First-home buyers are continuing to pile into the housing market but analysis by ANZ bank shows how hard it is for those trying to save a deposit to keep up with rising house prices.
Kiwis borrowed $8.5 billion in mortgages in June, down from a high of $10.5b in March, but still well above pre-Covid levels, when people borrowed $5.4b in June 2019, according to latest Reserve Bank figures.
Of that $8.5b, nearly $1.65b went to first-home buyers, down on the previous month's $1.76b but still much higher than in June 2019 when $926m was borrowed by first-home buyers.
But a property report undertaken by economists at the country's largest bank has revealed the widening gap between those able to buy a house and those unable to save up enough of a deposit.
It describes a scenario where someone who bought a house a year ago for $1 million with a 20 per cent deposit and fixed the $800,000 mortgage at 3 per cent would have made more than $275,000 on paper after interest costs in the year to June 30.
Average house values have risen by 30 per cent in the past year.
But for a prospective buyer who was unable to get enough of a deposit together their savings goal will have increased by another $60,000 just to maintain their purchasing power to buy that same house.
"That's an extra $165 in savings per day required just to stay still, versus an unrealised gain of more than $750 per day for those lucky enough to be on the other side of this," the economists noted.
Given New Zealand's median household disposable income was $72,939 as at June 30, 2020, the economists said the numbers were "simply bonkers".
They estimate house prices are now running at more than 10.5 times the median disposable income, up from the 8.3 times level seen in June 2019 - in pre-Covid times.
And they say even if house price growth was zero and incomes rose 5 per cent a year it would take six years to get back to the 2019 ratio.
"But zero per cent house price inflation alongside 5 per cent income growth is an extremely optimistic assumption for the growth gap."
Historically, disposable income growth has averaged 4 per cent per annum over the past 10 years, while median house prices have risen 6 per cent per annum.
"However, we just don't think it's feasible for growth in house prices to significantly outpace income growth for much longer, as at the end of the day someone has to pay the rent or service the mortgage sitting behind such exorbitant house prices."
They expect the housing market to slow with rising interest rates. The official cash rate is currently 0.25 per cent but ANZ is forecasting it to rise to 1.75 per cent by the end of 2020.
That increase could see mortgage holders, who currently have $315 billion in debt, having to find an extra $5 billion as mortgage rates rise.
But even if rising interest rates are set to slow house price growth, they say it will still be a long road to housing affordability.
"What the house price to income projections highlight is just how difficult it is for policy-makers to make housing more affordable in a timely manner without a house price crash.
"While in the long run, the take-your-medicine approach certainly has some appeal as the quickest solution, it would unfortunately cause a lot of collateral damage to the likes of economy-wide employment."
Instead, they expect that progress towards housing affordability will be very slow going.
"... the Government could speed this up with more aggressive supply side policies, such as freeing up land, cutting red tape, funding greenfield infrastructure and importing the right skills."