Last week BNZ chief economist Tony Alexander was in the paper with some stern words for young people trying to find somewhere to live in a city that doesn’t have enough housing to go around. As reported by Susan Edmunds:

Think your parents got an unfairly great deal when they bought their house for $40,000 – or thereabouts – 30 or 40 years ago? Not so fast.

BNZ chief economist Tony Alexander says young people priced out of the market are wrong to point the finger at retirees. […]

“The cost of borrowing to purchase a property has plummeted and because of this structural jump in demand for property prices have lifted. Those Baby Boomers people are dumping on paid mortgage rates in the late-1980s around 20 per cent,” he said.

Older people were turning to property investments because they did not have the stomach for sharemarket volatility, he said. That also drove up prices. Accelerated population growth and the spending power of double-income households played a part, too.

He said young people wanting a house should buy a “dunger or even a meth house to strip, and do it up”. “Basically be prepared to do what the Boomers did in many instances,” he said.

“Start out in a desolate new suburb of clay soil far from work, do up a piece of shite, or build and live in what will become your garage whilst building the rest of the house around you in the following few years.

“And how to finance it? Go to cafes and spend as much on lattes, muffins, frappes, wraps, etc. as often as the Baby Boomers did,” he said.

“Hire as many gardeners, landscape designers, decoration consultants, plumbers, feng shui consultants, window washers, dog walkers, dog washers, cat whisperers and general handymen as they did.

“And hope to hell that when you come to retire you don’t sit looking at your bank statement shaking your head because when you had a mortgage the bank charged you 20 per cent but now that you have term deposits you’re only getting 3.5 per cent all whilst listening to people saying you and your profligate ways are the problem.”

Whoah. There’s a lot in here, and most of it is flat wrong.

For a start, Alexander’s contention that young people are spending too much on personal services compared to their prudent, virtuous elders is contradicted by the evidence. Set aside the fact that young people who are renting and unable to find secure, long-term homes generally don’t bother to hire a landscape designer or decoration consultant. Let’s look at the data on savings rates.

Last year, Mark Vink, a Treasury economist, analysed the savings rates of different birth cohorts of New Zealanders. People who are currently in their late 20s or early 30s are saving at higher rates than their parents did at the same age:

10-year-birth cohort average saving rates by age of household head (Treasury)

Eyeballing the chart, it looks like Boomers – ie people born between 1950 and 1959 – had net negative savings rates throughout their 20s and 30s. They were borrowing more than they were spending. By comparison, people born between 1980 and 1989 – the unfairly-derided Millennials – appear to have saved upwards of 10% of their income in their mid-20s, in spite of the fact that many of them had to borrow to pay university fees.

Vink observes that Boomers’ profligacy and Millennials’ prudence is likely to be due to the fact that Boomers did, in fact, have it easier when they were young:

A surprising feature of the data is that the saving rates of younger generations appear to be generally higher than those of the generations preceding them. To check this result I used a variety of econometric techniques, and all suggested that this pattern is robust. Contrary to popular opinion, successive generations of households appear to be saving at significantly higher rates than earlier generations did at the same age. One plausible explanation for this rise in saving rates, supported by other related research, is that it reflects the precautionary response of younger generations to an economic environment with higher unemployment and less generous public welfare than faced by their parents.

It probably is true that young people are buying a different mix of goods and services than their parents did at the same age. But that’s not because we’re spendthrifts: it’s because the relative price of things has changed over time. Some things that were expensive for young Boomers, like consumer electronics, air travel, and clothing, have gotten cheaper due to globalisation and technological change.

Here’s a chart based on Statistics NZ’s Consumer Price Index. Since 1985, the price of international air transport has declined by 29%. Bicycles have gotten 38% cheaper. (Adjusted for quality, new cars are almost the same price as they were in 1985.) The price of women’s footwear – and apparel in general – did rise in the late 1980s, but it basically hasn’t budged in over 20 years. Adjusted for quality, the price of telecommunications equipment – ie cellphones – has fallen by a staggering 95% since 1999.

Housing is a very different story. According to the CPI, the cost to buy housing has risen by an astonishing 350% since 1985. This outweighs price movements in just about any other CPI category.

Basically, what this data shows is that saving money on discretionary expenditures like dining out or going on holiday is no longer a viable strategy to afford a home. It may have worked 30 or 40 years ago, when the ‘nice to haves’ were comparatively pricier. But today, housing has gotten really, really expensive relative to all the other things that we buy, and a lot of things that used to be luxury goods, like consumer electronics, are now cheap enough to be enjoyed by most people.

In this context, Alexander’s advice to cut back on small luxuries just doesn’t make sense. For instance, the required deposit on an average Auckland house is around $160,000, or 20% of the current median price of around $800,000. In theory, I could save a deposit by never going out for brunch. But in reality, brunch only costs around $20, so it would take 22 years to save up the money, assuming that I would otherwise go out for brunch on a daily basis. (Which I don’t.)

