Housing market could be at a turning point for first home buyers

Property

The latest lockdown has not been kind to first home buyers

24th Sep 21, 7:15am by Greg Ninness

August may have marked a significant turning point for first home buyers, according to interest.co.nz's latest Home Loan Affordability Reports.

They show that August and its Level 4 lockdown restrictions were not kind to first home buyers.

In most regions property prices at the bottom of the market continued to rise, with the Real Estate Institute of New Zealand's national lower quartile selling price increasing by $20,000 in August to hit a new record of $620,000.

In Auckland, the country's most expensive region, it increased by $22,000 to $877,000, and lower quartile price rises were recorded in seven other regions, with only four - Hawke's Bay, Wellington, Canterbury and Southland posting a decline in lower quartile prices for the month.

So around the regions lower quartile price rises outnumbered falls by two to one.

On its own that would be bad news for first home buyers, but misery loves company and to add to their woes there was also an increase in mortgage interest rates. The average of the two year fixed rates offered by the major banks rose to 2.82% in August from 2.78% in July.

That was the third successive monthly increase since the average two year fixed rate bottomed out at 2.52% in May.

The combined effects of higher prices and higher mortgage rates had two main impacts on aspiring first home buyers.

Firstly it increased the amount they would need for a deposit.

The amount they would need for a 20% deposit on a home at the national lower quartile price increased by $4000 last month and has increased by $25,600 in the 12 months to August.

That sort of inflation makes it extremely difficult for first home buyers on anything approaching average incomes to scrape together a deposit, especially in Auckland where they would need to be able to lay their hands on $175,400 for a 20% deposit on a lower quartile-priced home.

And of course rising prices and rising interest rates both push up mortgage payments.

The payments on an 80% mortgage (30 year term) for a home purchased at the national lower quartile selling price increased from $454 a week in July to $472 in August.

In Auckland those payments increased to $667 a week in August from $646 in July.

So first home buyers are being squeezed between the need to find bigger deposits and their ability to meet the repayments on bigger mortgages.

On the plus side, once they get into their own home, the value of their asset and their equity in that asset, has been increasing.

Taking a longer term view of those numbers reveals some interesting trends.

The first table below sets out the main affordability measures for typical first home buyers nationally and in Auckland and how they have changed over the three years from August 2018 to August 2021.

It shows that over that three year period, the lower quartile price in Auckland has increased by 32% while the national lower quartile price has increased by 65%.

So while Auckland is still the most expensive region in the country, prices have been increasing at least twice as fast in the rest of the country as they have in Auckland.

Because prices in Auckland are so high, it's likely that affordability has been the biggest constraint on price growth in the region.

The other number that sticks out like a sore thumb is the change in income over that three year period.

Interest.co.nz's Home Loan Affordability Reports estimate that the after-tax pay for 25-29 year old couples (where both work full time), increased by 9% in Auckland and nationally over the three years from August 2018 to August 2021.

So house prices at the bottom end of the market have increased at more than three times the rate of incomes for typical first home buyers in Auckland, and at more than seven times that rate nationally.

That's not a good look for anyone saving to get into their own home, because the price increases have pushed up the amounts required for a deposit by 32% in Auckland and 65% nationally over the same period.

The price rises have also pushed up the amount of money first home buyers need to borrow to get into their own home.

An 80% mortgage for a home purchased at the national lower quartile price has increased from $300,000 in August 2018 to $496,000 in August 2021, while in Auckland it's gone from $532,000 to an eye watering $701,600 over the same period.

However not all the news for first home buyers has been bad, because while the amount first home buyers need to save for a deposit and need to borrow for the mortgage have headed skywards, the resulting mortgage payments have remained well within affordable limits for people on average incomes.

The payments on an 80% mortgage for a home purchased at the national lower quartile price increased from $348 a week in August 2018 to $472 a week in August 2021.

Although that's up 36%, as a percentage of the after-tax pay for couples aged 25-29, it has only moved from 21% to 27%, which means that even with the huge price increases that have occurred over the last three years, the payments on an 80% mortgage for a lower quartile-priced home would only be eating up just over a quarter of a typical first home buying couples' take home pay.

That's well within affordable limits by any measure.

In Auckland, where the rate of price growth has been lower, the payments on an 80% mortgage for a lower quartile-priced home increased by just $50 a week between August 2018 and August 2021, and when you look at those mortgage payments as a percentage of typical first home buyers' take home pay, there has been no change.

Three years ago the mortgage payments on a lower quartile-priced home in Auckland would have eaten up 37% of a typical first home buying couple's after tax pay and three years later in August 2021, it's still at 37% and still within affordable limits.

So over the last three years, the impact of rising house prices on first home buyers' ability to make their mortgage payments has been minimal, and there's a simple reason for that - declining mortgage interest rates.

