Back in the 1980s, the variable first-mortgage interest rate peaked at about 20% in New Zealand and loans were often serviced by a single income, with fewer women in the workforce and house prices much lower and more aligned with incomes.
Now the conversation is all about how people are “locked out” of the housing market and will have no choice but to rent for the rest of their lives. A primary reason is house prices have become decoupled from average household incomes in every region.
The numbers are stark. The average house price is now above $900,000 and the minimum deposit requirement between 10% and 20%.
Median earnings from wages and salaries in the year to June 30 were $69,836, according to Stats NZ.
According to Infometrics data, the house value to income level in 2005 was 5.0 and 36.3% of the average household income would be needed to service a 20-year mortgage on the average house value, with a 20% deposit at average two-year fixed interest rates.
By 2024, this had risen to 7.0 and 49.5%.
There have been several house price surges since the mid-2000s and, though prices have declined from their peak in 2022, the combination of mortgage deposit requirements from banks and persistently high interest means fewer Kiwis own the home they live in than at any time in the postwar period.
According to a 2024 Deloitte report, home ownership has dropped to its lowest rate since 1945 – from 75% in the early 1990s to less than 60% today and is on track to fall below 50% by 2048.
Solving the housing affordability issue is a problem of maximum importance. Here’s why:
The banking system is working for shareholders and against consumers.
The Commerce Commission’s final competition report into personal banking services found the four Australian-owned banks represent a stable oligopoly with no maverick provider. We do not consistently see strong rivalry between them, there are sustained high levels of profitability and some groups, including Māori, are not well served by what competition exists.
Current homeowners are making ever-higher mortgage repayments as their fixed terms roll over, while collective profits for the Big Four banks rose to a record $7.21 billion in 2023.
Extensive data gathered over many years shows that health, educational and financial outcomes are affected by home ownership.
Auckland Council’s 2023 Quality of Life survey found the burden of housing costs on renters tended to be heavy and the quality of rental homes was generally lower than that of owner-occupied homes, with flow-on effects on renters observed in “often poorer health and educational outcomes relative to those who own their own home”.
According to a 2021 report for the Ministry of Social Development, the problems of housing affordability, crowding and quality disproportionately affected low-income households, which were much more likely to rent.
Rental properties are generally in worse condition than owner-occupied properties, with higher presences of cold, dampness and mould contributing to health problems in adults and children.
Research by the Housing Foundation, a registered charity and community housing provider, found that, even after controlling for variables including socioeconomic status and income, the children of homeowners showed significantly higher educational attainment levels than those of renters in most educational studies.
The 2022 Auckland Council Quality of Life survey found many benefits from home ownership, including more control over personal circumstances, greater ability to accumulate and pass on wealth, better health outcomes, and social benefits from greater participation in the surrounding community.
We now have many years of data, both qualitative and quantitative, to prove banks either cannot or will not address the problem because their shareholders benefit from the status quo.
The mortgage product as we know it has not changed much in decades and is at the end of its product lifecycle. Debt no longer works for borrowers because of the systemic issues at play.
Is build-to-own the solution?
What could work? A new model that does not rely on borrowing from the bank and paying back huge amounts of interest cost; one that allows people to buy a home and build equity over time on their terms.
One model, which our team at Bloxx has created, is build-to-own, working with housing developers to deliver a pipeline of 4500 homes across New Zealand. It requires a homeowner’s deposit of only 1%, which buys people equity in their new home.
The homeowner then makes a weekly payment to us, which includes a fixed platform fee – making our business viable while allowing the homeowner to bypass the bank home loan. The result: a home, no bank, no debt.
To make this new model work for thousands of people, we have to undo our collective cultural conditioning and accept there is an alternative way to buy homes without debt if we are prepared to rethink what the real prerequisites to home ownership should be.
Does it have to be a mortgage, or can it be something better suited to the way we live now?
If we are prepared to rethink our entire ecosystem and let go of outdated ideas, the 21st-century version of the quarter-acre dream can once again become a reality for every Kiwi family.