Lastly, it is true that mortgage interest rates were considerably higher in the 1980s than they are today. According to Reserve Bank statistics, the floating mortgage rate for first home buyers peaked at just over 20% in 1987, compared to its current level of 5.7%.

However, buyers in the 1980s didn’t have a harder time paying the mortgage, as high inflation quickly eroded away their debt. Although interest rates were high, this mostly reflected high inflation rather than increased difficulty obtaining or paying off a loan. After accounting for inflation, real interest rates were considerably lower.

That’s illustrated in the following chart, which shows annual consumer price inflation and mortgage interest rates since 1970. The green line on the chart, calculated as the difference between the two series, provides a rough estimate of the real interest rates that people were paying on mortgages. Real interest rates may have been a bit higher in the late 1980s, but they were negative in the 1970s, when many older Boomers bought homes.

Basically, Alexander’s assertions about the savings behaviour of young people are false, his suggestions about ways to save even more money to buy a home are largely useless, and his references to the high mortgage interest rates faced by Boomer homebuyers are misleading. These kinds of articles are inaccurate, patronising nonsense, and it’s high time news outlets stopped printing them.

Edit: Since I wrote this, BNZ CEO Anthony Healy has apologised for Alexander’s comments. Kudos for that.

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  1. “Although interest rates were high, this mostly reflected high inflation rather than increased difficulty obtaining or paying off a loan”
    As a junior bank employee in the 80’s, I can attest that regular people had plenty of difficulty getting a loan in the 80’s. Seeing the bank manager was a BFD in those days. Suited up and in interview mode.

    1. Borrowing a large chunk of money is always going to mean getting over some hurdles. Today, in order to qualify for a mortgage on an average home in Auckland, you need to start by saving up at least 3 times the average income (ie $160,000 or so). That barrier is far higher than it used to be.

      1. I caught my old man engaging in a bit of “we did it tough in my day”, saying how his first house cost him $50,000 at a time when he *only* made $16,000 a year.

        My reaction was, wow, you got an entire house and section for three times your salary, that would barely pay the deposit on a house these days. Like you say, what we have to save up in cash just to put the deposit down is more than their entire house loan to be paid back over 30 years.

        1. Nick I bought my first house in the late 90s for just under 3 times my income. A very basic 1950s house, no insulation, no garage etc. I spend some dollars getting it to what would be a reasonable standard but came out it with nothing (not even the full deposit I put in myself) after a marriage split. I started again and a few years ago I bought a far more modern house for nearly 7 times my income, I am far better off now than I was then. It was not as easy as you think it was back in the day.

        2. Ok ted but surely that is because of your divorce, that has the habit of destroying wealth by forcing people to sell up and split assets at the wrong time.

          So you bought an old house for three times your income, great. I’ve just spend almost three times the average income paying the *deposit* on a house, it’s no palace either.

      2. Its a bit disingenuous using the average house price in Auckland and the NZ average salary for your calculation. Based on the average Auckland regional income from stats (~$105K) its about 1/2 the rate you’re claiming

        1. what are you trying to prove here? that the median isnt the same as the average?

          If so i’d totally agree with you…..

        2. The average income in Auckland is nowhere near $105k, the median *household* income is only $75k. Btw, talking about average incomes we usually use the median because it is far more meaningful for right skewed data.

    2. Suited up is right. In 1981 when I applied for a housing loan, the Trading Banks all had policies of not lending money to unmarried women to buy a house – even for them to live in. I had more than the required deposit and income, but because I was a single woman, I could only get a loan because my father and the Bank Manager cooked up a bit of a fiction, and my father guaranteed the loan.

    1. yeah I think that’s an interesting sub-plot to this story: The fact that a voluntary blogger has fact-checked BNZ’s chief economist (using freely-available data) doesn’t garner much confidence in the latter’s opinion.

      1. And the press printed the story without such fact checking. There are some great financial journalists in this country but clearly none came near this. The claim of 20% interest rates is the most obvious misused fact in the story. Those peaks were at the end of a disastrous government and then when GST was introduced which gave us an instant 10% increase in CPI. For much of the period in question, as noted, consumers faced negative real interest rates on a loan secured against a real asset that was likely appreciating at the CPI or more, and paid off with income that was also likely also increasing by a rate similar to the CPI.

        We simply don’t have high inflation anymore, nor, more importantly, any expectation of it. (Except of course in housing costs…) While great for the economy the home owners of today don’t face the likelihood of their housing debt deflating away to meaningless amounts as it did for my parents.

        1. The high inflation of the 80’s resulted in a massive inter-generational transfer of wealth from from the older generation (savers) to the boomers. This is the dirty little secret that Alexander ignores. We brought a property in Onehunga in 1983 for $30k 25K interest only loan. 3 yrs later the property was worth $60k due to inflation. That increase in equity was at the expense of those older savers.

        2. What is the dirty little secret here? I purchased a property in Avondale Chch for $22k about 35 years ago. Sold it for $65k about 14 years later. I am 66 years old. The problem is NOT what you claim.

