current surplus does not guarantee future affordability, so test realistic changes and obtain regulated financial advice if the decision depends on personal circumstances.

The goal is not to spend as little as possible on housing or to maximise what you borrow. It is to find a balance that gives you a home you are happy with while preserving financial flexibility and quality of life. That balance is personal and depends on what matters to you. Understanding the trade-offs involved helps you make a conscious choice rather than drifting into a situation that causes ongoing stress.