First home buyer affordability little changed in April, but those who bought a first home five years ago may be wise to assess whether it is time to move on and up

First home buyer affordability little changed in April, but those who bought a first home five years ago may be wise to assess whether it is time to move on and up

By David Chaston

If you bought a first home five years ago, is now the time to trade up to a median-priced house?

Nationally, you would be sitting on an average gain of more than +$100,000. In Auckland, it is a gain of more than +$250,000.

Typically first home buyers buy a starter house, then graduate at some point to a 'better' home. In 2013, that starter home cost about $273,000. In Auckland, it was $405,000.

In 2018, house prices are starting to flat-line. The month-on-month gains are not there any longer. Even year-on-year gains seem to have disappeared in some cities, and especially in Auckland.

But perhaps that change creates the opportunity to trade-up, to buy when the market is tipped toward buyers.


And another factor for Auckland owners; if the Government is about to incentivise a giant rush of new first-home supply by supporting developers with buy-off-the-plan commitments, perhaps the capital gains in the first home buyer market won't keep coming.

Is now is the time to cash-up and trade-up? Holding on might bring rising risks.

One unintended outcome of the Government's KiwiBuild strategy might be a bifurcation in the housing market, especially in Auckland. Imagine thousands of new houses coming available in the $650,000 price range, all new. Some renters will be enticed into the market, but they will only be those with a deposit of $65,000 to $130,000. It is unlikely this will be based only on KiwiSaver fund values; therefore it will only be buyers who have built up an additional solid savings nestegg in this group. (Many KiwiBuild homes will also go into Housing NZ stock for those who can't afford to buy.)

In the senario where KiwiBuild volumes ramp up quickly, homes that previously were in the market for first home buyers might struggle to compete with the new builds, and therefore they might struggle to see future capital gains.

But houses not in first-home buyer markets could well find the supply-demand pressures applying quite differently. The same Government incentives (via buy-off-the-plan support) could see developers shift from the more commercially risky business of building million dollar houses for median house buyers. Like any business, margin-at-volume is more enticing than margin alone. Opportunities for single house development won't be as enticing. Supply in this sector may well sag.

However, unless there is an economic downturn, it is unlikely that demand will sag as much in median markets. Hence those prices may hold, or even see shortage gains.

Last gasp?

What we have seen over the past year nationally is that first quartile house prices have risen +7.7%, whereas prices for median priced houses are up only +1.9% in the same year.

Here is this data for a number of key markets, but over the past five years:

Five year change Lower quartile (LQ) house prices, avg  
SOURCE: REINZ Apr-13 Apr-18 change
  $ % %
National 273,000 377,000 + 38
Auckland 405,000 660,000 + 63
- North Shore 545,000 765,000 + 40
- Central 398,000 638,000 + 60
- West 353,000 650,000 + 84
- South 398,000 648,000 + 63
Hamilton 270,000 464,500 + 72
Tauranga 287,000 535,000 + 86
Napier 255,000 400,000 +78
New Plymouth 273,000 354,000 + 30
Palmerston North 231,000 325,000 + 41
Wellington City 399,000 550,000 + 38
Christchurch 292,000 355,000 + 22
Dunedin 207,000 317,000 + 53

(Note that the capital price changes in the last twelve months in Auckland for LQ houses has been -0.8%, whereas for Median houses that is -0.6%).

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

There must be doubt about whether this is likely to be maintained long term, given the new Government policies and incentives. Remember, the table above is for the lower quartile portion of these markets. It is not inconceivable that the impulses may switch.

So if you bought a first quartile house five years ago, you are sitting on a +$109,000 gain, a 20% deposit available for a $550,000 median priced house. In Auckland, that is a +$259,000 gain, or a 30% deposit for a $850,000 median priced house.

Our latest home loan affordability update for April shows improving affordability for first home buying couples nationally, with only 22.6% of take-home pay required to buy a lower quartile house nationally. That is virtually unchanged from a year ago.

