Home truths: No rich parents? No house!

By Andrew Laxon

Auckland house prices are now so expensive that most young first-home buyers cannot afford to buy without help from rich parents, says an expert.

Housing affordability researcher Ian Mitchell told the Weekend Herald that for many frustrated renters the Kiwi dream of home ownership was already out of reach.

"For a significant proportion ... the only way they're getting into the market is if their parents are giving them a couple of hundred thousand dollars for the deposit."

His comments come as the city's median house price hit an all-time high of $820,000 this week.

Yesterday, Westpac Bank responded by almost doubling its national house price inflation forecast from 6 per cent to 11.5 and warning that the Reserve Bank would probably have to put tighter restrictions on mortgage lending.

In the past year, Auckland house prices have jumped 14 per cent, making New Zealand the most expensive country in the world to buy a home when prices are compared to incomes, according to a Fitch Ratings report in January.

The growing unaffordability crisis has prompted the Herald to launch Home Truths, a two-week series that examines the causes of the problem and explores solutions.

Video

Starting this weekend, it features:

• Exclusive new property data revealing the stark differences in affordability between Auckland and the rest of New Zealand at a range of price levels.

• Video and print interviews with three house-hunters struggling to find a home within their price range, plus a Herald panel of property experts who give them advice.

• Daily features investigating the supply-and-demand problems behind the crisis, from house building shortfalls to market speculation by local and foreign investors.

Figures supplied to the Herald by property data firm Core Logic show Auckland's runaway prices have put almost 90 per cent of the city out of reach for first-home buyers at the traditional affordable-housing benchmark of about $450,000.

These days the official "affordable" level - three-quarters of the way down the price scale - is more than $600,000. But even if a couple managed to raise $120,000 for the 20 per cent deposit required by banks to buy in this bracket, they would still be able to afford only 30 per cent of properties in Auckland.

With the same money, they could buy 89 per cent of homes in Hamilton, 77 per cent in Tauranga, 70 per cent in Wellington and 84 per cent in Christchurch.

For a single person on a typical income, home ownership in Auckland is virtually impossible without outside help. The latest AMP360 Home Affordability survey shows a solo buyer would have only $22 a week to live on after meeting mortgage costs.

The Herald's expert panel for this series - independent economist Shamubeel Eaqub, Quotable Value NZ national spokeswoman Andrea Rush and Home Owners and Buyers Association president John Gray - had serious doubts about the ability of one of three house hunters interviewed to afford a home in Auckland by herself.

"It's not fun. I'm over it, seriously. I feel poor," confessed French teacher Cecile Bourgeois, 39, about her attempts to find a $500,000 home on her $74,000-a-year salary.

"It's just the increase in the prices in Auckland ... I can't save enough if it keeps increasing."

The financial burden feels unfair to 28-year-old Gemma Mann, who is battling to buy at $600,000 in West Auckland. Photo / Dean Purcell
The financial burden feels unfair to 28-year-old Gemma Mann, who is battling to buy at $600,000 in West Auckland. Photo / Dean Purcell

Another set of house hunters, Bharat Bhushan and Lovely Garg, felt that they had no choice but to buy now, even though the experts on the panel worried that their mortgage repayments on a $600,000 home would be close to 60 per cent of their after-tax income.

"If we don't enter the market now then I think we'll be too late," said Mr Bhushan, "because I think the market is already burning ... If it remains like this, [the average] will touch a million."

Despite urging financial caution and careful inspection on every home, the Herald experts agreed the desperation among the house- hunters was not surprising.

"I think the fear of missing out is understandable given the rate of increases that we've seen in Auckland," said Ms Rush. "They might be saving but they can't possibly save $100,000 a year."

Mr Gray agreed. "It's got to a point of craziness. Even for people on really good incomes, it is an extreme challenge."

The financial burden feels unfair to 28-year-old Gemma Mann, who is battling to buy at $600,000 in West Auckland, along with her husband, Mike Alsweiler, and their 7-month-old baby, Harper.

"I think definitely for our generation it is really difficult to buy a house," she said. "I worry about Harper's generation of children. If it's so hard for us, is it going to mean they won't have a home?"

- NZ Herald

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