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First home buyers need deposit help
First home buyers need deposit help
25 August, 2014
The National Party’s housing policy correctly focuses on assisting a first home buyer to raise the deposit to build a new home.
A New Zealand Property Investors' Federation study into housing affordability shows that owning your own home costs about the same percentage of income today as it did in 1985. This is because mortgage interest rates, usually the largest cost for a first home buyer, have fallen since 1985.
Housing affordability would actually be better today if the size of our houses had not increased over time. Larger houses cost more to build.
"The affordability debate has focused on income and house prices, but the cost of mortgages and the size of our homes have a huge influence on housing affordability" says NZPIF Executive Officer, Andrew King. "While housing affordability is about the same now as it was in 1985, it has become harder for first home buyers to save the deposit".
The Kiwisaver first home deposit subsidy has helped first home buyers with their deposits. National's HomeStart plan will increase assistance with deposits if they build new homes. The cap on the house price will encourage first home builders to construct smaller homes.
"New Zealanders have more or less maintained their spending on home ownership over the last three decades and to some extent have sacrificed potential cost savings from interest rate reductions to buy bigger homes" says Andrew King. "It has always been hard to buy your first home, but initiatives that make it easier to obtain the deposit and encourage the building of smaller homes will be of greatest assistance."
Chart showing changes in affordability of housing follows.
| 1985 | 1995 | 2005 | 2014 | |
| Property value | $ 80,000 | $ 140,000 | $ 260,000 | $ 430,000 |
| Deposit (20%) | $ 16,000 | $ 28,000 | $ 52,000 | $ 86,000 |
| Mortgage value | $ 64,000 | $ 112,000 | $ 208,000 | $ 344,000 |
| Interest rate | 18.0% | 10.8% | 9.0% | 6.3% |
| Annual Mortgage Cost | $ 11,654 | $ 12,979 | $ 21,015 | $ 27,231 |
| Household incomes | $ 23,542 | $ 32,220 | $ 43,720 | $ 58,614 |
| Rental prices (pw) | $ 190 | $ 220 | $ 260 | $ 360 |
| Mortgage as % of income | 50% | 40% | 48% | 46% |
| Rent as a % of income | 42% | 36% | 31% | 32% |
| Massey Affordability index (A high number represents lower affordability) | 24.0 | 28.8 | 21.2 |
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