Over the past couple of weeks I’ve been keeping my eye on the election policy announcements from the two major parties to see what they’re offering to promote home ownership.
It’s a topic which is extremely important to me because owning one’s own home is the basis upon which our democracy is built. Owning a home increases our wealth, enhances our security, reinforces our participation in our communities and allows us to fund a range of things from the education of our children and the purchasing of a business through to travel and retirement.
It is the primary key to self-sufficiency.
For this reason, encouraging and supporting people — particularly young people — to buy their own home is the single most important thing a government can do to enhance the wellbeing of a society. Indeed, the ultimate measure of success, for any government, is to finish a term of office with more people owning their home than was the case when that term started.
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That’s not to say that governments should ignore the position of renters. There will always be a section of our society who rent through choice or circumstance and for whom state support and protection will be needed. But the focus of our housing policy should be to help and encourage people to get into their own homes — not to promise that the state will provide a subsidised home for everyone who wants one.
So how do we rank as a home-owning society? There’s a perception that New Zealand once led the world in home ownership, but sadly, this isn’t true. In 1916, 52 per cent of Kiwi homes were owned by the occupier. Ten years later, in 1926, that figure had increased to 61 per cent — and there it stayed for 25 years, until 1951. From there, it progressively increased between 1951 and 1991 until it reached 73.8 per cent — the highest level we’ve achieved in our history but nowhere near the rates of home ownership in countries like Romania (96.4 per cent) and Singapore (90.7 per cent).
By 2013 our rate of home ownership had dropped back to 66.2 per cent — and now sits at around 63.2 per cent.
However, as a result of Covid-19 and other things going on within the global economy, there’s a huge opportunity in front of us right now.
Believe it or not, it’s now easier to buy a first home than it was in 1986.
Back in 1986, when floating mortgage interest rates had increased to almost 20 per cent, the cost of servicing a mortgage for a household on the median income, buying a home at the median price of the time, was around 52 per cent of that household’s income, despite the fact that median house prices were dramatically cheaper in inflation adjusted terms.
But by 2001 the cost of servicing a mortgage on the median New Zealand house price had dropped to 34 per cent of the median household income, and it currently sits slightly above that at 37 per cent. And keep in mind that I’ve been quoting floating mortgage interest rates. If they fixed their interest rate today’s purchaser of a median-priced Kiwi home could get the cost down, even further, to well below 30 per cent of the median household income — or the equivalent of what a homebuyer was last devoting to mortgage costs in 1976.
This has happened because of the big drop in the cost of money over that 34-year period but this window may not last. While money will be cheap for a while, it would only take the reimposing of the disastrous loan-to-value restrictions by the Reserve Bank, to put us back in a position where it was almost impossible for young people to get together a deposit for a home.
So I’m looking for one of the major parties to tell us how it intends to seize on this moment in history by doing something to move tens of thousands of young people into their own homes.
We have the perfect housing environment in which to do that, and the most benign purchasing conditions in a generation — it just requires determination and leadership to make it happen.
- Ashley Church is a property commentator for OneRoof.co.nz. Email him at [email protected]
