First home buyers have been getting squeezed out of the Auckland market for more than two years

First home buyers have been getting squeezed out of the Auckland market for more than two years

By Greg Ninness

Auckland housing has not been affordable for typical first home buyers since July 2013, according to Interest.co.nz's latest Home Loan Affordability Report.

The report also shows that low wage growth and the difficulty of saving a deposit are also making it increasingly difficult for first home buyers to get into their own home in Auckland

The report tracks the Real Estate Institute of New Zealand's lower quartile selling price in each region of the country and compares that with the median after-tax pay of couples aged 25-29 and in full time employment, based on Statistics NZ's Linked Employer-Employee Data Survey (LEEDS).

In July 2013 the REINZ's lower quartile selling price in Auckland was $444,000, but by December 2015 that figure had increased to $624,000, up by $180,000 (40.6%) in two and half years.

Over the same period, the LEEDS data suggests the combined take home pay of a typical first home buying couple would have increased from $1488.92 to $1551,32 a week, up just $62.40 (4.2%).

The report also calculates how much of their weekly income the typical first home buyers would have to put towards their mortgage payments.and shows that the increase in their incomes between July 2013 and December 2015 would have been nowhere near enough to cover the increase in mortgage payments that the huge rise in prices would have caused, pushing the goal of home ownership further from their reach.

Traditionally, mortgage payments of up to 40% of take home pay have been considered affordable, while those over 40% of take home pay are considered unaffordable.

The Home Loan Affordability Report estimates that the mortgage payments on a home at July 2013's lower quartile price of $444,000 would have required the typical first home buyers to set aside $576.62 a week, or 38.7% of their take home pay.

That was the last time the mortgage payments would have been considered affordable at less than 40% of take home pay.

Squarely in unaffordable territory

The report estimates that by December 2015 the mortgage payments for a home purchased at Auckland's lower quartile price of $624,000 would be $767.29 a week which would be 49.5% of their take home pay and $190.67 a week more than in July 2013.

That puts the mortgage payments squarely into unaffordable territory and could leave the first home buyers struggling financially, because on top of their mortgage payments they would have other significant property-related expenses such as rates, insurance and maintenance.

It could also leave them exposed to more severe financial difficulties if interest rates increased, or if they were to suffer a loss of income for any reason.

The rising cost of buying a first home in Auckland would have been even greater if interest rates had not been declining.

In July 2013, the average of the major banks' floating mortgage rates was 5.76% and the average of their two year fixed rates was 5.64%.

By December 2015 the average 2 year fixed rate used in the report's calculations had dropped to 4.78%.

However it is clear that the rapid rise in lower quartile house prices over the last two and half years has more than wiped out the benefits of falling interest rates and the rise in income for a typical first home buying couple over the same period, making home ownership increasingly less achievable.

Unfortunately the problems faced by first home buyers in Auckland extend beyond their ability to make their mortgage payments.

They will also need a deposit and with Auckland house prices rising more quickly than incomes, that is also becoming more difficult.

Squeezed from all sides

The Home Loan Affordability Report calculates how much the typical first home buying couple would have for a deposit if they saved 20% of their take home pay for four years and earned interest on their savings at the average 90 day bank deposit rate.

In July 2013 that would have been $65,148 or 14.7% of the cost of a lower quartile-priced home at the time.

In December 2015, low wage growth and falling interest rates meant that figure would only have increased to $68,414 which would be just 11% of the price of a lower quartile-priced home, which could make it more difficult for them to get mortgage funding to buy a home.

So first home buyers in Auckland are getting squeezed from all sides.

Better away from Auckland

However it is entirely an Auckland problem.

The report shows that lower quartile-priced homes remain affordable for typical first home buyers in all regions except Auckland.

After Auckland, the next most expensive region is Central Otago Lakes, where the mortgage payments on a lower quartile-priced home would eat up just 34% of a typical first home buying couple's take home pay, still well within affordable limits.

Typical first home buyers in Wellington would need to set aside just 24% of their take home pay to buy a lower quartile-priced home and in Canterbury the payments would be just 25.1% of take home pay.

In the Waikato/Bay of Plenty mortgage payments would take up 23.3% of a typical first home buying couple's take home pay.

And those first home buyers lucky enough to live in Southland would need to set aside just 10.1% of their pay each week to pay the mortgage on a lower quartile-priced home.

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"However it is entirely an Auckland problem" not for much longer as the Government encourages investors to look elsewhere and take the Jaffa cancer to the rest of the country, because of their unwillingness to do anything substantial about the problem! None of the current parties in Government appear to have the balls to act against the opinions of big money and really do something to protect ordinary Kiwis. Self interest and greed appears to rule the day.

