Scraping together a deposit is likely to be the biggest hurdle first home buyers face, and not just in Auckland

By Greg Ninness

Scraping together a deposit is likely to be the biggest hurdle for first home buyers, and not just in Auckland as rapidly rising prices in other regions start to push home ownership increasingly out of reach for many in other main centres, according to interest.co.nz's Home Loan Affordability Reports for November.

The reports track the movement in the Real Estate Institute of New Zealand's lower quarter selling price of homes sold in each region every month, and compares that with movements in interest rates and the median income of couples aged 25-29 (both working full time) in each region, to measure changes in affordability for typical first home buyers throughout the country.

The reports also measure how much the typical first homes buyers in each region would be able to save towards a deposit on a home if they put 20% of their net pay every week into an interest bearing savings account for four years.

For those hoping to buy their first home in Auckland, the results are grim.

According to the report, the combined median pay (after tax) for an Auckland couple who are both are aged 25-29 and working full time is $1591.77 a week.

If they had saved 20% of their net income for four years (allowing for movements in wages and interest rates) they would have have built up $72,862 to put towards a deposit.

That may seem like a tidy sum, but unfortunately in Auckland  house prices are so high it is not nearly enough for a 20% deposit on a home, even at the lower quartile selling price.

Half what's needed

The lower quarter selling price in Auckland was $717,200 in November, which means the typical first home buying couple's savings would only give them a 10.2% deposit, almost exactly half the amount they would require for a standard mortgage.

That means they would need to borrow about 90% of the purchase price of a lower quartile priced home, and that is getting into high risk territory.

Even if a bank was willing to provide a 90% mortgage, it would likely be charging a premium interest rate and would probably also require the borrowers to take on additional costs such as mortgage protection insurance, making it even more difficult for them to stitch together a deal they could afford.

Separate Home Loan Affordability Reports are available for each of the following regions and cities (click to view).
Northland Regional
Whangarei
Auckland Regional
Rodney
North Shore
Auckland Central
Waitakere
Manukau
Papakura/Franklin
Waikato/Bay of Plenty Regional
Hamilton
Tauranga
Rotorua
Hawke's Bay/Gisborne Regional
Gisborne
Napier
Hastings
Wairarapa
Taranaki Regional
New Plymouth
Manawatu/Whanganui Regional
Palmerston North
Whanganui
Wellington Regional
Wellington City
Hutt Valley
Kapiti
Porirua
Nelson/Marlborough Regional
Nelson
Canterbury Regional
Christchurch
Timaru
Central Otago/Lakes Regional
Queenstown
Otago Regional
Dunedin
Southland Regional
Invercargill
All of New Zealand
 

If they did manage to secure a 90% mortgage to buy a lower quartile-priced home, then the mortgage payments would take up 47.3% of their household income, before allowing for other property related costs such as insurance, rates and maintenance.

That puts the cost of a lower quartile-priced home squarely into the unaffordable category for young people earning average wages in Auckland.

A key reason housing has become so severely unaffordable in Auckland is that there has been a huge surge of migration into Auckland over the last three years, with Statistics NZ estimating that migration now accounts for two thirds of Auckland's population growth.

Because the increase in migration has occurred so quickly the construction industry has been unable to keep up with the demand for more housing, creating a growing shortage.

That, combined with record low mortgage interest rates, has pushed up house prices, particularly at the affordable end of the market.

Over the last four years the REINZ lower quartile selling price in Auckland has increased by almost two thirds, rising from $436,000 in November 2012 to $717,200 in November 2016.

Over the same period, the median after tax pay for a working couple aged 25-29 has only increased by 7.7%.

That combination of a huge increase in house prices but only a modest increase in median wages has pushed the cost of a home beyond the means of first home buyers on average wages, both in terms of being able to save a sufficient deposit and of being to afford the mortgage repayments.

Affordability problems spreading

And there are signs that the affordability issues that have been felt in the Auckland market for the last few years are also starting to become an issue in other parts of the country.

According to the Home Loan Affordability Reports, there are now six regions in the country where typical first home buyers would not be able to save a 20% deposit for a lower quartile-priced house if they saved 20% of their after tax pay for four years.

As well as Auckland, first home buyers in Queenstown Lakes would also be out of luck and would only have saved enough for 14.8% deposit at the region's lower quartile price of $455,000 in November.