The average of the two year fixed rates declined steadily to 2.82% in August 2021 from 4.43% in August 2018. That's a drop of just over a third, and this has largely insulated first home buyers from the effect of rising prices on their mortgage payments - although it won't have helped with their deposit requirements.

But as noted above, the interest rate worm has started to turn, slowly but steadily over the last three months and rates are widely expected to keep rising.

And as interest rates rise, the cushioning effect that falling rates have on mortgage payments is removed.

The last time there was a sustained increase in mortgage interest rates was in 2009 and that lasted for just 11 months before they started heading back down.

If interest rates keep rising as they are expected to, first home buyers will be coming under pressures they haven't experienced in more than a decade.

The two large tables below give the main affordability measures as at August 2021, for all main urban districts throughout the country based on 10% and 20% deposits.

The comment stream on this story is now closed.

Changes in Main Home Loan Affordability Measures for Typical First Home Buyers

August 2018 - August 2021
Auckland
		August 2018	August 2021	% Change
	Lower quartile selling price	$665,000	$877,000	32%
	Median after-tax weekly pay for typical first home buyers	$1,655	$1,803	9%
	Amount needed for 20% deposit	$133,000	$175,400	32%
	Years needed to save 20% deposit	7.5	9.4	20%
	Size of mortgage required	$532,000	$701,600	32%
	Mortgage interest rate	4.43%	2.82%	-36%
	Weekly mortgage payments	$617	$667	8%
	Mortgage payments as % of after-tax pay	37%	37%	0

All of New Zealand
		August 2018	August 2021	% Change
	Lower quartile selling price	$375,000	$620,000	65%
	Median after-tax weekly pay for typical first home buyers	$1,623	$1,770	9%
	Amount needed for 20% deposit	$75,000	$124,000	65%
	Years needed to save 20% deposit	4.3	6.8	58%
	Size of mortgage required	$300,000	496,000	65%
	Mortgage interest rate	4.43%	2.82%	-36%
	Weekly mortgage payments	$348	$472	36%
	Mortgage payments as % of after-tax pay	21%	27%	29%

Home Loan Affordability for Typical First Home Buyers with a 10% Deposit
For Homes Purchased at the Lower Quartile Selling Price
August 2021
		Amount required for a 10% deposit	Years required to save a 10% deposit	Size of mortgage required with a 10% deposit	Weekly mortgage payments	Median weekly after-tax pay for a typical first home buying couple	Affordability: Mortgage payments as % of after-tax pay
	Northland	$52,500	3.0	$472,500	$522	$1,680	31%
	Auckland	$87,700	4.7	$789,300	$872	$1,803	48%
	Waikato	$62,300	3.5	$560,700	$619	$1,745	35%
	Bay of Plenty	$67,000	3.9	$603,000	$666	$1,680	40%
	Hawkes Bay	$56,000	3.3	$504,000	$557	$1,679	33%
	Taranaki	$46,000	2.6	$414,000	$457	$1,707	27%
	Manawatu/Whanganui	$52,100	3.0	$468,900	$518	$1,707	30%
	Wellington	$70,000	3.7	$630,000	$696	$1,842	38%
	Nelson/Marlborough	$58,000	3.3	$522,000	$576	$1,718	34%
	Canterbury/Westland	$47,050	2.6	$423,450	$468	$1,769	26%
	Otago	$52,010	3.0	$468,090	$517	$1,686	31%
	Southland	$32,000	1.8	$288,000	$318	$1,759	18%
	New Zealand	$62,000	3.4	$558,000	$616	$1,770	35%
	City/District
	Whangarei	$58,000	3.2	$522,000	$576	$1,788	32%
	Rodney	$97,500	5.2	$877,500	$969	$1,803	54%
	Auckland North Shore	$98,027	5.3	$882,245	$974	$1,803	54%
	Auckland West	$87,500	4.7	$787,500	$870	$1,803	48%
	Auckland Central	$79,000	4.3	$711,000	$785	$1,803	44%
	Auckland Manukau	$90,600	4.9	$815,400	$900	$1,803	50%
	Papakura	$80,000	4.3	$720,000	$795	$1,803	44%
	Franklin	$69,000	3.7	$621,000	$686	$1,803	38%
	Hamilton	$68,800	3.9	$619,200	$684	$1,739	39%
	Tauranga	$76,500	4.4	$688,500	$760	$1,690	45%
	Rotorua	$50,000	2.8	$450,000	$497	$1,733	29%
	Gisborne	$45,000	2.9	$405,000	$447	$1,521	29%
	Napier	$61,600	3.6	$554,400	$612	$1,686	36%
	Hastings	$55,500	3.2	$499,500	$552	$1,679	33%
	New Plymouth	$51,200	3.0	$460,800	$509	$1,682	30%
	Whanganui	$44,000	2.7	$396,000	$437	$1,581	28%
	Palmerston North	$59,000	3.2	$531,000	$586	$1,807	32%
	Wairarapa	$57,050	3.8	$513,450	$567	$1,442	39%
	Kapiti Coast	$66,500	3.9	$598,500	$661	$1,646	40%
	Porirua	$70,000	3.9	$630,000	$696	$1,747	40%
	Wellington Hutt	$73,500	4.0	$661,500	$730	$1,792	41%
	Wellington City	$80,050	3.7	$720,450	$796	$2,095	38%
	Nelson	$58,000	3.3	$522,000	$576	$1,718	34%
	Christchurch	$50,600	2.8	$455,400	$503	$1,763	29%
	Timaru	$32,270	1.9	$290,430	$321	$1,621	20%
	Queenstown	$76,000	4.4	$684,000	$755	$1,686	45%
	Dunedin	$51,800	3.2	$466,200	$515	$1,580	33%
	Invercargill	$36,000	2.1	$324,000	$358	$1,681	21%
	Notes: Calculations based on buying a home at the REINZ's lower quartile selling price in each region/district. Mortgage interest rate used is the average of the two year fixed rates offered by the major banks. Weekly income is the combined median after-tax pay for couples aged 25-29 with both working full time. Years to save is based on saving 20% of after-tax pay each week.

