First home buyers should be exempt from loan-to-value restrictions that have locked more than 1 million renters out of the housing market, says the Property Institute.

The institute, which represents property valuers and commercial property managers, has repeated its call for the removal of the restrictions following revelations in the Herald on Sunday that 78 per cent of those currently renting - or 458,000 households - have a net worth of $120,000 or less, which means they cannot afford the 20 per cent deposit on the average New Zealand home.

Net worth includes significant assets such as savings, KiwiSaver, investments and cars against all debts. A typical Auckland renter had a net worth of just $41,000.

Aucklanders are worse off than most other would-be buyers as an average home in the city now costs $1 million.


Even a relatively cheap home at the lower quartile mark - three-quarters of the way down the price scale - cost $674,600 in July, well out of most renters' range.

The data also shows 62 per cent of renters have a net worth of $60,000 or less - meaning they cannot even afford the 10 per cent deposit available through a special loan through the KiwiSaver HomeStart scheme.

The institute's chief executive Ashley Church says this was a "massive crisis" and was the main reason that many New Zealanders can't own their first home.

"The main barrier to first home ownership isn't housing affordability or the cost of servicing a mortgage - it's the LVR restrictions. That means that a generation of kiwis can say goodbye to a first home because of an artificial barrier, created by the Reserve Bank, to solve a problem which almost certainly doesn't exist," Church said.

The LVR rules were introduced in 2013 to try provide the country with more financial stability.

Church says that the LVR restrictions on first home buyers have been a "devastating failure" and had created "perfect storm in which property investors have been able to snap up homes that might traditionally have been bought by kiwi families".

"The situation is now beyond ridiculous and it's time for this ill-conceived experiment to end," he said.

Opposition housing spokesman Phil Twyford said last week it was "unacceptable that more than one million Kiwis are ... locked out of the dream of affordable home ownership".

He acknowledged some people chose to rent but said the "vast majority" would buy if they could afford it.

"Almost all the people I speak with want to own their own home but it has become completely unrealistic under the current policies for them to do so. That's a million people or 458,000 households who can't afford the deposit, that is a lot of people who can't afford their own home."

Twyford said the data was further evidence the Government's attempts to help first home buyers weren't working.

But Housing Minister Nick Smith said the policies had helped 16,000 buy homes in the past 18 months.

He said supply would improve with intensification under the Unitary Plan.

"We would urge people to be patient rather than paying too much right now."