  2. It seriously makes me question staying with BNZ. How can someone on such a large salary be so incompetent. I suspect he is well insulated from reality and is surrounded by yes men.

  3. Is the house I could buy in 1985 the same house I could buy in 2017? Same size,materials, quality,amenities, number of people per household? Unlike electronics, I don’t think houses today are 350% better than old houses, but there is a big difference in the product. House sizes alone are like +70% from 30 years ago. Granted, back in the bad old days you could build your own house much easier and you didnt have to contribute $50k+ to the council. So that is also a factor. Also the price of land under the house has skyrocketed for various reasons. Ultimately we as a country have become a lot poorer over those 30 years. Poorer in terms of the average income and worker productivity.

    1. Stats NZ’s CPI calculations generally adjust for quality. For instance, the average new car *is* more expensive today than it was in 1985, but it’s also safer and higher-quality. So on a quality-adjusted basis they estimate that prices have fallen.

      I’m not sure what they do with the housing purchase series – I assume something similar. But don’t quote me on that.

      1. Current houses are finished inside and out to a higher standard, my parents in the mid 60s paid around $9000 for a house /section package. No concrete driveway or paths, no fences , no carpets but some lino. Even the garage wasnt concreted.

    2. A pretty large proportion of today’s housing stock has not changed much since 1985. Building Code might be _marginally_ better, but there’s plenty of old stock kicking around in poor condition. Witness the reaction to landlords being required to ensure their properties are, ahem, insulated.

    3. The house we bought 6 years ago was built in the 1960s, as were almost all of the houses in our price bracket. Uninsulated, original kitchen, no heat pumps etc. So yes, you could have bought the same house in 1985.

      At least in Auckland, first-time home owners are less likely to be buying those bigger, flasher houses – those are usually more expensive even if they are on a small area of land. Rather, first-time buyers are scouring the suburbs for whatever they can get. Those suburbs are often filled with old houses.

  4. I’ve been a homeowner for less than 24 hours and already my fellow millennials make me sick!

    Seriously though, I got very, very lucky. Without parental help and another deal falling through at the last second which pushed the vendor to accept a cheaper offer it couldn’t have happened. Even then the amount of money I paid for a two bedroom unit was eye watering. Good luck to everyone else, you’ll need it.

  5. Did the BNZ just join up with the National Party to play the factually wrong blame game? I mean this was no slip of the tongue by their Chief Economist because if it were such prejudicial crap insulting a growing portion of this country would see him sacked. Rather it was a calculated distraction to sing from the same misleading government hymn sheet to keep the myth going.

    Housing is a mess Tony and this government do not know what they’re doing. Question is why BNZ feel the need to keep the status quo with this insulting shit?

  6. Excellent post – this backs up what many have been saying for years that boomers moan about how expensive interest rates etc were when in reality they had mostly a very good deal compared to current first home buyers.

    1. Is it not marvelous how a lot of these self centered boomers (NOT all, mind) of a certain persuasion had it all and now wag their arthritic fingers at Gen Y,X and mellennials to suck it up losers, we’re secure you are not!

      1. What went so terribly wrong with baby boomers over here? Where I’m from, baby boomers are decent people.

        (that was only half sarcastic. A show like that council meeting in February last year would be totally unthinkable over there)

    2. While I agree with you regarding interest rates, there is nothing good about being in a period of high inflation, ask any middle class Argentinian at the moment.

      1. Well, back then (pre-Rogernomics) in NZ everyone had a union-negotiated award wage rise (as well as penalty rates, clothing allowances, etc.), so it sort of balanced-out. Now we have modern-day slavery (sub-minimum wage, zero-hours contracts, etc.) going on as a norm. It’s a different country basically. (I’m not sure about Argentina, but they probably had their own version of Rogernomics foisted on them as well.)

        1. We’ve been convinced by the TINA mob that there’s no difference between “trade union” and “Soviet Union”, which is ironic because the Soviets regularly sent trade union activists to the Siberian gulags. Johan Galtung – who correctly predicted the USSR’s collapse and is predicting the same for Trump’s America – cited such a contradiction as a major factor in said collapse.

          And when the Great Recession exposes the TINA mob for the nude emperors they are, Brexit and Trump unfortunately fill the void that’s been left by the gutting of the unions and the selling out to corporate donors by mainstream social democrat parties.

  7. hmm I dunno, i’m 30, bought my 1st house at 26. I am extremely middle class and from 16 i was working in low paying jobs, supermarket and labour work. I did go to uni and i was lucky to find a labour job (in the civil eng industry) that would pay some of the uni costs, and i was able to live at home until 22ish. Took me 8 years until I was 24 to graduate from uni from part time study, until that time i was on low wages (started on >20k and was earning ~40k when graduated). After graduation i was getting on average 8k/yr pay rise, so at 26 i was earning ~56k. This was enough for me to buy my 1st house on aucklands north shore at 390k (60m² do up in poor area).