In Auckland, it is 43% of household take-home pay, down from 46% a year ago. (On Auckland's North Shore, it is down to 51% from 56% a year ago).

Only Taranaki and Canterbury had affordability improvements for first home buyers in the past year. Northland and Waikato were little changed. All other regions posted minor tightening.

However, there is significant deterioration in affordability happening in Rotorua, the Kapiti Coast, Nelson, and the Auckland zone around Rodney. However, all are still affordable, except in Rodney.

Home Loan Affordability - First Home Buyers

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The 'NZ total' chart will be drawn here.
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The 'Waikato' chart will be drawn here.
The 'Bay of Plenty' chart will be drawn here.
Bay of Plenty
The 'Hawke's Bay' chart will be drawn here.
Hawke's Bay
The 'Manawatu' chart will be drawn here.
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The 'Wellington' chart will be drawn here.
The 'Nelson/Marlborough' chart will be drawn here.
The 'Canterbury/Westland' chart will be drawn here.
The 'Otago' chart will be drawn here.
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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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Little has changed .

And I dont buy into the bifurcation argument , simply because I have yet to see the roadmap how we are going to get to Planet Labour's Utopia of Kiwi - buy - build -rent - off plan or whatever its now called .

Kiwi build or whatever , is simply not going to happen on the scale intended .

And we forget that "secondhand houses " are simply tracking the horrific prices of new builds , and those costs are going up and up and up .

So anyone who thinks they can get a $650,000 NEW house in Hobsonville , Mt Eden or Millwater for that price when the price levels are established at over $1,2 million, is dreaming

We go on and on about the cost of housing , and fail to even recognize the causes of house-price inflation .

We bring in way too many immigrants for us to cope with , they( immigrants ) bring skills and in most cases money

They use that money to buy our houses and over-pay for them because we have not built enough houses for everyone

The folk at the bottom of the social ladder are forced out to make way for new owners and end up sleeping in the back of the Honda Odyssey

I think you have hit on the demand side i.e. a growing population. However, there are supply side issues (despite the growing population there has not be a shortage of anything else). We need to increase supply and that means removing/reducing zoning rules that allows for the market to respond.

@No Fax and so much for NZ Firsts promise by its leader Winston Peters to hit the pause button on immigration ( his words ), this Government HAS MADE NO CHANGES TO IMMIGRATION SETTINGS since it came to power

NOTHING ........... they just keep rolling in

Go online to the NZ Government immigration service website and you will see , the last changes were made by the previous Government , announced around , early to mid 2017 and effective August 2017 .

It gets worse when we consider Jacinda wants to double the refugee quota and take those wild aggressive bunch of psuedo refugees from Manis Island .............. when we dont have enough houses for our own poor folk .

The only people that have aright to come to NZ are NZ citizens - why can't the government turn down the arrival of immigrants? It must be the same answer they had about National; they don't want to.

What about spouses of NZ citizens?

How many are genuine?

I don't know but I hunted high and low to bag myself a Kiwi husband ;-)

I have relatives that married non-NZ citizens (including my mother!) - but I think they don't by right they can live in NZ. But the rules change on this so I am unsure.

Boatman you should see the crime in NZ recently. This week a man was convicted of pimping out his underage step daughter. Another man will likely be convicted of murder, an Indian doctor.

Shut the damn gate already.

"And we forget that "secondhand houses " are simply tracking the horrific prices of new builds , and those costs are going up and up and up ."

The main driver of second hand house price rises has been the land underneath them increasing in value. Building costs have not increased so dramatically. New builds obviously include the cost of the land underneath them as well. Increasing the supply of usable land should help bring this cost back down.

Exactly, the principal effect of the credit bubble has been to inflate the people of land. Yes building costs have increased but the principal effect has been on land prices. Were the price of land to fall there would be a corresponding fall in the price of new and existing builds.