The correct spelling is JAFA, Just Another Flaming Aucklander.
As for unwillingness to do anything about the problem, well you clearly need to drink some kool-aid. Your mistake is assuming that people even see it as a problem. This is a BONUS. People are getting rich, super fantastically rich, by doing nothing more than paying a mortgage! As a bonus you can apply online and max out the mortgage up to the total value of your propertie(s). Every means possible is being used to keep this gravy train rolling.

not what people call me there is a four letter F word instead

Now hang on just a minute! John Key was saying that Auckland is still affordable for FHB's. While Equab was saying that a drop of 5% would see a new deluge of FHB's snapping up bargains.

Denial doesn't mean there is not a problem. JK would love to be able to say there isn't one, but why has this topic been a major discussion point for over a year now? As to getting rich just by taking out a mortgage - really??? Since when did debt make you rich? The property market today, particularly in JAFAville is for the gullible and stupid. I think it will be only a matter of time before the banks become the major land lords. And the consequences will be borne by everyone not just Jafas.

I would be very carful about purchasing property at the moment for peak market price, when all local and global indicators are pointing to that the market is very likely to drop and that NZ house prices are falling.

The last thing you want as a First Time Buyer is to get caught in a negative equity trap, and have your home repossed by the bank. My advice is to wait a few months (at least until March) to see what is happening with the market as there has been a lot of tax changes that are affecting investors which is having a knock on effect with property prices.

So First Home Triers (FHTs) are screwed. Why are they grumbling? Who do they think they are? Whatever gave them the idea that New Zealand is run in the interest of it's citizens? Government has far more important things to think about than the inhabitants of these islands. Really.

FHB could be crowd sourcing to buy a large track of land in which they convert it into making their own city elsewhere......All the education, all the skills, all the resources, all the technology, all with the time factor on their side....get even with the old boys network and tell them to shove Auckland fair and square! Create you own new Council.

Call it Galt's Gulch ;)

Their first piece of Council Policy could be to enforce all citizens to read the works of Ayn Rand

And the perfect sister city....
http://galtsgulchchile.com/

Force people to read Ayn Rand? Isn't that a little contradictory?

So all of NZ except Auckland is affordable for FHB, that's good news ! Complaining that Auckland is too expensive for FHB is bit like saying Ponsonby is too expensive to buy a house in... well look elsewhere to buy

But Aucklanders live and work in Auckland...? Their families, dependents and communities are in Auckland...

What do you not understand about that VERY simple fact?

Great news even if your job or business is in central Auckland? Doesn't sound too great to me...

Well Auckland and Queenstown if you look at the figures in the article.

The fact that the PM fails to acknowledge how difficult and unattainable it is for first home buyers is tremendously concerning. Let alone doing something about it.

John Key is probably patting himself on the back that his lack of action has helped make property owners (and majority of voters) in Auckland "rich". Nice party trick.

And Bryce Edwards on fire - articulates some of the corruption
http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11580598

New Zealand's corrupt as hell. It just went unnoticed for a long time because it isn't that overt cash-in-a-paper-bag style corruption. This time will be remembered by history as when the corrupt stopped hiding, because they no longer needed to.

Don't mind me, just having a real cool time saving for a leaky apartment with my 3.05% bonus saver account.

ALSO went to view an inner central apartment the other day and the property agent sent around the results of a meth test after, prior to the auction.

Quote: "result of meth test is only VERY marginally above NZ Ministry of Heath Guidelines for safety" - LOL.

and it didnt sell then?

Oh it did. $100k over CV at $675k (pretty normal given 20%+ increases since the valuations in 2014).

Even with a failed p-lab test!

wow, buyers must be really meth-heads.. or worse.

It would be good to think that the situation would resolve it'self with the bursting of a bubble. The situation certainly has all the unreality of a bubble, but unfortunately the authorities have set up a permanent imbalance between supply and demand that appears to have locked us into permanent upward price movements. Material suppliers, developers and speculators are only too happy to raise their prices and profits accordingly, so unlike a freely competing market, there is no increase in supply in response to the price rise signal. In reality there is no effective price rise signal to the new house suppliers because the price of the alternative (i.e. building new houses) always just matches the second hand house price. The government is unwilling to address these issues and indeed one gets the impression that prices have inflated to such a point that the government is too scared to allow a free market because it would implode the bubble. So what will happen? My guess is that the market, particularly young couples, will react to the inevitability of never owning a home by moving away from Auckland to places where at least the land prices are more affordable or overseas. Hopefully Auckland will strangle itself in it's own greed.
Message to young people. New Zealand has many other affordable and beautiful towns and cities. Look at your current employment situation, get together with your friends and workmates and see if you can set up something similar out side Auckland and compete with your current employer from a lower cost base.
Loyalty? How loyally do you feel that you are being treated? Where is your loyalty going to get you? Renting a hovel for the rest of your life? Most businesses get started by a fairly ruthless single minded approach, so I wouldn't be too worried about your employers. They probably started out with a similar mind set.
There is absolutely no reason for any High Tech industries to be located in Auckland.