Other regions where they'd fall short of a 20% deposit after four years are Nelson/Marlborough 18.1%, Wellington 19.1%, Canterbury 19.1% and Waikato/Bay of Plenty 19.6%.

In all other regions it would take less than four years to save a 20% deposit for a lower quartile-priced home.

So although Auckland is easily the least affordable region in the country for first home buyers, there are now signs that it is also becoming increasingly difficult for first home buyers in other parts of the country to get on to the home ownership ladder.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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36 Comments

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I'm amazed whenever I talk to kiwis of my age (early 30's) about buying a house because they are totally convinced the "problem" is simply to save enough deposit for a huge mortgage.

Generally they don't seem to care much about the total price, not even about the interest. They just think of how much they'd have to pay each week and if they have enough cash left for groceries they're good, ad infinitum. Their goal is "to save for a deposit". After that it's all happiness I guess.

It's like a filter that separates the ones that will live happily afterwards from those condemned to a miserable life of "paying someone else's mortgage" and being poor when you retire (as if it was now or never, this or that, or as if the money not poured onto a mortgage's principal + interests vaporized itself)

I get the feeling most still refuse to believe prices could go down big time.
Most don't seem to care much about being in an uncertain economic times where there is very low inflation (the best friend for indebted people).
They don't seem too concerned about the job market in 10 years times despite seeing how automation is taking over the world and despite having professions likely to become more irrelevant or in better scenarios likely to get less salaries (more candidates for less positions).
The obvious failure of QE monetary policies and the fact that interest rates may start increasing (with its consequent asset depreciation) does not seem to be a problem either.

There is so much optimism. The optimism of really believing that the challenge is just "to save for a deposit", visualizing "the property ladder within reach". It sounds more like an obsession to me, a dangerous one.

-Think about it. At the end of 30 years if you managed to keep your job, to earn at least the same, to have avoided big expenses, to have paid the principal + interests then, and only then, you really are the owner of the house, not the bank. And... at the best case scenario you have a 30 years old house where you've probably put a lot of money onto maintaining it, rates, insurance. What about the cost of opportunity? What if you get trapped for a while in negative equity? What if..

-"You are just negative because you can't save enough for a deposit, but if you work hard and make sacrifices you can also achieve the goal [of saving enough for a deposit]."

PS: I have saved more than enough for a deposit. But I usually omit this detail just to avoid the funny look in their eyes..

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The standard of education here is poor and critical thinking is actively discouraged.

How could our mortgage-road-kill envisage a property price crash if:
1. Their financial education is very poor; and
2. Their historical education is limited to Te Tiriti or the Tudors; and
3. Those who think independently and question are harshly discouraged at the earliest convenience until they shut up, open a beer and watch the test.

This is the perfect population for international exploitation - ignorant and cowed.

The "funny look in their eyes". Ha! Very true.

Not that you're generalizing at all! We also go to church and listen to classics like 'trust and obey, as theres no other way, to be happy with Jesus, than to trust and obey'. An employers dream employee!

The auckland market is very investor driven (fhb's have been priced out a long time ago) so the 40% lvr rule seems to be having a bigger impact there.

I wouldn't hold out for prices to drop much though (my pick is 15% at most there) as the system works like a ratchet (sticky on the upside), so will likely hold prices and be flat for 5 years or so.

You make some great points. Infact if people are struggling to save for a mortgage, then they probably shouldn't be buying a house, especially as interest rates are expect to only rise from now on.These people who are paying inflated prices for houses are also only pushing up the prices higher. But I guess some need somewhere to live. If noone was able to service a mortgage on a million dollar house, or the banks wouldn't lend that sort of money, then prices would fall as a result. At the moment it appears to rely on people being in a relationship and both partners earning, in order to buy a house, so a single person has no chance unless they are on a big wages. I am not sure prices are going to fall much, unless there is another global financial crisis. But that can also push people into taking their money out of the bank, to buy houses.