Home Loan Affordability for Typical First Home Buyers with a 20% Deposit
For Homes Purchased at the Lower Quartile Selling Price
August 2021
		Amount required for a 20% deposit	Years needed to save a 20% deposit	Size of mortgage required with a 20% deposit	Weekly mortgage payments with a 20% deposit	Median weekly after-tax pay for a typical first home buying couple	Affordability: Mortgage payments as % of after-tax pay
	Region
	Northland	$105,000	6.1	$420,000	$399	$1,680	24%
	Auckland	$175,400	9.4	$701,600	$667	$1,803	37%
	Waikato	$124,600	6.9	$498,400	$474	$1,745	27%
	Bay of Plenty	$134,000	7.8	$536,000	$510	$1,680	30%
	Hawkes Bay	$112,000	6.5	$448,000	$426	$1,679	25%
	Taranaki	$92,000	5.2	$368,000	$350	$1,707	20%
	Manawatu/Wanganui	$104,200	5.9	$416,800	$396	$1,707	23%
	Wellington	$140,000	7.4	$560,000	$532	$1,842	29%
	Nelson/Marlborough	$116,000	6.6	$464,000	$441	$1,718	26%
	Canterbury/Westland	$94,100	5.1	$376,400	$358	$1,769	20%
	Otago	$104,020	6.0	$416,080	$396	$1,686	23%
	Southland	$64,000	3.5	$256,000	$243	$1,759	14%
	New Zealand	$124,000	6.8	$496,000	$472	$1,770	27%
	City/District
	Whangarei	$116,000	6.3	$464,000	$441	$1,788	25%
	Rodney	$195,000	10.4	$780,000	$741	$1,803	41%
	Auckland North Shore	$196,054	10.5	$784,218	$745	$1,803	41%
	Auckland West	$175,000	9.4	$700,000	$665	$1,803	37%
	Auckland Central	$158,000	8.5	$632,000	$601	$1,803	33%
	Auckland Manukau	$181,200	9.7	$724,800	$689	$1,803	38%
	Papakura	$160,000	8.6	$640,000	$608	$1,803	34%
	Franklin	$138,000	7.4	$552,000	$525	$1,803	29%
	Hamilton	$137,600	7.7	$550,400	$523	$1,739	30%
	Tauranga	$153,000	8.8	$612,000	$582	$1,690	34%
	Rotorua	$100,000	5.6	$400,000	$380	$1,733	22%
	Gisborne	$90,000	5.8	$360,000	$342	$1,521	22%
	Napier	$123,200	7.1	$492,800	$468	$1,686	28%
	Hastings	$111,000	6.4	$444,000	$422	$1,679	25%
	New Plymouth	$102,400	5.9	$409,600	$389	$1,682	23%
	Whanganui	$88,000	5.4	$352,000	$335	$1,581	21%
	Palmerston North	$118,000	6.3	$472,000	$449	$1,807	25%
	Wairarapa	$114,100	7.7	$456,400	$434	$1,442	30%
	Kapiti Coast	$133,000	7.8	$532,000	$506	$1,646	31%
	Porirua	$140,000	7.8	$560,000	$532	$1,747	30%
	Wellington Hutt	$147,000	7.9	$588,000	$559	$1,792	31%
	Wellington City	$160,100	7.4	$640,400	$609	$2,095	29%
	Nelson	$116,000	6.6	$464,000	$441	$1,718	26%
	Christchurch	$101,200	5.5	$404,800	$385	$1,763	22%
	Timaru	$64,540	3.8	$258,160	$245	$1,621	15%
	Queenstown	$152,000	8.7	$608,000	$578	$1,686	34%
	Dunedin	$103,600	6.4	$414,400	$394	$1,580	25%
	Invercargill	$72,000	4.2	$288,000	$274	$1,681	16%
	Notes: Calculations based on buying a home at the REINZ's lower quartile selling price in each region/district. Mortgage interest rate used is the average of the two year fixed rates offered by the major banks with a 30 year term. Weekly income is the combined median after-tax pay for couples aged 25-29 with both working full time. Years to save is based on saving 20% of after-tax pay each week.

