Another myth without foundation

Banks implore us to get a lifestyle as well as a home, more room for the pool table or a swing for the kids. So why do fewer of us own a home? ANNE GIBSON reports.

There goes another great Kiwi myth.

University researchers tell us our desire for having our own little slice of paradise is dwindling.

Massey University's real estate analysis unit has found that fewer Kiwis are buying homes and we are sliding down an international scale.

The myth of high home ownership levels is not the only one shattered lately.

The Auckland Regional Council said this month that more of us want apartments than stand-alone houses.

Demand for the traditional bungalow or villa - with its needs and renovation demands - is palling compared with compact, centrally located apartments that have no lawns to mow and no paint peeling from window frames.

Two Infometrics studies for the council - Auckland Region: Business and Economy 2002 and Auckland City: Hub of the Auckland Regional Economy - pointed to significant changes in the way we live, revealing that in the past year resource consents for new apartments finally outstripped those for new houses.

Massey's study found New Zealand home ownership is declining because of a combination of alternative investments, static rents and lack of money to pay a deposit.

Those of us who insist on owning a house still view paying off the mortgage as our main form of wealth accumulation.

In 1986, New Zealand had the highest percentage of owner-occupied housing in the world - 73.7 per cent - but we have now slipped into eighth place, with 67 per cent.

Wealthy city state Singapore is now the leader in owner-occupied housing, at 90 per cent, followed by Taiwan (85 per cent) and Spain (81 per cent).

The percentage of Kiwis owning their own home has slipped to a 45-year low.

Massey real estate unit director Bob Hargreaves says one factor behind the drop in home ownership is static rents nationally.

They are almost unchanged since the last quarter and have been stuck on a median $190 a week for the past 2 1/2 years.

But Hargreaves says rents are likely to rise as an expected inflow of Kiwis returning home increases demand for rental accommodation in Auckland.

Some people choose to rent because they have alternative investment strategies that give returns at least equal to those of home ownership, he says.

A larger, and growing, group simply can not afford the deposit or debt-servicing.

"What surprises me a little bit is that we're going backwards and other countries are going forwards in terms of home ownership, so some governments have made it a strong policy," Hargreaves says.

"Our policies are less encouraging for home ownership.

"I think there's usually some subsidy in there, and some economists would argue that we already do have a subsidy in terms of capital gains generally not being taxed.

"In New Zealand we have had a history of subsidising interest rates through a Government loan.

"It wasn't that long ago we had the family benefit capitalisation, so if you had no money you could capitalise your family benefit. If you had a lot of kids, that gave you the deposit to get into a house with no capital changing hands."

But Hargreaves says expectations have changed over the past few years.

In September, when a set of home ownership figures were released, he told the Herald: "Many of our forefathers came from the United Kingdom with the goal of owning a house and land. Home ownership has been in our blood.

"In my generation you wanted to buy a house as soon as possible," said Hargreaves, who is in his late-50s.

"People are still buying houses but it seems younger people are really weighing up the financial options before they do."

Hargreaves hopes to get funding this year for Massey University to find out more about home ownership levels.

"We would like to ask people about their attitudes to home ownership - how many people it's not an option for versus how many people have actually chosen not to buy.

"There doesn't seem to be any hard information around and there's a lot of theories."

Massey's study asked whether tenure choice really mattered and also pointed to a concern about affordability.

"Most New Zealanders do aspire to home ownership," the study's report said.

"There is a concern that if significant numbers of households are excluded from ownership then further social polarisation may result.

"Generations of New Zealanders have used investment in housing as their main form of wealth accumulation.

"Paying off the mortgage is considered to be a disciplined form of compulsory saving.

"The conventional thinking is that if the mortgage on the family home is repaid by the time the householders retire, then the cost of living during retirement will be reduced considerably.

"Also, at retirement householders have the opportunity to downsize their house and free up capital to fund retirement.

"The tax-free nature of capital gains from housing is a further advantage favouring ownership over renting."

This thinking prevails, despite the reality that many retired folk remain in the family home.

"There is a group of renters who have the choice to own but choose not to. This group may have alternative investment strategies which at least equate with the returns from housing investment.

"Another group of renters, thought to be the majority, cannot afford to buy because they lack the necessary deposit and/or have insufficient debt-servicing capacity," the study's report said.

"The worry is that this latter group is getting larger as the percentage of New Zealanders owning their own house continues to reduce."

Kieran Trass, an Auckland residential property investor who runs Mortgagenet, a mortgage broking business for residential investors, says the trends will turn around.

"There is great potential for home ownership levels to increase. There are now record low home ownership levels and the potential for that to change.

"Just look at who the banks' advertising is targeting in the main right now. 'Pay $10,000 to get rid of your flatmates', for example, and many banks are doing 95 per cent loans for owner/occupied dwellings.

"I know that home ownership levels have been decreasing for several years but that trend is changing right now as there are significantly more first-home buyers in the market to buy. Just ask any real estate agent."

Could population growth turn around the declining levels of home ownership?

Statistics New Zealand figures released last month show we gained 9700 people last year.

The number who left permanently fell for the first time in eight years.

The number of New Zealanders returning permanently was up 13 per cent on the previous year (total 2700) and the number of new immigrants increased 36 per cent.

Population increase plus low mortgage rates has meant more demand for houses.

Reserve Bank Governor Don Brash will be one not disappointed to see home ownership levels declining.

New Zealand households' ravenous appetite for debt has left them - and the country - vulnerable, he says.

In the 1990s, households went on a borrowing spree. "We estimate household borrowing increased $45 billion during the 1990s alone, from 57 per cent of disposable income in 1990 to 110 per cent in 2000," Brash said in January.

That is not an abnormally high debt-to-income ratio by international standards.

"The difference between New Zealand and most other developed countries is that we do not have as many assets as householders in other developed countries.

"Basically we have borrowed to finance consumption or relatively unproductive investments."

Household savings rates are now negative - collectively we spend more than our disposable income - and the lowest in the OECD.

But unlike the United States, where savings rates have also fallen, this does not reflect burgeoning wealth.

Real household wealth has been falling for several years and is the lowest of the developed countries.

Financial assets, for example, equate to around only 70 per cent of annual disposable income, compared with 270 per cent in the larger developed countries - even after the fall in global share prices last year.

And all this, Brash said, despite the level of home ownership no longer being particularly high by international standards.