The current crop of first-home buyers may feel like the housing market is stacked against them, but experts interviewed by OneRoof say buying a house in New Zealand has never been easy.
They noted serious hurdles faced by previous generations – some of which stopped women and Māori getting onto the housing ladder.
And while previous generations were able to buy homes with lower deposits and at lower multiples of their income, they didn’t have access to the suite of government grants and incentives that first-home buyers now enjoy.
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The experts also identified the best time for house-buying in New Zealand and the worst, and scotched some common misconceptions around the “bank of mum and dad”.
Massey University Professor of Banking David Tripe told OneRoof that the “bank of mum and dad” has always been an important source of finance for first-home buyers in New Zealand.
“Up until around 1990, banks were hardly useful as providers of housing finance, and people wanting to buy often had to try and cobble together the purchase price with a number of mortgages, including those from solicitors, family, etc.”
The only decades when parents didn’t play as big a role in financing purchases were the 1990s and 2000s, he said. That was largely the result of banks making it easier for buyers to access credit and schemes such as the Welcome Home Loan.
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A retired banker, who wished not to be named, told OneRoof that parental help was commonplace in the 1970s and 1980s, although banks didn’t always play ball. “We preferred to do a joint loan with mum, dad and the kids, over a guarantee,” he says. “Or we’d give the [loan] to mum and dad, who would give it to the kids.”
Even with parental help, buyers usually needed second and third mortgages to secure a home.
“Back then we had this thing called the Reserve Asset Ratio, which limited how much we could lend on home loans,” he says. “We would have been able to approve about one loan a week in the whole Bay of Plenty.” That loan was unlikely to go to a first-home buyer. “If it was a young couple they might as well forget it, because it wouldn’t happen.”
Previous generations of first-time buyers also had high interest rates to contend with. In the late 1970s the first mortgage might be charged out at 11% and the second and subsequent mortgages at 14%.
Some buyers, including women and Māori, were largely shut out of the market. Up until the 1990s mortgage lending was largely aimed at Caucasian couples.
For example, women buying on their own were viewed as a risk unless they could get their father or another male to guarantee their loans. “A woman’s place was in the home as far as the banks were concerned,” says former banker Alan Hewitt, who joined BNZ in 1967.
Hewitt told OneRoof that buying for previous generations was difficult, it’s just the hurdles were different. Banks were limited in what they could lend and buyers often had to go cap in hand to families, banks, solicitors and other lenders to buy a home.
A real estate window in 2003. Photo / Getty Images
CoreLogic chief economist Kelvin Davidson: "I don’t think it has ever been that easy to buy. It’s just differing degrees of difficulty." Photo / Fiona Goodall
Bank managers were more influential back then compared to now. “It was more about who you were and your family’s background with the bank. If you had wealthy parents or your family were farmers, you had a much better chance than a [blue collar] worker living in town,” he says.
Māori buyers also faced significant hurdles when fronting up to the bank to borrow money. A 2015 University of Auckland study of over 500 Māori by professors Carla Houkamau and Chris Sibley found that Māori who displayed features that visibly identified them as Māori reported significantly decreased rates of home ownership than Caucasians. Even when other factors such as education, household income, age and relationship status were taken into account.
Infometrics chief forecaster Gareth Kiernan believes that rising house prices and larger deposit requirements have changed buyers’ perceptions of the market and home-ownership. “I would suggest there is a common sentiment among many young people that parental assistance might be the only realistic way onto the housing ladder,” he told OneRoof.
“In a similar vein, increased discussion about co-ownership, [such as] friends buying a house together, rather than just the traditional couple, probably also reflects an increased incidence of it occurring, again as a behavioural response from people to embark upon home-ownership, which might otherwise be unattainable for them.”
Last year, Kiernan wrote a paper on housing affordability that identified 2022 as the worst year to buy a first home since 1987. The research took into account mortgage rates throughout the life of the loan, consumer price inflation, income growth over time, house prices at the time of purchase, and house price changes during the period of ownership.
“Some of the best years to have been a first-home buyer were 1949 and 1996 – when interest rates stayed relatively low throughout the life of the mortgage and there were substantial house price rises as well,” he wrote in the paper.
Kelvin Davidson, chief economist at CoreLogic NZ, says the biggest hurdles for buyers now is the deposit, with rising prices lifting the amount borrowers now have to save. The time it takes to save for a deposit in the 2020s is longer than previous decades, he says.
The earliest relevant data that delved into the number of years it took an average earner to save a deposit dates back to 2004, he said. At the height of the last cycle in 2007 the figure was eight years. At the height of the market in 2021 it was 12 years and has now dropped back to 10.
But that is just one measure of affordability. “I don’t think it has ever been that easy to buy. It’s just differing degrees of difficulty,” Davidson said. House prices were significantly higher in 2023, but mortgage repayments cost 50% of income now, which is exactly the same percentage as at the height of the GFC. That’s because despite higher house prices, homeowners now pay lower interest rates.
As well as lower interest rates, other advantages for today’s first-home buyers include banking liberalisation, and KiwiSaver, Davidson says.
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