*This article was first published in our email for paying subscribers on Thursday morning. See here for more details and how to subscribe.

We welcome your comments below. If you are not already registered, please register to comment

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

83 Comments

by AJ123 | 24th Sep 21, 7:26am 1632425203

There is no correlation between Homes & kindness in NZ.

Here homes are more for speculation than living.

by andreas_od | 24th Sep 21, 11:17am 1632439025

Agree , and it is time websites like interests and any other public platforms discussing NZ housing to introduce the "middle-finger" emoji. That would be well used and super popular feature among young people in general , and especially by FHBs I guess.

by Notgreedykiwi | 24th Sep 21, 7:37am 1632425829

We will feel rich though. So where is the worry?

by tothepoint | 24th Sep 21, 12:40pm 1632444050

Unfortunately, "feeling rich" can make people spend more, especially when they're mesmerised by the thought of cheap money - in the form of low interest rate loans......

See you outside the Audi dealership first thing tomorrow morning, old chap.

TTP

by HouseMouse | 24th Sep 21, 7:46am 1632426390

I tire of these reports.

They really underplay the affordability issue and the challenge for FHBs.

by al123 | 24th Sep 21, 8:11am 1632427873

In what way?

by HouseMouse | 24th Sep 21, 8:17am 1632428222

In many ways.

I've said them before, not going to do so again.

by Richardfromauckland | 24th Sep 21, 8:47am 1632430067

Agreed HouseMouse.

by al123 | 24th Sep 21, 10:16am 1632435383

Well, from what I can tell there are four big things they ignore: firstly, the quality and location of lower quartile homes. (1) Buying 'further out' in Auckland used to mean maybe buying in Titirangi or somewhere like that. Now it means buying in the Waikato. And commuting times haven't gotten any shorter. (2) It also ignores the age at which people are able to buy their first home. A 25 year old who manages to buy their first home - even if the payments take up a large proportion of their income (say 40%) will be in a way better position at 40 than someone who only managed to buy their first home at 35. The 25 year old also has an expectation of greater wage and salary increases (the most significant salary increases usually come in the early part of a career). (3) The 25 year old also has more scope to buy a house which is not suitable for children (i.e a small apartment) and move up to one that is, the 35-year-old doesn't. (4) It also ignores the rapidly increasing prices of houses. When I was saving for a house, I started off by making the assumption that house prices would increase by half in the five years I was saving, and saved a deposit bearing that in mind. Prices more than doubled. If we bake that in to calculations of what someone starting now would have to save, that would double all of those timelines (perhaps only very slightly being mitigated by wage inflation - not that there's been much of that lately!).

Do you think that there are other factors that I'm missing here?

by HouseMouse | 24th Sep 21, 10:30am 1632436236

Yep some of that is what I have mentioned before.

It also seems to pay little attention to the burden of paying off student loans.

It also makes big assumptions about young people's relationships ie. A young couple of 23 will stay together and save hard for 9 years before buying together. Many relationships are volatile and changeable in people's younger years. Also how about the many single people out there?

It also doesn't factor in the issue that over the period people are trying to save, prices and therefore deposits keep increasing, so there is an element of many FHBs chasing their tails.

There's other problems with it too.

You make a good point about people having to live further out. That can really add lots of transport costs to people's budgets. We bought our first home in the south, our transport costs (including finance on a second car) are around $300 per week. When we rented in central Auckland, they were about $100 pw.

We also get takeaways more because of the long hours we work and the significant commutes.

by Chinaman1 | 24th Sep 21, 2:24pm 1632450274

"I've said them before, not going to do so again."

by Carlos67 | 24th Sep 21, 10:31am 1632436282

Yes the 40 year old that bought a house 5 years ago paid a lot less than he would have had to pay for that same house right now. I to could have made a whole lot more money by pouring every thing I had into the most expensive house I could even a year ago. Depending on what each of them bought at the time of purchase, the 40 year old could still be better off now than the 25 year old. Future gains on a house are also going to outstrip any apartment. Most 25 year old's are now going to be severely limited in what they can buy, in fact they probably cannot afford to buy anything without a partner with a decent job and a great deal of help from the parents.

by flyer | 24th Sep 21, 10:33am 1632436430

The only easy way to get into the market for FHB is to buy new builds, off the plan.

by HouseMouse | 24th Sep 21, 10:50am 1632437453

Yes, and that's still far from affordable, and potentially fraught.

by Independent_Observer | 24th Sep 21, 10:36am 1632436613

The housing market has turned into a wealth transfer mechanism where it takes money from young people and gives it to old people (in general).