    I only really started my cash savings in earnest at 25, so it took me a year to save up a 10% deposit, dad lent me 10k, kiwisaver had 20k for me, and i saved 10k in one year. One year of saving was not that hard to do. I payed my dad back within 6 months.

    of course now that house is probably worth 545-600k, so an extra year of saving might be required. (or 2 people saving)

    so i look at my friends who don’t have a house, and they have all chosen to do other things with their moneys rather than save for a house, (travel mainly, buying nice cars etc). I did without those things so i could get a house.

    Now the economist said don’t buy coffee and another one said don’t buy avocado on toast for $20 (100% agree with cafe culture being a major rip off lol). Its very easy to just write these comments off as ignorant and offensive (which they are), however if you spend $5/day on coffee during the week and $20 at a cafe on the weekend that’s $45 a week. If you put that $45 into a kiwisaver fund (mines doing 10%PA) and its earning 5% return on average, over 3 years that will save you ~$7600. That’s almost like free money. That is the point. A little sacrifice each day will pay dividends.

    What my pro mate did was take the $150 a week student allowance and do this over 5 years, which netted him ~45k 😉 I couldn’t do that, as at the time i had 0 discipline and would of bought a fancy car!

    1. So you lived at home until 22 and got a gift from your parents and you don’t see the enormous privilege you had that assisted in buying that first home?

      1. yes I do realise it, that’s why I mentioned it, stop being ignorant. Like i said It only took me 1 year (and i had moved out of home for a number of years prior to) to save my deposit. I think the 10k gift from my dad is way more relevant in terms of privilege, stop being a keyboard warrior. You have completely and utterly missed the point i was trying to make, Maybe i should go back to english school.. But please, tell me how you’d like to rent on less than 20k/yr Even on 40k its freeking hard.

        1. Your point comes across as being ‘I did it, it’s easy, you could too, stop complaining’.

          Sorry if I misunderstood. What was your point?

        2. My point is this – saving a small amount each week can really add up to a house deposit, and its easily possible to save for a house. I did it on low income in 1 year. Sure I was eating porridge for 3 meals a day (its was savoury with chili and meat), and hand a shitbox vehicle, but it’s about attitude, you can ignore it, and claim defeat before you’ve even tried, OR just knuckle down and do it. Balls really in your court. I also saved up 5k for an engagement ring during that same year.

        3. Oh, I agree with you there, on an above average income like yours it’s fairly easy to save and buy (I did the same). However;

          It’s harder than it was for boomers,
          It’s significantly harder for low income earners.

        4. Well maybe you could do that 4 years ago. But you sure can’t do that now. Prices have nearly doubled in the last 4 years. Good luck finding any place with 2 bedrooms for under 600k. Can’t even trade down to Hellensville or Wellsford anymore, places there worth 600k too! Plus need 20% deposit, and banks won’t lend on anywhere under about 45m2, so all the sub 500k CBD apartments are out too.

        5. Prices have not doubled, the house i bought for 400k, is now worth 575-600k. It’s like a 50% increase not 100%. Its 12.5% a year

        6. So what’s your point – that everything is totally fine and we shouldn’t worry? Half a million for a standard house in Manukau is still pretty crazy. Try going back 20 years and telling people down there that the average property price in their neighbourhood would soon be over half a million.

        7. Bear in mind that the RBNZ has lifted the minimum deposit requirements to 20% for most home buyers. Couple this with house price inflation, and that 40k deposit that you were able to use to secure a house would now have to be around 120k. At your saving rate of 10k a year it would’ve taken you another eight years (!!!) of savings to get the house. Any pay rises you got in that time would likely be cancelled out by continuing price inflation.

          Sadly, the experience of first home buyers now is demonstrably worse than those who got in the market even just five years ago.

    2. The big problem is that somebody in the same situation five years after you will be facing something like $200k extra debt to buy the same house, even after they have saved a bigger deposit. The extra debt is a similar multiple of income to the multiple of income people could buy the whole house for 30 or 40 years ago!

      That is an awful lot of risk when there are global economic and political conditions that could trigger unemployment and negative equity at about the same time.

    3. Nobody’s saying that it’s impossible for young people to buy homes. That’s obviously not the case. But it is *undoubtedly* true that it’s far, far harder to buy a home as a young person today than it was in the past. In this context, advising people to suck it up and save harder is terrible advice – it completely ignores the systemic causes and ascribes all blame to individuals.

      Other people have already explained why your experience is no longer representative, even though it’s fairly recent. To reiterate:
      * As you note, prices have risen 50% over the last 4 years, which blows out the time to save for a deposit by 50%.
      * RBNZ has raised the deposit ratio to 20% – as others note, at the rate you were saving, this would have lengthened the time to save for a deposit by 4 years, and guess what! By then, prices would have moved out of your reach.
      * Rising prices also blow out mortgage repayments, which means that even if you can save up a deposit, repaying the loan may be prohibitively difficult.

      For what it’s worth, I’m the same age as you and also started saving in earnest at 25. In fact, I’ve saved a greater share of my income than you have, without asking for money from my parents. In spite of this, I’ve steadily seen home ownership move from ‘challenging but doable if I keep saving’ to ‘very difficult to reconcile with any other life goals’. It wouldn’t be impossible, but after saving for five years I’m in a position where buying a home would prevent me from saving for retirement, studying to build my career, or refocusing from career to starting a family.

