Dream home reality: no chance

Labour's promise to extend its subsidised-mortgage insurance scheme would be too late for Sujatha Selwyn and Selwyn Thomas. Picture / Brett Phibbs

For Selwyn Thomas and Sujatha Selwyn, it wasn't so much about getting on the Auckland property ladder but getting on the ladder that leads to the property ladder.

That involved borrowing the deposit for their $269,000 two-bedroom New Windsor house, so they could get a home loan.

It was a leap of faith at a time when property soothsayers were saying prices had plateaued and might fall.

"We thought it was judicious to buy," says Sujatha Selwyn, a trust accounts administrator.

"The first thing to overcome was the fear of having a mortgage, but we're confident this is the right decision for us.

"Ideally we would like to have three bedrooms, but this is all we can afford now. In the price we were looking at there weren't many options."

Their outgoings have doubled since they bought - about half their $83,000 combined income goes towards the mortgage - but they're obviously delighted with their little house, which backs on to a creek from where ducks waddle up to the door.

It's twilight and the house is full of the smell of cooking and the sound of birds outside. The younger of the couple's two children, Melwyn, 5, is rushing around with his face painted for a school performance.

But even this modest suburban dream seems a long way off to Natalie Davis, a 28-year-old marketing manager. Davis, who is on a "pretty good" income, calculates she could afford a place in the high $200,000s with a $15,000 deposit.

"That sounds okay, but when you actually look at what's around in that price range, you really are struggling to find anything below $300,000.

"The reality for me as a single woman trying to get into the property market in Auckland - unless I bought a one-bedroom apartment in the city - is I'd have to live quite far out and probably somewhere that was pretty run-down and needs a lot of work.

"You just don't get much for your money."

She says it's frustrating how quickly property prices have surged out of reach.

"Five years ago I wasn't in a position to even consider buying property and it certainly wasn't what I was interested in doing.

"But when you look at that big jump within the last five years you certainly do wish that you had been able to get in a bit earlier."

Even the bottom rung of the Auckland property ladder isn't what you'd once have called accessible.

The cheapest house for sale on property directory www.realenz.co.nz is a 1980s three-bedroom house on Archboyd Ave, Mangere.

It's not as bad as you might think. Despite the sickly salmon paint on the outside and some visible mould, the paint job inside is cheerful and there's even a small grassy section.

And how much would secure you this small piece of Auckland? Asking price $169,000 - four times the New Zealand average wage.

This modest house has more than doubled in price since mid-2000, when it sold for $82,000. Average earnings have since risen a comparatively meagre 20 per cent, to close to $42,000.

Professor Bob Hargreaves, head of property studies at Massey University, says the growing gap between incomes and the amount needed to buy a house is lowering home ownership rates.

"House prices around the world have been shooting up, but in some countries the basic salaries are a lot higher, so it's not so much of an issue for them."

Christchurch property developer Hugh Pavletich was so troubled by the trend that he, with a United States consultancy, surveyed housing affordability across New Zealand, Australia, Canada and the US.

 

They compared median household income with median house prices in 88 cities.

Auckland's 16th place tagged it as "severely unaffordable", with a score of 5.9 - meaning the median house price was 5.9 times the median household income.

Brisbane, Hobart, Adelaide and Melbourne were worse off, but if our Government is looking for ways to dissuade New Zealanders from leaving for Sydney, here's one: it scored 8.8.

Los Angeles and San Diego scored 10 to top the survey.

Want a better deal? Move to Dallas (2.6), Atlanta (2.6) or Ottawa (2.9).

Pavletich says it was easier for his generation, which bought in the 1970s when house prices in Auckland were about four times household incomes. His theory is that local governments are strangling land availability, which has driven up urban section costs.

It is a different take on conventional wisdom that the property surge was caused by high immigration, coupled with increases in incomes, low unemployment, good job security, post-September 11 stockmarket falls and moderate interest rates.

"I think the other factor is that it takes on a momentum of its own," says ASB chief economist Anthony Byett. "People think, 'If I don't buy now I'll miss out'. That's where I think things will change."

Say you are earning the national average, $42,000, and you want to buy in Glenfield - a favourite first-home buyer's suburb. You'd pay $352,000 for the median house - eight times your gross income.

Five years ago the same house cost close to six times that year's average wage. Ten years ago it was about five times.

How could a government plug that growing affordability gap?

"There are lots of different ways they can do it," says Hargreaves.

"One of the lessons you get from looking at our experience is that we mainly started going backwards when we left it totally to market forces."

National says lower taxes would help first-home buyers save for deposits and pay mortgages. They could, however, push up interest rates, and free up money for property investors, which could intensify competition for cheaper houses.

Labour has the most comprehensive specific policies for first-home buyers, but the more generous they get, the more they are in danger of further inflating the market.