Fortunately for society, most boomers will be dead in 20 years meaning that sanity will be able to return to financial markets and towards social stability.

This may sound harsh, but it is unfortunately (from my perspective) a significant part of the problem. Boomers with their wealth and voting power have had their opportunity (over the last 40 years) to create the world they want - which they have now done - and like a self-licking icecream cone, it is now time to sit in the sun during retirement and melt away.

by Flying high | 24th Sep 21, 12:52pm 1632444734

I can smell the sarcasm but todays 40 yo, who is old relatively will not be dead in 20 years. I dont know how old you are but are you expecting to be dead by 2041

by al123 | 24th Sep 21, 1:08pm 1632445699

Today's 40-year-old is a millennial (born in 1981), not a boomer.

by Flying high | 24th Sep 21, 3:29pm 1632454163

Yes precisely. Many 40 yo are also home owners not necessarily first homes and so are gen Xers born 65 to 80

by Independent_Observer | 24th Sep 21, 2:26pm 1632450396

Zero sarcasm - are you referring to me personally or the online persona of Independent_Observer? Independent_Observer is the utilitarian moral consciousness of the people of New Zealand. His or her age, wealth, nor social position matter in those views. Based upon principles, they are timeless, so never die...let alone in 2041 when the boomers are gone.

by Flying high | 24th Sep 21, 3:19pm 1632453564

I am referring to you as a person but maybe you choose whichever personality you wish to be

by brisket | 24th Sep 21, 10:35am 1632436523

Also:

-interest rates are at rock bottom now, buyers are taking on enormous risk if they revert to anything close to historical averages;

-FHBs are now mostly getting cheaply-built units on a very small piece of land, reducing the long-term potential for appreciation vs the past;

-land prices now dwarf building prices (in most places), so there's not much opportunity to build with sweat equity. There are no 'do-ups' anymore, the state of the house is largely irrelevant to the selling price unless you're in the provinces.

But your points are all well-made.

by HouseMouse | 24th Sep 21, 12:46pm 1632444375

It's a great point about the 25 (or 30 year old) not having to worry about buying a bigger place for kids etc, like the 35 year old/s will often need to do. And as you imply, not many 25 year olds (or 30 year olds) will be able to buy that first, smaller place as a stepping stone.

Of course, there are single 35 year olds, or couples who can't or don't want to have kids. But I imagine couples, who want to have kids in the near future (or have recently had kids), make up a decent proportion of FHBs. In the development where I live ( about 50 x 2 and 3 bedroom townhouses), it's mostly FHBs, and about 80% of those households would be couples, either with one or two very young kids, a kid on the way, or plans for kids in the next couple of years. There's one gay couple, and five or six single person households.

I guess we'll see a bit of a return to the old days - couples with two young kids living in 2 bedroom townhouses. Two kids to a room!

by Bugger | 24th Sep 21, 8:01am 1632427261

It's at a point now, that any drop in house prices, is actually seen by the wider NZ community as a good news story. Bring on a correction, at least 10% would be better than nothing.

by PonziKiwi | 24th Sep 21, 8:16am 1632428203

Problem is 10 percent drop across the board would crash the economy.

The Govt and Banks will need mass immigration again to control inflation and wages with all this credit creation for asset inflation. It will get harder to service debt with all this leverage if our population stays stagnant.

Unless of course banks create credit for productive purposes. But I've got more chance of dying from covid or Harry Tam becoming a Govt Minister than that happening.

Many articles are becoming depressing with headlines like this.

by rastus1 | 24th Sep 21, 8:59am 1632430789

The economy has already crashed for out FHB's.

Mr Orr and his vested interest team need to b-off and let the markets do what markets do.

This intervention has been a disaster and needs to unwind with a great big housing crash. Bring it on and let some sanity return.

by company of heroes | 24th Sep 21, 9:39am 1632433158

The economy is gonna crash one way or another. If the hike couldn't be contained, then the developers will eventually ran out of cashflow and go bankrupt as Government and RBNZ tightening the lending rules by seeing it becomes riskier day by day and houses becomes more unaffordable for people. Just like what's happening to Evergrande.

by lostinawoods | 24th Sep 21, 3:23pm 1632453783

Unless the gov will bail developers out with printed money, which they will.

by company of heroes | 24th Sep 21, 4:26pm 1632457565

No, they won't. It's not that easy. If they bail out developers, they will give out the wrong signal to encourage more developers to overleverage themselves, which can cause some serious damage to economy system. I don't think they can or they should to intervene the market like that. Even China is reluctant to bail out Evergrande.

https://www.wsj.com/articles/china-makes-preparations-for-evergrandes-demise-11632391852

by Nzdan | 24th Sep 21, 5:12pm 1632460346

I imagine they'd be reluctant to bail out Evergrande given a good proportion of the money Evergrande owe is to state owned banks.

