Editorial: Why first-home buyers are all shook up

Austin Butler in a scene from Elvis, Australian director Baz Luhrmann's take on the legendary singer. Photo / AP

Editorial

EDITORIAL

Young New Zealanders making the most of the Matariki weekend to see a new film about Elvis in his prime may be getting a first exposure to the King of Rock 'n' Roll's music.

But they already have a link to the Elvis era, when he was just 22.

In 1957, when Elvis Presley was shaking his hips in Jailhouse Rock, it was a rocky time for young New Zealanders wanting to get a leg-up on the housing ladder.

Unfortunately for millennials and older members of Gen Z, it has all come a full retro circle.

A report this week said right now is the worst time to be a first-home buyer in 65 years - that's going all the way back to 1957.

Research by economics consultancy Infometrics found a combination of still very high house prices and likely limited gains in value ahead, meaning people will be saddled with debt for years. They will have to use a large part of their career income on mortgage payments.

"People taking on mortgages now are committing to having an average of 33 per cent of their income tied up in mortgage repayments for the next 25 years or longer," said Infometrics chief forecaster, and report author, Gareth Kiernan.

In the first two decades of this century, the figure was 21 per cent.

Housing in New Zealand is still in a complex state with property, building materials and labour shortages, rising mortgage interest rates and other issues.

House prices slid this year to about 6 per cent off their peak last November. Sales were down in May by 28.4 per cent on a year ago but owner profits on sales have dipped only slightly.

"Given the increase in house prices during 2020 and 2021 and the lift in mortgage rates since the middle of last year, average first-home buyers currently face initial mortgage payments equal to 49 per cent of their income," Kiernan said.

For many young people, home ownership is now only achievable with help from their parents, the report notes, adding that it could deepen existing inequalities.

For decades, housing was a way of compulsory saving with an asset that would gain value over the years and be a useful nest egg. People on low incomes were able to lodge the family benefit as a deposit.

Kiernan said: "Our analysis highlights the generational issues being caused by New Zealand's housing affordability crisis. There is a social responsibility for greater political action to ensure that homeownership does not continue to slip out of reach for more and more Kiwis."

The research also looked into whether boomers or millennials had a tougher time trying to purchase their first home.

"Our analysis shows that even with mortgage rates below 5 per cent, the average home's million-dollar price means that today's first-home buyers face much less favourable financial outcomes than a buyer in 1987 did with interest rates of 20 per cent."

Younger people could benefit longer-term from changing work patterns which could, for example, have some of them working remotely for a city firm from a cheaper town, although it is becoming harder to find housing bargains across the Auckland, Waikato and Bay of Plenty swathe of the country. Record low unemployment, and therefore job security, is also helping people meet mortgage and rental payments.

Down the track, some will also inherit the largesse their families have built up over the years, including houses. Millennials will get more use out of KiwiSaver programmes - introduced in 2007 - and the easier access to share investing today than Gen Xers.

Yet, there are a lot of roadblocks put in front of people at a time of life when they should be especially creative, productive, and motivated.

Older members of Gen X can remember when a university education took up study time but didn't mean students went home with years of loans to repay.

Educational costs, the gig economy, low wages, and now extra-large mortgage repayments and high inflation, essentially mean young adults start on the back foot, take a long time to accumulate savings, and have less money to spend.

It takes longer than what it could do for people in their 20s to contribute to the economy and society - to the detriment of everyone. Is it any wonder immigration is an eternal swinging door of people trying their luck elsewhere?

If the idealised Elvis of Baz Luhrmann's highly stylised movie remains a symbol of the bright promise and earthquake-impact young people can have, there's also a flip side.

People starting their working lives have been increasingly weighed down by the decisions and actions of people who have dominated life here for decades. A lot of potential is looking for a break.