I used to think that too. But, a very good friend and builder recently told me that he believes that labour hours have risen approximately 40% over the last 10 years due to compliance. Have you seen the details and the sheer number of inspections required ? Stainless bolts required on any deck, not just within 500m of the shoreline, the flashing details, the bracing requirements - I trained as a quantity surveyor, it is absolutely mental compared to where I came from 30 years ago.


I'm sure this made for some incredibly depressing reading for FHB's and anyone who cares about the future of NZ alike;

There has to be huge pent up FHB demand so unless there is a major economic shock or sentiment takes a serious knock, this pent up demand will prop up current prices more or less.

However, while debt remains high, and wage growth muted, NZ remains incredibly vulnerable to an economic shock and who are most vulnerable? The FHB's who have recently taken on huge mortgages, at historic low rates. If the above article is anything to go by, some of these FHB's have gone to extreme lengths to scratch their deposit together and have no wiggle room at all, if the economy goes tits up for some reason.

If you are a first home buyer out there who has recently managed to get on the ladder, well done, but please don't party too hard or don't take on anymore debt for now. Pay off as much as you can in the short term (you'll save yourself massively on mortgage interest later) and then if all the China/USA trade drama dissipates, if inflation remains shy and interest rates stay put, if the global economic instability retreats and the housing markets gets its soft landing.... then party!

Good advice

hear hear. I do raise a glass to that because many are being encouraged to throw themselves into situations that are damn near frightening with debt, (e.g. take on more debt for more properties with no buffer of more conservative investments & savings). A first home is important for housing security and yes with moving, letting fees, rent, bonds etc it probably would be cheaper & healthier for many to buy their own home (especially to be ready for retirement).

Heck it would be even cheaper for the country to have more owning their own home instead of needing rest home subsidies which cost the taxpayer a bomb because the retirement housing prices are ludicrous. But likewise for those who could not afford their own home yet or who migrate often, other investment vehicles & emergency savings would be better & more flexible to their current situation. Simply the cost of housing in retirement is an avalanche and without many prepared beforehand the NZ taxpayer bill is going to easily wipeout the future generations. Even looking to switch to a different retirement living area even the options & financing are complete bollox if not going for your own home, (not to mention there are absolutely no accessible private rentals for mobility issues available in the country these days, even disabled under 50s are farmed off to rest homes). Feasibly it would be easier and cheaper to set up a decentralised retirement housing network using the existing MHS nursing & home care services, shared organisation of maintenance, with smart tech & med alert options. Yet not even any of the main housing developers have accessible doors in their designs!

At this point I would recommend if you are not investing in a home early, you might as well have some investment in the retirement housing market; good performers and a government willing to subsidise near 100% of the cost (pension, nursing and additional retirement housing subsidies & loans).

Do you actually understand the rest home care subsidy? You need to meet the local MOH health needs assessment before you can apply regardless of your financial situation. Most people simply do not qualify.

Not so. Many do qualify, quite a substantial amount especially for the physical & mental difficulties that crop up from decade to decade. There is a certain point where gallows humour is a necessity. I have worked & invested in the industry and regularly review the stats, policies & work with the needs assessors. Trust me what is surprising is that many do not know they can access it once they end up in a bad way. The numbers claiming for varying degrees of nursing & hospital level care are there. It gets really depressing for those suffering substantial dementia though, because by that time they are not even going to be able to handle reading the forms and rely on help in financial applications & housing decisions far more. Even getting regular meals for them is a vastly needed service.

I think there is a good argument here. However, I suspect that the impact on prices of Kiwibuild will be wider than a specific niche. For instance, three bedroom homes in poor repair (the usual starting point for first home owners) will need to compete with two-bedroom houses.

What I also suspect is that a large increase in the two bedroom townhouses will also appeal to a growing aged and live-alone population. People swapping the dilapidated family home for a small townhouse with double glazing, and low maintenance.

If it was not for Kiwibuild increasing supply in that niche, I suspect the traditional margins between two and three bedroom houses would decline because of demographic changes.

