Shortly Kaspanz members will get their next Newsletter No 13). To show what new readers are missing, here was the previous newsletter .

KASPANZ MEMBERS NEWSHEET 12: 2018    Kiwi saver | Annuity | Superannuation | Protection Association of NZ.

HOMES ARE MORE AFFORDABLE

There continues to be a large number of media articles talking about the “housing crisis” and people being tenants for life. I’m sure that the people saying that home ownership is unachievable for young people are doing this with the best intentions, but they are giving these people the wrong message.  Ironically, by trying to stand up for first home buyers they are likely putting them off even trying to achieve their first home.

An NZPIF study shows that while it is hard for first home buyers to get into their first home, it has always been this way. Now another study, this time on home affordability from Massey University, shows that it isn’t impossible for first home buyers to enter the market.

Massey’s latest study was recently released and showed that housing affordability in New Zealand had actually improved. Not only over the last quarter, but  over the past seven quarters since the middle of 2015.

I thought this was really interesting and told a friend about it. They were a little skeptical as this went against everything they had heard in the media. “Affordability might have improved nationally” they said, “but what about the hot areas, like Auckland?”

According to Massey University, Auckland’s housing affordability has actually improved slightly more than the national average over the last seven quarters. Nationally, housing affordability has improved by 15.8% while Auckland’s affordability has improved by 16.1%.

The improvement has been caused by flattish house prices, slightly lower mortgage interest rates and higher

Some commentators have stated recently that potential first home buyers are being forced from the market. Their reasoning is that the ratio of incomes to house prices has increased from 3.4 in 1985 to 7.3 in 2014. Similarly they point to the ratio of rental prices to house prices, which has nearly tripled since 1985.

However these ratios are simplistic in that they don’t take into account changes to mortgage interest rates over the years; the past few years the ability to borrow at historically low rates has made it so easy to borrow large amounts cheaply., or that new homes have increased in size from 125sqm in the 70’s to 200sqm plus today day.

The NZ Property Investors’ Federation (NZPIF) has researched changes in Housing Affordability from 1985 to today, to examine if home ownership has become unattainable for young New Zealanders. Results are in the table below.

While the average cost of housing has increased since 1985, mortgage interest rates have fallen from 18% to 6.3%. As a percentage of income, the amount spent on a mortgage has barely changed over the last 30 years. It actually requires less of the average household income to own a home today than it did in 1985.

“New Zealanders have more or less maintained their spending on home ownership and to some extent have sacrificed potential cost savings, obtained through interest rate reductions, to buy bigger homes,” says NZPIF Executive Officer, Andrew King.

Massey University’s Home Affordability Index backs this up. The index shows that housing is actually more affordable in 2014 than it was in either 1995 or 2005.

Additional information from the study shows that it is cheaper to rent now than it was in 1985, which should make it easier for aspiring home owners to save for a deposit.

“New Zealanders deserve better information on something as important as housing affordability” says King. “This study doesn’t say that housing in New Zealand couldn’t be cheaper, but it does show that it is just as hard to get into your first home today as it was in 1985. This is important, as misleading information may put people off trying to buy their own home and lead to law changes attempting to address a problem that doesn’t exist. This almost always leads to unintended consequences”.

SNIPPETS

• A recent OECD report “Today’s young adults have a significantly higher disposable income than previous generations had at the same age. OECD citizens now in their early 30’s have 7% more than members Generation X had at that age and over 40% more than baby boomers enjoyed when they were young. Youngsters may sigh with impatience when an old codger tells them how life was tougher “when I was your age”. But it was

• oticed a UK research report saying in 1971, 80% of 7 yr. old children walked to schools. By 1990 it was 9%, and in 2015 2%. Children don’t change, it’s what parents allow that do! The advent of TV in the lounges of the family home, has increased the perception of danger and safety, mostly unjustified?