"Hopefully Auckland will strangle itself in it's own greed."
So do you expect the average home owner such as myself to sell my house to a FHB at a vastly reduced price? Am I expected to refuse an "inflated" price if it is offered?

No I was not referring to individual house owners. The people pulling the strings in this matter are way above our pay grade.

I have a solution to the housing crisis. Set up a charity where rich, greedy property developers are paired with first home buyers to sponsor.

Lol.

Take your pick between 'family of five, living below the poverty line' or 'young professional couple who remind you a little of yourself back in the day'

Or maybe we could get the government to copy the Ngati Whatua and just build affordable homes on crown land for FHBuyers. Wouldn't even have to be in flash Orakei!

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=1157...

Orakei is not flash, not even a top 10 suburb.

550k for a150year lease, plus I assume the land rent is not cheap. In effect $3.67k per year plus what ever rent they demand. Also the bank wont be able to get a lock on it so is it even possible to get a mortgage?

Im sure Ngati Whatua would have the financing under control. They are smart operators and they will look after their people.

I went to a 21st in one of the old stateys 20 plus years ago. Better views than the average Grey Lynn sweat shop.

There are plenty of cheap homes for sale and now the FHB doesn't have to compete with the investor - many of these homes have been on the market for more than two months. FHB's have to set their sights a bit lower - can't expect to by a FH in the inner city.
http://www.trademe.co.nz/Browse/CategoryAttributeSearchResults.aspx?sear...

Ha! Doublegz That home was advertised as a "super starter" - sold for $1,000,000 so that's what they call a starter home in central Auckland! http://www.customresidential.co.nz/CR5609

Yes did you see the land area? Initially I thought 152 sqm is the size of the house...shocking for $1m!

That all depends on what you deem "cheap".

There is a report in the Sydney Morning Herald that house prices in Sydney have dropped 3% in value over the December quarter, the largest drop in some time. This could not possibly happen of course in Auckland as we are special. Prices will only continue to go up.

It's amazing the things that can happen when you have a foreign buyer ban AND start enforcing it properly.

There are many countries with lower home ownership rates than NZ, including Denmark, Austria, Germany and Switzerland. They all have higher GDP per capita than NZ. So home ownership is actually not good for the economy especially if it leaves the owner with very little left after paying the mortgage.

Where is Order, where is balance, where is understanding? To bring Justice! The order of first home buyers NZ citizens first! HALT HOUSING SALES IN AUCKLAND sold to Foreigners...the above prices are whats expected when there are no laws limits on greed for profit Real Estate businesses. BAN REAL ESTATE INDUSTRY BUSINESSES FROM common sense Human Rights Housing of NZers First! Close immigration open deportation too much pressure on sewage systems unprepared! Its the media driving markets public advertising alongside corrupt john key national desperados to overpopulate cities such as Auckland Wellington Christchurch. Selfish arrogant adult behaviour again, not to be tolerated! Put a population limit on cities to say NO MORE! Politicians do more damage then good - 100 years of it! You cant keep up false demands when reality is you were never prepared the balance of power will shift in a return to MAORI INDIGENOUS OWNERSHIP RETURNS.

Where is Order, where is balance, where is understanding? To bring Justice! The order of first home buyers NZ citizens first! HALT HOUSING SALES IN AUCKLAND sold to Foreigners...the above prices are whats expected when there are no laws limits on greed for profit Real Estate businesses. BAN REAL ESTATE INDUSTRY BUSINESSES FROM common sense Human Rights Housing of NZers First! Close immigration open deportation too much pressure on sewage systems unprepared! Its the media driving markets public advertising alongside corrupt john key national desperados to overpopulate cities such as Auckland Wellington Christchurch. Selfish arrogant adult behaviour again, not to be tolerated! Put a population limit on cities to say NO MORE! Politicians do more damage then good - 100 years of it! You cant keep up false demands when reality is you were never prepared the balance of power will shift in a return to MAORI INDIGENOUS OWNERSHIP RETURNS.