I don't care to speculate. Unfortunately we have yet to see that the governments policy will had any appreciable impact on affordability or supply. In fact general consensus about outcomes seems to vary only between disappointment and flop presently.

At present demand has been deferred so often and created such an imbalance that it's difficult to see a substantial change in the market while employment remains relatively low.

Very good article and rationale for FHB to consider.
However, the article while considering impact of Kiwbuild on lower part of the market, neglects to mention the withdrawal of property investors from that part of the market which compounds the issue for FHB vendors.
RBNZ figures show that investors new mortgages have dropped from 2,141 for the March month 2016; to 1,425 for March 2017; to 1373 for March 2018 - down 768 (a 36% drop) for the month of March 2018 compared to March 2016.
Even without additional properties from Kiwibuild, the lack of interest from property investors means that there is likely to be greater competition for FHB vendors in the lower end of the market.
There has been a slight increase from FHB, but this is up from 753 in March 2016, to 819 in March 2107 to 911 in March this year; an increase of only 158 - far lower than the 768 fewer investors.
So exit of investors good news for FHB, but not FHB vendors.
RBNZ figures available:

File under U for 'Unintended Consequences', perhaps?


"The property ladder" - an interesting societal shift.
Buying and selling to get up "the property ladder" is really only a characteristic of baby boomers onward.
As a baby boomer, it was a feature of my parents and grand parents generations that they tended to buy/build their first home for life. They were far less mobile not only in terms of job (job for life) but also in terms of migration (both nationally and internationally). They also tended to stay put in the same house.

Just look at the Stats that David has provided for a moment .

If anyone thought Auckland was bad , just look at Tauranga , up an eye-watering 86% increase in lower quartile average price in just 60 months .

There is nowhere that you could have got an 86% tax -free return on your money in that timeframe from a tangible asset , and if you had borrowed or geared to say 90% , the returns on actual cash outlaid would be phenomenal

For ordinary Mr Kiwi you can bet wages in the Bay of Plenty have not gone up by 86%

Dunedin was a similar shocker, many suburbs doubled. Even the tail wind of that will be interesting with future developments (and the eventual sea level rise).

How come there's no Auckland - East?? Very stoopid indeed!

Shhhhhh!! The new Tamaki Link bus service has got me nervous that my Elysium is going to be overrun.

If the Elysium metaphor you are going for is that of the film (rather than the Ancient Greek Elysium/Elysian fields) then the plot has the original elite residents having their citizenship revoked. Followed by all the people previously excluded from Elysium become citizens instead (in a huge reset of wealth and social equality).

The whole film is a political/social commentary on the dangers of wealth inequality, so i've always found it odd as to why boomers on this site who live in wealthy suburbs like to use this specific metaphor and clearly identifying themselves with the rich elites from the movie....when it really does end very badly for that class of people within the story.

Given I had to Google the Movie to see what you were referring to it's safe to assume I was referring to the 'happy place' version. That said, there's something concerning with the new bus link in that there's likely insufficient demand with the current population of the Eastern Bays to fill a bus every 15 minutes until Midnight, 7 days a week. Something is up.

Yeah, I had this discussion with Zachary a while back (he was the first one to starting using the metaphor on here) and he stated he referred more to the film because he saw NZ as the safe haven everyone would want a piece of as the world turned to shit. (he didn't use swears though) ;-)