The party announced this week an equity share scheme for people on low-to-middle incomes - the Government would contribute to the purchase price and take a stake in the property.

But its cornerstone is the Kiwisaver scheme announced in this year's Budget, which offers a grant of up to $5000 to first-home buyers after they have paid into the work-based savings scheme for five years.

"It's out there in the future, but at least it's better than nothing, I suppose," says Hargreaves.

Kiwisaver is a poor cousin of the Australian grant of A$7000 ($7618) to every first-home buyer. Australians also get a reprieve on stamp duties, which are not levied here.

With the reprieve and grant, first-home buyers buying the median Sydney house, at a gulp-inducing A$495,000 ($538,634), get a A$25,000 ($27,200) head start over investors and people buying subsequent homes.

The policy is predictably popular with recipients but is blamed for energising the market and pushing up prices. And grant or no grant, poorer people still have no hope of buying.

Natalie Davis likes the idea of Kiwisaver, but is not so keen to wait until 2012 for $5000, which wouldn't go far. By then her salary could surpass the grant's income limits, which haven't been announced. She says National's tax cuts look great, but they too won't come quickly enough.

"I don't know that either of them would really address the issues that well. But if I had to favour one it would be the Labour one."

It would come too late for Selwyn Thomas and Sujatha Selwyn, but they like Labour's promise to extend its subsidised-mortgage insurance scheme.

"But we personally wouldn't want to be reliant on someone else's tax money," says Mr Thomas, a sales consultant.

Meanwhile, property prices keep defying predictions of a slowdown, exacerbating first home hunters' frustrations.

While the median Auckland house price fell to $363,500 in June after peaking at $372,500 in March, prices are still rising in many cheaper suburbs - Glenfield and Birkdale, Onehunga, Mt Wellington and Penrose, the Mt Albert and Henderson areas.

Byett says after a burst of activity since late last year, the Auckland housing market has resumed its gradual deceleration.

"The odds are you'll see the house prices stop going up, and probably on average they might go down slightly."

He says it is taking longer to sell properties above $350,000, and although there is still high turnover in properties under that price, the trend there should also flatten.

"I'm not surprised that in those [lower-cost] suburbs around Auckland we're still seeing that demand pressure, but I think slowly we are seeing a lot more supply of housing coming on stream at a time when migration is falling away.

"Once the realisation comes of 'I don't need to hurry, I don't need to rush' it becomes a little self-fulfilling as to what happens next."

Around New Windsor, the median property price has risen $40,000 since the Thomas family bought in January, to their relief.

For Davis, deliverance may come not from a political promise, but from a loan from her parents.

"Which is really nice, but it's a little bit of a shame that we have to resort to that. I'm 28 - I'd really like to feel like I'm independent enough to go it alone."

She suspects the affordability gap will prompt a shift in the New Zealand psyche.

"Actually owning your own property might not be the be-all and end-all any more. I think over time that might not become so important to people, as it becomes less and less attainable. But I would still really like to buy."

PARTY POLICIES TO HELP FIRST-HOME BUYERS

Labour

From 2007, provide income-tested grants of up to $5000 to first-home buyers after they have contributed to the Kiwisaver work-based savings scheme for five years.

Introduce an equity share scheme, under which the Government would have a stake in homes bought by low- and middle-income households.

Allow more lenders to provide Welcome Home Loan government-subsidised mortgage insurance for first-home buyers on low and moderate incomes. Maximum loan $280,000.

Offer home ownership advice workshops for 5000 people a year.

National

Help state house tenants to buy their homes. Otherwise, no specific policies, but lower taxes would help first-home owners save for a deposit and meet mortgage repayments.

New Zealand First

Extend Labour's Kiwisaver scheme.

Offer tax breaks and other savings incentives for savings intended for a house deposit.

Give people in areas of high housing need access to low-deposit and low-interest loans.

Offer state housing tenants rent-to-own, low-deposit, low-interest schemes.

Offer finance facilities to self-build organisations.

Green Party

Re-establish the universal child benefit, allowing it to go towards a house deposit.

Provide a reprieve on benefit abatement for state housing tenants for saving towards a house deposit.

Modify Welcome Home Loans to make them accessible to all low-income earners.

Increase provision of low-interest financing for low-income households.

Nurture third-party housing schemes.

Progressive

Extend Labour's Kiwisaver scheme.

Allow capitalisation of Family Support into savings for a deposit.

Maori Party

Did not respond.

United Future

Allow Working for Families entitlements to be capitalised and used to increase equity in a home.

Allow income-splitting for tax purposes, providing the average family with $100 extra a week.

Act

No specific policies, but lower taxes would help first-home owners save for a deposit and meet mortgage repayments.