"hey, um, we've kinda lost your money but please help us stay afloat by giving us more money".

by HouseMouse | 24th Sep 21, 8:18am 1632428325

Here's your reality in Auckland, FHBs!

A small two bedroom apartment, yours for only 875K!!!!

Bargain!

https://www.trademe.co.nz/a/property/new-homes/new-apartment/auckland/a…

by CourtJester | 24th Sep 21, 11:12am 1632438762

The most important part:

expected completion is Q2-2023

by HouseMouse | 24th Sep 21, 1:02pm 1632445355

The developer, Ockham, has an excellent track record though.

by peter.may | 24th Sep 21, 11:17am 1632439068

I must be doing something wrong! My new build 114m2 townhouse on 450m2 selling at $590K - definitely have to raise my prices!

by HouseMouse | 24th Sep 21, 12:02pm 1632441732

Must be in the wops

by Flying high | 24th Sep 21, 4:24pm 1632457460

One hunga! What a rip. I would say there would be lower than average capital gain on a property like this unless you have an uber long time frame or there is massive price growth. Expect less than average

by Squishy | 24th Sep 21, 8:23am 1632428588

I'll wait until borders reopen before commenting, we are in a very unusual situation for nearly two years but very soon it will be time to reopen the borders to the hungry huddled masses. Let's revisit this in nine months or so.

by HouseMouse | 24th Sep 21, 8:24am 1632428692

You seem to be implying it will get a lot worse.

by Squishy | 24th Sep 21, 8:39am 1632429569

The supply/demand situation has been thwarted by the control measures put in place for the global pandemic. We need to see the situation equilibrate to understand what the growth trajectory will be. For a start while the pandemic has been going on ImmigrationNZ have kept going with applicants who may have paperwork but cannot cross the border presently.

In the long term the situation will reverse just because of demography within the working age population of developed countries driving inflation upwards.

by HouseMouse | 24th Sep 21, 8:40am 1632429629

Yeah.

We are also going to see a big supply drop off in Auckland in the next year or so which won't help either.

by SimonRo | 24th Sep 21, 8:58am 1632430730

That drop is coming but why would you expect it so soon? I'd speculate it isn't going to eventuate for 3-4 years.

purely from an armchair interest.co.nz reader perspective..

new home consents have peaked and the industry is probably at its capacity currently working on homes that will reach completion in late 2022,

Builders can continue to start new projects as long as existing home prices are sky high, interest rates appear to be affordable, and government supports making land available for housing. Maybe in 2024 when that second lot of new homes are all done there is a chance the flow has been lost and we really notice that new homes aren't being built?

by HouseMouse | 24th Sep 21, 9:16am 1632431815

My reasoning is as follows:

- CCC's have already fallen quite a bit

- a large proportion of building consent numbers convert to CCCs in a strong market, but I see this proportion falling away markedly. That is, we won't see the usual follow through in the large number of building consents going through to building completion (CCC)

- FHB's have been a MAJOR factor in Auckland's house building boom. That demand is going to fall away for several reasons. Firstly, developers can't build within the Homestart price caps any longer - that takes a big chunk of demand away. Secondly, rising interest rates (affects developers AND buyers). Thirdly, soaring land and construction costs.

- I think we'll see some carnage with settlements falling over. Deposits paid on townhouses say 1 or 1.5 years ago, the developers will often need to sell for 10-15% more because of cost escalation. Sales fall over, and some developers will go bust. I think there will be a fair bit of this.

by Squishy | 24th Sep 21, 9:18am 1632431892

In the interim my only worry is that, without low wage workers being allowed through the border, wages will be pushed up rapidly and the Reserve Bank will begin raising too soon. That said in Prime Minister Ardern I trust to support property investors. Government still have a plethora of tools at their disposal, like FTB support or subsidising children, to keep prices rising.

by HouseMouse | 24th Sep 21, 9:25am 1632432320

Don't worry about the RBNZ raising too soon. They will do everything they can to limit the raises.

I'm not even sure they will raise in October. If the fallout from China is bad enough, they will use that and the long lockdown in Auckland to kick the can down the road.

by flyer | 24th Sep 21, 10:32am 1632436355

Yep, any excuse to hold off rises or large rises in OCR.

With level 4 lockdowns a thing of the past (based on what PM says, if you can believe it), people will be even more gung-ho now building and buying knowing restrictions will only lessen with higher vaccinations.