Huh, I thought it was always going to be more a 'snow crash', 'make room, make room' (soylent green), '3%' (Brazilian version) scenario. I.e. you will need more than land to escape the vast social ills generated, but humans are terribly ineffectual at creating ecosystems & environments that can exist completely separated from their social inequality (even ocean raft/city solutions are highly susceptible to more damage & resource constraints to give them long term viability). Plus those in the more elite areas need the poor to work for them, in more slave type roles, (heck we even have much of that now and we didn't need fiction to give those people ideas). Hence the boundaries between the two groups becomes more militarized, isolated, and pretty much deadly (for both as herd immunity would be buggered completely as well). The Elysium movie was almost a complete fiction, poorly thought out, because the engineering feat would approximate Ringworld dimensions and at that point it would be far more worthwhile & sustainable just to build a Ringworld type solution that is more resilient & able to accommodate growth in elite population & workers. Plus they completely ignored the viral aspect entirely which requires continual development worldwide if any prevention or eradication is desired (otherwise it would be a 'war of the worlds' type ending for those elite having any interaction with staff & resourcing). If we stop medical assistance in poorer nations don't complain when poorer diseases start appearing in our own backyard. Polio is scary enough as it is, a friend was severely disabled by that as a kid and died relatively young. Measles making a comeback to deadly levels due to minor vaccination shifts between generations is bad enough.

Auckland East, Elysium?! With the poor maintenance, environment and infrastructure in the area? Surely East Auckland deserves better, they need better, with clotted arteries. Even enough to make many of the leaseholds and beach view properties worthwhile. There are ponds out west Auckland with more appeal, (and more wineries & good unpolluted beaches close by). Even the Auckland northern beaches have more facilities & upkeep (and those ones are still somewhat polluted). Looking ahead I do pity Auckland and Wellington outer suburbs the most but I know they will be able to wrest the most from their ratepayers when the water hits their beach front properties. Smaller cities will have to make do and in the end cut severe infrastructure corners with the ageing population. I don't pity those cities, I pity the specific residents who are stuck & have to live in those areas cut off the budget.

? There's nothing wrong with Kohimarama's maintenance, environment, infrastructure and beach. My biggest concern now is that the Tamaki link bus will encourage more people to use it.

Sure but I take it you were not down swimming in the road recently or in the major landslip risk zone With flooding events to increase there is no thought as to the storm water system or the walls. Even when living further east the whole network there suffers poor road transport upgrades or shall I say 'councillor living on the road' design where a dangerous stretch of road near a school was ignored but a completely random road with no traffic issues or risks got speed bumps installed. Public transport is fraught with difficulties, there is bugger all parking and every year there are massive road closures which prevent access altogether. Then working out east it gets more depressing... nice view, shame about the infrastructure. Many though feel they need to suffer for the beach access and they don't really. For 1-2million dollars less they could have gone north or west or even to Waiheke. Potential growth would encourage that. But then many East Auckland suburbs may have been excluded from the affordability calculations due to the occurrence of leasehold sums, & increases to take into account (quite a bit different because they can jump wildly). Even around Cornwall Park the increases were a nightmare. Are you on a leasehold section atm? How was the shift over the past couple of decades?

Paying workers better wages and improving their working conditions would surely improve productivity? Obviously such wage increase would have to be large to enable most to buy in Auckland. Saying that, the snake could be eating it's own tale - if supply doesn't increase, fresh money will just drive up house prices and the aforementioned pay increase won't mean much.

The word sentiment gets thrown around a lot by NZ economists, normally referring to business owners, property speculators, retail consumers, etc. But what about the sentiment of migrants, renters and wage earners? You know, the people that actually enable people to own businesses, speculate and have disposable income?

Immigrants for example are very hard working (see Statistics NZ) and often bring talents/skills beyond their working visa. NZ isn't the only country wanting immigrants to fill skill gaps and use as a source of cheap labor to bolster GDP. The living conditions for immigrants in NZ is often terrible and the payment for their hard work can be low. Immigrants know this and they are starting to leave! NZ is so blind it doesn't realize that countries are going to start fighting for even semi-skilled immigrants soon .. and they won't wan't to come here.

The sentiment of renters in NZ is negative. Rents are too high and quality far too poor. The housing crisis is said to 'get worse before it gets better' and those renters who have suffered for years in Auckland, Wellington and Christchurch are getting their ducks-in-a-row before moving. Some renters will move to smaller towns but many in the upcoming workforce, in their prime working years will flee the NZ rental markets for Australia, UAE, Japan, UK, even China.