  8. One other important factor not mentioned is that millenials marry and start families much later than boomers, so potentially have longer to save. Stats NZ show the average age of mothers has increased from 25 in 1971 to 30 in 2011, so millennials have an extra 5 years to save before the big expense of child rearing. It’s not surprising that the millenials saving rates are higher, as boomers would have generally married, started a family, bought a house and been paying off mortgage by their mid-twenties.

  9. Unfortunately you undo a reasonable post with your assertion around the “$800,000” average house – performing the same hyperbole as the news outlets you accuse.
    Stop treating 4 bedroom, 2 garage, standalone houses on > 400 sqm land in decile 9 schooling area as the “average” to which a “first time home buyer” should be treating as their baseline.

    Just by grabbing one of the first available.
    Oh – and that’s actually only $760,000 list so already shaved $40k.
    And < 5km from railway park and ride so no – not some stupid isolated unable to get to city suburb.

    1. First home buyers will never consider this area because it’s South Auckland. The stigma associated with South is a long standing one and unfortunately FHBs and investors would rather build/live around areas such as Otara/Manukau/Manurewa/Takanini etc. or they will purchase in those areas only as an investment to milk the poorer clientele of those areas for all their monies.

      It’s a shame really that things such as school decile ratings can be manipulated so easily, which in turn affect schools over the long term with ever lower enrolment numbers.

      Disclosure – I was born and raised in South Auckland, I can say whatever I like 🙂

      1. And there’s where Tony Alexander has it 100% right.
        The houses are there; but the FHB turns up their nose at them.

        How did we afford our first home? By buying one street away from the Black Power head quarters, then spending the next year and a half ripping it apart and turning it into something livable.
        So sorry – really have no sympathy for the “I can’t afford to buy a nice cottage in Grey Lynn to get on the property ladder” brigade.

        1. Really, buy next to a gang headquarters? Wow, awesome advice, is this what you’ll tell your kids to do?

        2. “I can’t afford to buy a nice cottage in Grey Lynn to get on the property ladder”

          I couldn’t afford to buy in Grey Lynn to get onto the property ladder either. So I bought in Arch Hill as proximity is important to me. For the relative money (income/deposit/price) I wouldn’t have a hope now.

        3. Your lack of empathy is very disturbing to me – you can see the evidence that buying a house anywhere in the ’70s was far easier, with negative real interest rates actually eroding their debts. It’s damn near financial suicide to even buy that $800k house in South Auckland, and even then the comparative amount would have bought you something FAR nicer in the ’70s in a much nicer area.

        4. I’m not contending that it wasn’t ‘easier’ in the past – to do so would be to deny physics.
          If you double the amount of people in a 2 dimensional space you can’t give each of them the same area as before.

          So – you either need to accept apartments, and a *whole lot* of going straight up; and/or that your first home + land package isn’t going to be as big as the home + land package as before.

          Further – what I do observe is a ********* ton of whinging about how people can’t get into a *first* home which is as nice as the house they had when they left home (which was quite likely not their parents *first home* either)

          *damn those settlers pulling up the property ladder behind them; you just can’t get a few thousand hectares for a rifle anymore

        5. “So – you either need to accept apartments, and a *whole lot* of going straight up; and/or that your first home + land package isn’t going to be as big as the home + land package as before.”

          if only the landed gentry hadn’t fought tooth and nail to prevent the rentier class from ever getting the opportunity to live in an apartment.

      2. “First home buyers will never consider this area because it’s South Auckland”

        And yet friends of mine recently bought their first house in South Auckland, which renders your definitive statement false.

      3. Are you even aware that there are a lot of people who grew up in South Auckland and would LOVE to buy there? This isn’t all about white anglo saxons doing commerce degrees. If you think house ownership is hard for a University Educated White Couple, think about how hard it is for a Pacifica couple where one, say works as a builder and the other one as say, as a nurse?

        But why should they NOT have the right, and the conditions, to buy a house? When did house ownership become something that even well-set-up university educated folks with well-paid job struggle with? The rest of Auckland’s population can’t even dream of it anymore.

        1. Yes, well said. It’s tough even for people in fortunate positions, and damn depressing for people who aren’t as lucky.

          This is another reason why I really strongly object to people who say “just harden up and save more and maybe borrow from your parents”. *Maybe* that works if you luck in to a good professional job, and have a partner who’s doing the same. But it’s fundamentally callous advice for hard-working young people in other occupations.

        2. “… if you luck in to a good professional job”
          – pretty much sums up your thinking ; it is not educating yourself and making an effort to lend one – just pure luck. Convenient . Once you think like that of course any inequality of outcome is a terrible injustice. Cry me a river …

        3. @d Right, because everyone is born into a cookie cutter family, community and socio-economic grouping so all our market opportunities are exactly the same and people who don’t make it deserve 100% blame. It’s so easy to think like a laissez-faire economist when talking about people you don’t care about, isn’t it?