You get the house and then the problem starts. A lifetime of paying interest to somebody else. Imagine if you did not have to pay vast amounts of your weekly pay. Cash in pocket and being spent on more desirable things. That would also be a boost for business activity.
(but it's not just a problem of buying, rents are vast as well, and the landlord is just passing it on to the bank)

It comes down to whether you would prefer to pay rent to a landlord, or interest to a bank. Both renting and owning have their pros and cons, although there is more security with owning, as well as the ability to use the house to leverage on to borrow more money for something such as a business, which you can't do as easily with renting.

assuming that the house prices always go up.. maybe. But it's a wrong assumption

That's because those who have been educated, or thought things through have already left NZ.
Yeah, nice place to live NZ, but not if you are a slave to debt, and spend you whole life just paying for a roof over your head...

We are now conditioned to believe that house prices could not possibly go down. Many Chinese property investors I have worked with look at me as though I am crazy to say there could be a crash. These people have multiple rental houses. all with little equity in them. They are just paying interest for tax purposes.
We have a Government in power hell bent on having an open door immigration policy to keep wages down and house prices up.
If a crash comes then New Zealand will be in a mess. thanks to this Government's crazy immigration policies.

I can confirm similar sentiments among 20 to 30 somethings. It seems that now is always the best time to buy, which makes sense if you think that property prices can only ever go up.

The thing about bubbles is that they make the economy very sensitive to the mildest of shocks. And there many dangers out there. We know interest rates are on the way back up - barring an implosion in the world economy. Have the banks been testing whether their clients have enough income to service their mortgage at 8%?

"Have the banks been testing whether their clients have enough income to service their mortgage at 8%?"
Probably in private, but i think the stress test results that are reported are tested below 7%?

As capital flows away from (high land cost environment) Auckland to (lower land cost environment) anywhere not called Auckland, it causes more houses to be built per $ invested. And the way it does this is by paying more people to do more labour for more money. Price rises in the regions will lead to wage inflation, the thing that has been lacking from our economy due to the twin idiocies - high immigration (driving down labour cost) and short land supply in Auckland (driving down labour demand).

No guarantee that price rises will lead to wage inflation. It hasn't happened in Auckland so why would it anywhere else?

Lol. $263 dollars a week or just 16% of take home pay (miles under the 40% mark) for Fhb's in Palmy.

Median rent in the cheapest Palmy suburbs is now $320.

No wonder Palmy prices are playing catch up at present (going up at a 20% pa rate..)

You believe the median net pay to be the same in Palmy as it is in Auckland?

$73,000 is more than enough to secure a lower quartile property in Melbourne or Brisbane. When the Aussie economy picks up the exodus could be quite abrupt.

Aussie picks up like 2006-2012 mining boom based on china's ghost city building scheme where they used as much concrete in 10 years as USA used in last 100?

Might be waiting a while there buddy

No. These reports use local wage data from stats.govt.nz so the SLIGHTLY LESS wages is all taken into account.

But think you'll find wages in Palmy are prehaps 10-15% less than auckland, while lower quartile house price is 70% less.

Median personal income - Palmy - $27,000
Median personal income - Auckland - $29,600
(2013 Census)

Average house price - Palmy - $296,000
Average house price - Auckland - $956,000
(May 2016)

I have no idea why young people and families in particular, stick around Auckland... no idea. It makes no sense financially.

Neither do I Kate. They'd sooner resign to a life of renting and spend 1-2 hours to get to work than consider the financial and lifestyle benefits of the regions. Perhaps it's the concerts at the Vector Arena keeping them there?

Maybe being close to friends/family is something they value?

Also don't need to nit pick but appears to be a typo (probably from using a boiler plate) in the Palmy report in:

"Dwelling sales in November were 147, unchanged from October’s 147.
They are now lower than the 111 sales twelve months ago and lower
than the 135 sales five years ago."

Clearly November sales of 147 is NOT lower than last years 111.

147 sales is actually a massive 32% INCREASE on last year, indicative of a booming market (we all know sales leads prices).

I believe there will be a horrific crash and yet I have been saying that for so long I am now doubting myself!! But if the Banks are allowed to continue their never ending Ponzi scheme of investing in houses to the detriment of lending in SMEs then it can only crash. And if that happens what will happen to the Banks? Our RB will not bail them out. The IMF would not allow it anyway. What happens to our savings in those Banks? Should we spread it - a little here a little there. And yet our GDP continues to show no sign of collapsing or is that just because of all the money that pours into a the Country from the earthquakes.