If the TM listings are to go by, there's been a number of new listings in my area since level 3... just imagine how many pent-up buyers there are after 5 weeks locked down.

by Dale Smith | 24th Sep 21, 10:23am 1632435805

Yes, it's true that Covid has restricted the supply of materials, which is generally outside the control of anyone in NZ, including the Govt.

BUT there is a big difference between that and the supply of things the Govt. can control like land supply and consenting factors.

Housing was unaffordable before Covid due to Govt. housing policy, and these policies are still there regardless of what happens with materials supply.

Anything over 3x median multiple indicates a restriction in the system somewhere. And we have a lot of restrictions at the moment, more so than our normal dysfunctional market.

by Squishy | 24th Sep 21, 11:25am 1632439557

Let's be honest though, the housing crisis is 'the crisis government doesn't want to solve'. Homeowners are voters and voters react favourably when government showers them with money.

If the asset being bid up where Matchbox cars the government would just introduce kerbs of manufacturing volumes of new Matchbox cars. The fact it's houses is entirely incidental, though unfortunate.

by Dale Smith | 24th Sep 21, 11:54am 1632441267

Yes 100% true.

But it's a truth that most that are making money out of this don't want to acknowledge in case it gets in the way of any moral conundrum or 'my good management' fantasy.

People are just playing the hand the Govt. have given them (and not given others).

It's OK to make money out of bad Govt. policy. Or is it?

by Squishy | 24th Sep 21, 2:23pm 1632450210

Actually Government are just playing the hand people have dealt them. New Zealand voters (a subset of the public) want a centre-right wing government, now they have two to choose from. It's simple supply and demand.

by CWBW | 24th Sep 21, 8:52am 1632430337

Moral of the story...

Be quick!

by HouseMouse | 24th Sep 21, 8:55am 1632430524

Genuine question - have you bought investment property over the last few months?

You talk the talk, do you walk the walk?

Seeing you seem to think you can't lose with property, surely you've bought?

Or are you a property tycoon wannabe?

by CWBW | 24th Sep 21, 9:21am 1632432095

If you're keen, yes. Something in Auck and Welly. On average, our annual inventory turns are around 31 and we aren't the envious types that try to keep an open secret secret or play down opportunities to get ahead ourselves.

It's a fair open playing field, you're free to join or leave- no one is forcing you to choose between peanut butter or ratsack.

by al123 | 24th Sep 21, 9:41am 1632433300

Struggling to see an answer to the question in there...are you saying you have recently bought investment properties in both Auckland and Wellington in the last few months?

by CWBW | 24th Sep 21, 9:50am 1632433830

Yes, 4 in the last 10 weeks.

It's not knowing what others are buying that'll make you money, it's you who need to do the buying yourself.

by Independent_Observer | 24th Sep 21, 10:24am 1632435849

"If you're keen, yes. Something in Auck and Welly. On average, our annual inventory turns are around 31 and we aren't the envious types that try to keep an open secret secret or play down opportunities to get ahead ourselves."

Are you able to clarify what you mean by 'inventory'. Is this the number of rentals you own?

by CWBW | 24th Sep 21, 10:36am 1632436595

Looks like you need a course on accounting. You never put rentals under inventory, they belong to PPE with another name. The inventories are flips.

by Independent_Observer | 24th Sep 21, 10:39am 1632436749

"Looks like you need a course on accounting. You never put rentals under inventory, they belong to PPE with another name. The inventories are flips."

So are you saying on average you flip 31 houses a year?

by Flying high | 24th Sep 21, 4:32pm 1632457953

IO or the person with an agenda behind the Internet name ... dont take this the wrong way, Mind your own business.

by brisket | 24th Sep 21, 9:47am 1632433666

This article exemplifies the confusion of the average media punter trying to describe the housing situation. Affordability for FHBs going down is bad; interest rate rises are bad, because they are bad for affordability; prices going down is bad, because home owners are just FHBs +some duration of time; this implies that FHBs should in fact want prices to rise as fast as possible, or else they'll be making their future selves poorer.

We are so marinated in moral cowardice that we can't think straight. A feudal hierarchy is being constructed before our eyes, and the blame is directed at those who think twice before deciding to go all-in on joining the aristocracy.

by Dale Smith | 24th Sep 21, 10:33am 1632436388

Well said, why worry if the sun suddenly rises out of the west tomorrow, as long as there is a profit in it now, who cares if it signals a fundamental and fatal long-term future for us all.

by Carlos67 | 24th Sep 21, 10:35am 1632436506

I wish that $1 would get automatically paid into my bank account every time someone posted the word "Crash" on interest.co.nz

by flyer | 24th Sep 21, 10:55am 1632437734

Don't let a good thing disappear. It's been going well for housing all this time ;)

by CWBW | 24th Sep 21, 11:16am 1632439010

A more lucrative way is to offer a bet every time a DGM offers a prophecy from the hades. Make sure the contract specifies,

The magnitude of the crash in % or in dollar value with a reference to an asset,
The date the bet expires and concludes, and
Payment date, currency and method of payment including late payment fees and interest.