        4. @d: On top of that, those who keep beating us about the head with the “virtues of the free market” aren’t so keen on the actual free market when something might creatively disrupt their hoard, such as a high-density building going up nearby. When that happens, it can’t be called a free market, but something more like the landed gentry seeking their rents at any cost.

      4. You seriously aren’t rubbishing The Gardens are you? One of the better South Auckland areas, along with Wattle Downs.

        I have lived in South Auckland for 51 years, AKA all my life, and have bought two houses here. My family lives nearby and my wife and I both work locally. There are good and bad parts of South Auckland, exactly the same as there are in West Auckland and the North Shore.

    2. Both median prices and lower-quartile prices have risen at a comparable pace. In other words, starter homes have gotten more expensive at a comparable rate. They are still a bit cheaper, but at this point the lower-quartile house price in Auckland is substantially above where the median price was five years ago.

      Here’s some data:

      It’s a bit out of date, but from April 2015 to April 2016 Auckland’s lower-quartile house price rose from $584,500 to $666,600. That’s not affordable by any means. By comparison, median earnings for employed Aucklanders aged 25-29 are around $50,000. In other words, the lower-quartile house price in Auckland is now more than 13 times the median income for a young person with a job.

      Just great.

  10. Boomers are beneficiaries of other social changes. Where their parents had one income, they could have two incomes to buy a house. That meant they were buying low in a market priced for single income households. Now two incomes are essential to buy the same house as the price has already been bid up by the boomer generation. They were buying in a market where there were enough houses to go around. Now young people are competing with capital brought in with migrants.

      1. Brisbane, Melbourne, Sydney, Tauranga, Christchurch and Hamilton are all building an oversupply. Auckland doesn’t build anything much, look forward to a similar floor kicking taking place in Auckland if rent rises force business to relocate jobs.

      2. I think Auckland grew even during that period, but Auckland responded with more houses. Since the Auckland Regional Growth Forum produced their nonsense Auckland hasn’t managed to add enough.

  11. I think all generations have their own interests at heart, deep down most people do, so I don’t really think the generation blame game is particularly useful. The boomer generation have certainly enjoyed some good timing, but I don’t think the 70’s and 80’s were a particularly good financially. Sure inflation was eroding away at loans but pay increases tend to be erratic and there were a lot of cuts during this time.

    Expensive housing is more a haves and have nots issue than a generational issue. Those of us who are haves are often safe in the knowledge their retirement will be well funded by inheriting a valuable house.

    It’s also worth noting many boomers haven’t cashed in on their houses yet, it’s mostly paper value.

  12. Truth on both sides of the debate, but quoting a median figure of $800k isn’t helpful. First time buyers shouldn’t be expecting to buy at near the median, you can buy a house for $500k in Auckland, but you need to live in Papatoetoe, Pukekhoe or Massey.

  13. Well done transportblog, you’ve finally been able to figure out that elevated costs are detrimental to investment.

    …by an astonishing 350% since 1985.

    That is nothing, land supply restrictions have caused Auckland costs to beat this in less than a decade. As a result developers have performed a variant of the exact same analysis you have performed and decided there are so many better places elsewhere.

    1. we’ve been talking about the negative effects of high housing costs for several years. Perhaps we just disagree on the solution?

      Either way, cut the patronizing crap so we can focus on things that matter.

  14. I’m surprised that this chief economist didn’t call for a reduction in transport spending by utilising Public Transport and active modes rather than owning a car.

    My current savings plan is aided by reducing transport spending.

    1. I agree with your savings plan. Despite the emotional rhetoric about the younger generation spending everything on mobile phones and smashed avocado the amount spent on those sorts things is trivial compared to the cost of owning and maintaining a motor vehicle.

      I’ve recently taken to teasing a few well-heeled nimby types with the “it’s hypocritical to oppose cycleways because the cost of housing means younger people can’t afford cars” line 😉

  15. what follows is a series of sweeping generalizations:

    boomers tend to own lots of housing
    boomers tend to oppose capital gains taxes
    boomers tend to support restricting the supply of urban housing
    boomers tend to oppose cuts to superannuation, unless it is phased so it doesn’t affect them
    boomers tend to oppose efforts to reduce carbon emissions, e.g. carbon taxes

    While I accept that “us and them” arguments aren’t particularly constructive, it’s hard to avoid seeing the pattern in these policy decisions whereby one generation (boomers) benefits at the expense of the generation that follows (millennials). My main objection to Tony’s comments is that appear to have been put forward in isolation from the wider socioeconomic context under which high house prices have eventuated. High house prices are not a one-off issue, they are indicative of broader policy changes that tend to reduce costs of living for boomers, while increasing the cost of living for millennials.

    Personally I think that high house prices really, really suck. Not so much for me as someone who earns a good salary and who can enjoy avocado on toast while also paying down a mortgage (thankfully not with BNZ), but rather for those who are on low incomes, especially those who have dependent children.

