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

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PLEASE NOTE: The full suite of Reports for a) First home buyers (aged 25-29 yrs), both as individuals and as a couple, and b) Young family buyers (aged 30-34), both as individuals and as a couple (with one partner working full time, one half time, and a 5 year old child), are now published on our website.

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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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