There is a cost to working, workers require certain things; accommodation, deodorant, food, transport, a bank account, tools, clothes, etc. Obviously this is a reason why homeless people don't just all get jobs. Now dear reader, you have likely heard stories about workers becoming dispossessed, living in caravans, cars, tents, even couch surfing. These workers are on the edge and many/most will find their homelessness leads to unemployment - after all "it's going to get worse before it gets better".

Now despite popular belief, workers aren't thick. Workers know the traditional deal is; when you work a job, you are more or less guaranteed the ability to rent an actual roof over your head . This guarantee is not so anymore .. so the workers who most benefit the country (single, healthy, tax payers) and often have the most savings will leave to take advantage of better living standards in other countries.

So what's the end of the matter .. sentiment of first-home-buyers is changing. First home buyers are coming to terms with properties in our cities not being worth the financial burden. Many move to the regions or overseas for higher living standards. Many will buy homes overseas. The remaining workers will largely find themselves fighting to stay on the rental ladder.

I'm not saying there won't be home buyers but first-time-buyers may quickly dry up among middle income earners as they did among low income workers. New Zealand could fast become a country where older generations own all the property/wealth, younger NZ generations (workers) have all left the country or are rough sleepers, skilled migrants have left NZ and low skilled migrants do all the jobs alongside pension receiving baby boomers.

It’s been seen to a certain degree in Auckland. This is the real brain drain:

There aren't going to be "thousands" of new homes for sale at $650,000. Wont happen, not in Auckland. There would have to be a phenomenal surplus, the like of what happened in Dublin, but the deficit in Auckland keeps growing at a faster rate, it needs to start reducing, then get to break even, then actually start reducing the built up demand from the past 10 years, before it can get anywhere near an oversupply type situation. $650k for a new build is cheap even for the boondock towns in NZ.

'People who bought five years ago should look to trade up' - lets look at the reality of that shall we. Most people who bought five years ago were competing with the buy to debtors and probably paid too much for the house (albeit they didn't overpay as much as those last year did). 5 years into the 30 year mortgage they now have an understanding of what it takes to reduce debt. (they've likely only managed to pay off around10% of their original loan by now - only 25 years to go people). Now David is suggesting that they stretch themselves again to buy a bigger house with more debt over a longer term.. Except these buyers were 35 when the bought their first home, they are now 40 and with 25 years to pay back the balance the numbers don't make sense. Sorry everyone all of those that remortgaged the family home to buy a 'buy to debt' you have actually snookered yourselves because there are now not enough people with the ability to trade up to buy your family home. Top down correction on the way and it will be very painful for the over-geared.

People that bought and borrowed 5 years ago will be a helluva lot better off now than those that didn’t providing they were positively geared.
If you bought 5 investments over the past 5 years you could possibly be now a full time investor and not need that 9 to 5 job.

It is all about learning how to do it

TM2, anyone out there can provide retrospective investment advice. How good were you in 1986 at predicting future share prices?

Yeah this is a significant point. Let's hear from the older housing bulls about how they would have fared had they been a 20-something now, on current salaries (possibly with uni debt). Would they have been able to accrue a housing portfolio so easily, what if they did buy in today's climate but then experienced bugger all capital gains over the next 5-10 years, where would the equity come from to fund the next house purchase? What was their financial position when they were that age? Were they as boastful and sure of themselves and their financial future?

An absolute idiot could have made money on property if they had bought over the last market cycles, price inflation has been nuts, lending has been cheap and easy if you had equity or deposit. The question is... with the changes to taxes, landlord regulation, tightening lending environment... if you were starting our now and currently only had just enough capital to buy your first investment property, would property investment be such a sure thing at today's prices?

I really can't see that the numbers stack up.

Personally, we're looking to buy a commercial property as our next investment. We'll partly use it for our own company, and then let the rest. Potentially there is longer term investment potential in holiday/tourism accommodation also (depending on location) but residential investment is no longer looking like such a sure thing.