    Basically, it seems like boomers (as a generalization) are passing the bill to future generations in so many areas, including housing.

    If Tony can’t see the problem with these (inter-related) issues, then I’m afraid his economic opinion isn’t worth much, no matter what his job title.

    1. Well if my parents and my in-laws are anything to go buy your sweeping generalisations are mostly right. #1 was a result of the ’87 crash. Both sets of parents got seriously burned and then made a choice not to put their money into ‘paper assets’. Property was top pick and they did alright out of it. #2 is directly related to #1, why support something that costs you money. #3 I don’t know about, my parents are pretty keen for more housing in Auckland – they used to live in terraces in Sydney in the 70’s so understand what its all about. And now, they don’t live in Auckland so aren’t really worried about the effects #4 yep, agree with that, they’re all upset about Bill’s announcement which I don’t understand as it affects me more than them and I don’t care…#5 again agree, I can see their eyes glaze over when it comes to carbon emissions.

      Things were definitely easier for them though. In 1974, my parents came back from Sydney with a Mini Cooper. Sold it and bought a section and replacement car…yeah they paid high interest rates later but the inflation was so high, the house price and incomes went up with it. So as long as you hung in there (like most did), you came out alright.

      1. “Well if my parents and my in-laws are anything to go buy”

        Why would a non-randomly-selected sample size of 4 be relevant to the forming of a statistically-valid generalisation?

    2. “one generation (boomers) benefits at the expense of the generation that follows (millennials)”

      You missed out a generation (and that’s how we like it, quietly slipping on our drinks in the corner watching the fight from afar).

    3. “boomers tend to own lots of housing”

      Is there any statistical basis to this generalisation? My guess is that of the boomers in NZ the average number of housing units owned is less than one…but I could be wrong, so where does one go for the relevant stats?

        1. That does not address the statement that “boomers tend to own lots of housing”. The words “tend” and “lots” implies that a group of randomly selected boomers owns, on average, a multiplicity of dwellings. I find that implausible. I would find it plausible given data that supports the statement. If we were to take the total number of residences in NZ that are owned by boomers and divide by the total number of boomers in NZ I am guessing that the number would be less than one.

        2. The statement is perfectly supported, because terms like ‘lots’, ‘multiplicity’ and ‘a great deal’ have inherently relative definitions. For example, does Auckland have lots of people? Hard to say. Compared to Wellington, yes! Compared to Tokyo, maybe not. Given that this whole discussion is around intergenerational equity in home ownership, would it not seem fair to define these terms in relation to other cohorts? Of course it would, and by that definition boomers do have lots of housing, because they have the highest home ownership rate out of all generations.

        3. “by that definition boomers do have lots of housing, because they have the highest home ownership rate out of all generations.”

          ..but that wasn’t the stated generalisation and, in addition, the link that Sailor Boy provided indicates that in 2006 the generation older than the boomers had a similar rate of home ownership.

        4. I disagree, ‘lots’ is a relative term. ‘Boomers tend to own lots of property’ could be restated as ‘on average boomers own more property than others’. This is well supported by the linked data.

  16. I don’t really mind that the Baby Boomers got the advantages that they got – that’s how things go. But what I really hate is that they have pulled up the ladder and then blame us still on the ground for not trying hard enough. When any crime occurs there is always denial, minimization, and blame shifting. Therefore, there was no housing crises (denial), it’s not that bad just give up flat whites and Sky TV (minimization), and now it’s the Gen X and generations below fault for not working hard enough (blame shifting). Once we have gone through these usual defence mechanisms perhaps we can admit that it is very deliberate policies that have resulted in our housing crises (as well as the transport mess). Once we get there the good news is that we can actually talk about changing policies.

  17. “People who are currently in their late 20s or early 30s are saving at higher rates than their parents did at the same age” – of course they are, on average millenials are “settling down” 5 years later than their parents. It’s hardly surprising their parent’s weren’t saving as much in their late 20s and early 30s, when they were paying off mortgages and raising families.

    1. Surely paying down a mortgage counts as saving? Reducing debt is exactly the same as saving cash on a balance sheet.

  18. The boomers are the suckers. The boomers are sitting on high land values and feeling very wealthy. However they are also retiring and the value of their land is fragile.

    Auckland focuses a disproportionally large amount of effort in building exurban sprawl miles away from the city, in this aspect Auckland is a unique council. This sprawl is created by stripping developable land from Auckland City, which elevates the land prices in the city to make the suckers feel rich.

    However because land costs are so high, few developers are interested in buying land in Auckland. The building rate in sprawl mad Auckland is very slow. All the other cities in the region are building much faster. So by the end of next year there will be a large regional over supply of housing and office space except in Auckland. Soon large numbers of jobs and young people will leave Auckland.

    The suckers will see their retirement investment value plummet. The winners will anybody who sold land in Auckland between 2015 and the correction. The big winners will be whoever sells land in the middle of nowhere that Auckland Council is mad keen on using for sprawl.