As long as the immigration gates are held wide open and there are people coming through them, this nonsense will continue. Heard Nick Smith on radio yesterday and he is still trying to fool people how wonderful it is that so many people are wanting to come to NZ and how the bulk of it is NZers returning home (not at all sure where they picked their accents up, but never mind) and how the price of houses is still the problem of the previous Labour govt. Unbelievable, but then it was Nick Smith

Thanks to national party policies. Give them another term and entire NZ will be speculating arena like Auckland in the name of prosperity and development

How correct. You cannot blame national party as it is us who voted them so it is us who is to be blamed.

Will get opprtunuty to rectify our past mistake - though late but better late than never.

What is National doing about the Major Banks Xenophobic Lending restrictions? The Aussies get away with racism with the Aboriginals and now the Chinese, blocking overseas income so they are unable to put a roof over their heads.

Racism in any form, like what the banks are getting away with makes me sick.

SJW

Australians don't get away with racism against Aboriginals. My best friend is Multiracial (Aboriginal,Maori & White).

But it's ironic of any Kiwi moron such as yourself to complain about racism in other countries when your own country still has racism towards Asians,Maori & Pacific Islanders.

(50%+) of the NZ prison population are Maori which is higher than Black Americans in the U.S. prison population (40%).

I'm thankful Australia blocks foreign property investors as the property market in Sydney is already at breaking point as it is with the Locals speculating too much in the property market.

Australia is in a downturn wait for their upturn. Just wait and watch those new arrivals hop over to Aus as soon as they are able
Why stay and live in an expensive Auckland when you could live in an expensive Sydney Brisbane or Melbourne and earn more ?
Migrants are more mobile than during their first years and will happily move elsewhere for a better job and to escape to a more vibrant city.
Auckland has yet to move the cars off its waterfront (am I right ?)
Fails to build enough homes and infrastructure is a word the govt would rather just talk too.
Only people winning are the Zachary types who appear full of themselves who take glee in mocking the rest of us.

A lot of these immigrants, especially from Asia have tried to immigrate to Canada and Australia. New Zealand is much easier to get into. They are just using NZ as a stepping stone to get into Australia when things pick up there.
We saw a lot of this in the 90s.

Things will not pick up in Australia. The mining boom days are gone & Australia is heading for a major property crash if nothing is done to stop the huge speculation in the property market.

Australia will not return to the days of the mining boom. The mass inflow of 40,000-50,000 Kiwis moving to Australia annually over the last 15 years will not happen again hopefully.

Australia is heading for major property crash in most major cities except for Perth where prices have cooled if nothing is down to stop the huge property speculating especially in Sydney & Melbourne.

Australia needs to put a population cap on the Trans-Tasman border with New Zealand which should have been done back in 2001.

Australia has the highest foreign-born population by total population percentage in the Developed world (28%) or 6.6 million people.

Is this fake news?:

Finding a suitable rental in the capital has become a 'part-time job'

The comments are interesting with opinion being divided on how hard it is to find a suitable rental in the capital. Renting does seem to be miserable. I once rented for a couple of years when I had a young family and was surprised when landlords turned my applications down while looking for a new place after being given notice. It forced me to buy a house in a hurry which ended up being one of my best investments to date.

From my personal experience of the Wellington rental market no its not fake news. The rental situation down there is atrocious, with generally very low quality places on offer, overpriced and under maintained, but a trapped market. When we lived down there we'd go to a viewing and there would be another 30 couples viewing anything decent, and we witnessed people offering more than the rental price more than once.

I absolutely agree with Itsme. The Govt's Immigration Policy is out of control. The latest Figures are 70,354 to the end of Nov 2016. 33,536 of them went into Auckland to live. 6,703 to Canterbury. 3,509 to Wellington. 2,764 to the Waikato.
70,000 for Total Population of NZ of approx 4.5 million. In the UK the EU Immigrants were
320,000 (EU people) for a total Population of 60 million in the UK. Plus Extras.
You do the Maths --Proportions ---NZ is way over the numbers of Immigrants as a proportion of population.
One of reasons why people in the UK voted Brexit was because the Councils are tasked with providing
Social Housing --- and the Immigration numbers were so great, Councils in areas where they went to live were nearly broke. A UK Ratepayer said to me -- this cannot go on.
And it can't go on in NZ either.
The National Govt needs to fix it or go. Or we Vote them out !!!!