It can be a great side hustle for your lifetime beer fund.

If you need someone to hold it in trust, gimme a buzz.

by Independent_Observer | 24th Sep 21, 11:31am 1632439871

And the problem is that every time you're right, the worse the financial and social situation in NZ comes.

It must be satisfying be right all the time so that you can add to your beer fund?

by Independent_Observer | 24th Sep 21, 11:32am 1632439937

If you're flipping 31 properties a year - are you the Evergrande of NZ?

by HouseMouse | 24th Sep 21, 11:44am 1632440653

Oh well, at least we are getting lots of tax revenue from him

by northman46 | 24th Sep 21, 11:31am 1632439863

Or $1 everytime I read be quick. I might be able to afford my first home then.

by Somebloke | 24th Sep 21, 11:31am 1632439864

Don't worry FHBs, life is long and you will later be glad that you were 'locked out' of this insanity, when you do buy a home in a market or location that rewards you for your hard work as a saver. There are lots of wonderful places to buy real estate, but NZ isn't one of them currently. Whatever you do, don't try to buy right now before the crash, or you will wipe out your savings and more. Ask the Chinese about overcooked housing markets - their largest property investment just lost 90% of its value, but that couldn't happen here, oh no.

by Chris-M | 24th Sep 21, 12:09pm 1632442158

I know newly qualified medical specialists who reasonably expect that they should be able to afford to buy a reasonable house. Their reaction is that this is madness, so they are packing up their very portable qualification and leaving NZ. What hope have our young lesser mortals got. If they have any sense they should be doing the same. And they are showing signs of this. This is becoming a significant part of their conversations.

by Brock Landers | 24th Sep 21, 12:25pm 1632443135

Once this coronavirus hysteria is over I expect many will realise they have nothing to lose and everything to gain by heading abroad.

by HouseMouse | 24th Sep 21, 12:28pm 1632443307

Yes I'm hearing that too. Aus pays medical professionals much more than NZ, and housing is much cheaper than Auckland, apart from Sydney which is still a bit cheaper.

We are going to be much worse off as a country in coming years due to the profound self interest that much of the population has bought into over the past 20 years.

by muzled | 24th Sep 21, 12:38pm 1632443938

We are going to be much worse off as a country in coming years due to the profound self interest that much of the population has bought into over the past 20 years.

I don't get why people can't see this.

10 years ago a mate was jollying himself to us how much his place had gone up in value. I asked him where he thought his kids were going to live and advised him it wasn't going to be Auckland if they wanted to own a house.

That was 10 years ago...

by HouseMouse | 24th Sep 21, 1:06pm 1632445603

People can't see this because they can't see beyond their own greed, self interest and short termism.

I have lived in quite a few countries, and I would say self interest and lack of bigger picture thinking is worse here than anywhere, includng Australia.

I blame it on the extent to which this country has embraced neoliberalism.

by Yvil | 24th Sep 21, 12:24pm 1632443094

Timaru, most affordable town in NZ

by Brock Landers | 24th Sep 21, 1:21pm 1632446471

Idiotic and highly offensive comment removed. Brock if you post anything like that again you will be banned. - Greg.

by muzled | 24th Sep 21, 5:53pm 1632462819

Given the comment Greg I'm amazed you gave him a 2nd chance.

by HouseMouse | 24th Sep 21, 12:31pm 1632443472

Not too many job opportunities though.

Have you moved back there permanently?

by HouseMouse | 24th Sep 21, 1:07pm 1632445659

Is the slumlord motel still doing well, off the back of us taxpayers?

by Slapheid | 24th Sep 21, 1:09pm 1632445773

That's a lot of smashed avo!!

by Zen20 | 24th Sep 21, 1:56pm 1632448591

They are virtually giving avocados away now ... houses, not so much

by Pa1nter | 24th Sep 21, 9:44pm 1632476642

So sick of this country and it's expensive housing, I'm moving to China where I can buy a whole ghost city for $6.

by mikekirk29 | 25th Sep 21, 8:05am 1632513947

Payable if both remain in ftw

by stuart786786 | 26th Sep 21, 11:51am 1632610299

Mt Greg N, can you please what and who is kind to FHB !!!!

by Rob Reid | 26th Sep 21, 12:07pm 1632611251

Stuart

The article is about what is going on, and makes the observation that recent developments are not kind to FHBs. There is no good news here because there is no good news.

There are such great wealth disparities now that it would take very radical action to rebalance, with all sorts of collateral damage. So the damage has been done, and more commentators are now turning to the view that FHBs should give up or leave NZ.