The new world of flatting

Flatting… It’s a rite of passage that teaches vital life lessons: how to get along with people; the importance of sharing; the need to label food in a shared fridge; and that unwashed dishes can trigger World War III.

Historically, co-habiting has been an intrinsic part of growing up, when leaving home to start a first job, study at university, or go on the big OE. But the world of flatting is changing.

House prices have soared, wages have stagnated and housing has become less affordable. During the past two decades the average household debt, including home loans, has climbed 60 percent, intensifying the pressure of meeting mortgage repayments.

It’s not just 20-somethings and young families who are affected. According to last year’s government report, A stocktake of New Zealand’s housing, baby boomers are also feeling the pain. The document highlights the growing number of people heading into retirement without a debt-free home, and their reliance on the rental market.

Faced with this housing squeeze, preconceptions about home-sharing have changed while, thanks to the internet, finding a housemate is only a click away. As a result,

it’s never been easier, or made more economic sense, to harness the power of a lodger to help you navigate the fiscal challenges of home ownership.

SHARED SOLUTIONS

If you’re a homeowner, the premise behind getting a flatmate in is simple: their rent helps pay your mortgage. But across demographics, the added benefits of sharing a home with a lodger vary at different stages of life.

For young people, getting a foot on the property ladder remains a strong ambition. Record low interest rates, softening house prices and the rising influence of the Bank of Mum and Dad in securing a deposit have seen first-home buyers return to the market in record numbers. For these new homeowners, renting out empty rooms is a no-brainer. The burden of their mortgage, and other costs of home ownership, are shared while they also reap the social benefits of living with likeminded peers.

For homeowners with young families, taking in a lodger or boarder can make a big difference to budgets stretched by supporting a brood of dependents. In a busy household with children, short-term renting is a more flexible option than a permanent tenant. For this reason, taking in an international student is ideal. There’s quite a market for accommodation for eager young visitors, who come not just to learn, but to immerse themselves in Kiwi life.

Perhaps the biggest change in the flatting landscape is being experienced by those who may have thought their flatting days were long behind them: middle-aged divorcees and those facing retirement.

A marriage split can be traumatic emotionally, without the added financial worry. As assets are divided and household incomes split, often all parties are forced to sell up and move. Or one partner may try to buy out their ex and hold on to the family home. Either way, with just one income it’s often quite a stretch. Some turn to bringing in a paying guest to alleviate the financial strain. In the short term, it can make the financial difference that allows one partner to remain in the family home. Moving forward the extra income can be a welcome supplement as they establish a new life.

What to do with the family home is also a common concern for pensioners, who often consider downsizing. A large, empty house is expensive to run and maintain – but many are loathe to leave a home full of memories. For those mourning the loss of a loved one, companionship is also an issue. That’s why flatting is an increasingly attractive option for retirees. Not only does it bring in added income, it affords companionship too.

HOME TRUTHS

Googling for flatmates offers a selection of websites – including Trade Me, Roomster and NZflatmates – but if you’re considering sharing your home, it’s essential to do your homework. There are tax implications, insurance is big concern and, of course, you don’t want to unwittingly invite Hannibal Lecter into your home.

Vetting

Unless you know your flatmate’s backstory, it’s essential to check their references. Ask for details of their previous landlords and follow them up. Even if you’re sharing with a lifelong friend, sign an agreement that covers rent, deposit, conduct and notice periods. The Tenancy Services website has a helpful template you can download. If you’re a landlord renting out a property you’re not living in, you and your tenants must sign a legal tenancy agreement, which covers you all under the Residential Tenancies Act. If you take a lodger into your own home, no such rules apply, and your only course of redress is through the Disputes Tribunal. Therefore, having a set of defined and signed house rules is invaluable should a problem arise.

Insurance

It pays to read the small print in your insurance policies if you’re taking in a paying guest.

Westpac’s home policy states: “You must tell us if the occupancy of the place you live in changes. For example, you change from living on your own to living with flatmates.”

ANZ’s goes further with various clauses about house guests, requiring you to inform them if anybody in your home is convicted of a crime, adding an extra $250 excess for boarders and flatmates, and excluding payments for: “burglary, theft, malicious or deliberate damage committed by anyone who normally lives with you, including a boarder”.

Therefore it’s imperative to understand your policies and talk to your insurer about how they are affected by flatmates.

Tax

Fortunately for most people renting out a spare room, bad tenants and willful damage are of little concern. However, when you ask a paying lodger into your home, you also invite the taxman – who considers rent money to be taxable income. There are different rules, covering the number of boarders and what services you provide. And you’re allowed to claim numerous expenses, for example, a weekly threshold of $266 per boarder if you provide meals. The Inland Revenue website has more information; just ensure you keep full records of all your financial transactions.

A little over a decade ago, two roommates in San Francisco decided to rent out an airbed on their living room floor to earn some extra cash. Ten years later, both are billionaires and Airbnb has grown to become a global behemoth. It’s a success story built on the possibilities of a single spare room.

If you have unused space in your home, you can make it work for you. From extra money in the household budget, to the social benefits of living with a lodger, owners of all ages are finding that an empty room is a space full of potential.

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