    1. No I can’t think of any other examples of exurban sprawl outside of Auckland….

      Rolleston, Pegasus, Paraparaumu, Masterton, Barrie (Ontario), Geelong (Victoria), Ipswich (Queensland), La Plata (Argentina). That Auckland is definitely unique.

      1. The ratepayers of Christchurch finance Selwyn and Waimakariri creating the exurban sprawls of Rolleston and Pegasus? Does Porirua pay for Paraparumu? Does Melbourne pay for Geelong? Does Brisbane pay for Ipswich?

        The only city that pays for exurban sprawl is Auckland, our unique development plan. So we gets lots of expensive sprawl.

        Good cities develop close proximate land – capable of sustaining public transport and that allows people to walk between suburbs and make cycling commutes viable. Auckland bans most development proximate to the city, but should anyone wish to develop a sprawl miles away from the city then Auckland is more than happy to help. In good cities exurban competes, in Auckland it is uniquely favoured.

        1. The only difference I can see is Auckland is the only territorial authority that covers the entire metropolitan area. However, the costs of this exurban sprawl is predominantly in extra transport costs, in NZ these are often state highways so are government not ratepayer funded, while in Australia they are generally state government funded. Also the cost of this extra travel is borne by the ratepayers in the destination cities as cars arrive from the satellite towns, so definitely Christchurch and Wellington ratepayers have to pay for this. The difference they have zero control.

    2. Angus, you’ve been warned multiple times about user guideline violations, in particular your habit of obsessive arguing the same point *over and over* without facts or evidence to back it up. All future comments from you will be referred to moderation, and will not be accepted unless they comply with user guidelines.

      FYI, here’s a map of the final Unitary Plan zoning, including future urban areas shown in yellow:

      Given your constant ranting about the evils of the Unitary Plan, would you care to post a map showing which areas you’d zone for development that aren’t currently zoned, and which areas you’d prevent from urbanising? There is precisely zero point in having a discussion about the issue unless you’re willing to set out your specific vision for what we should do instead.

  19. A part of the problem is that inflation is too low. So too is the lack of ability to shift economic resources from existing and speculative housing investment into residential housing investment.

    Our central bank is powerless to do anything about these, as it has just a single lever (which it uses with skill). Creating other instruments has been an economic verboten which has metastatised into a political orthodoxy, despite these instruments being common in our more successful counterparts.

    1. +1, I really don’t see why we can’t raise interest rates a little to control housing inflation and steadily print money to spend on infrastructure or pay down debt which will cause inflation.

      1. Given that is exactly what the Fed did (well, they also let interest rates drop to zero more or less, but that would be disaster here) it’s not exactly left field stuff. As long as the infrastructure made sense (ie wasn’t a road to nowhere) it would increase the capacity of the economy which should also help growth. But the government has to be onboard too, and so far they seem to have a more ‘don’t rock the boat’ then ‘let’s take the bull by the horns’ approach.

  20. House prices are simple: demand vs. supply

    So when we look at demand we have NZers and immigrants. Immigrants have benefits but also impose costs in terms of house price inflation. Which is made worse by importing highly skilled immigrants who can afford houses.

    Perhaps it sounds counterintuitive but maybe we should focus our immigration policy on low-skilled migrant workers who will do the jobs “Kiwis won’t” without harming us via house price inflation.

    I have a house and house prices terrify me. I can never move unless I earn 250k a year or something. Because my house which cost X 10 years ago costs 2.5X now, and if I move to a house that cost 2X then it costs 5X now, so mortgage disparities are insane.

    1. I think you are simplifying the demand side of the equation. It can be driven by a number of factors – a growing population as you say, but also when prices are rising panic tends to kick in, along with a belief it is a get rich quick scheme (which it has been for some). It may not even require a reduction in population growth to bring prices down, if they level out or fall the panic and greed may well disappear quite quickly.

  21. There is a shortage of housing in Auckland. Demand exceeds supply. Housing is rationed by price. It’s not an issue of race, the subject one is studying or age. It’s an issue of money. Banks make money out of lending money. The more expensive housing is the more money they make. A bank economist (who seems not to be a “boomer”, so why the headline?) has said some diversionary stuff that avoids the obvious answer to the problem (make more housing) because that would not be in the financial interests of his bank.

  22. Sigh, here we go again. Someone (one!) makes a comment and here you are ascribing it to all (all!) people who were born at a certain time. It’s so tiresome.
    I’m not sure how old Tony Alexander is but by my reckoning he is too young to be a part of the baby boom generation but don’t let facts get in the way of a good rant. In this age of Trumpism you are only following the trend.
    This denigration of a whole generation has got to stop. It is intellectually lazy, ageist and just plain wrong.

    1. “This denigration of a whole generation has got to stop. It is intellectually lazy, ageist and just plain wrong.”

      So what you’re saying is that you’re offended by Alexander’s lazy, fact-free stereotyping of young people?

      “don’t let facts get in the way of a good rant. In this age of Trumpism you are only following the trend.”

      If you actually read the post, you will notice a whole bunch of references to facts and evidence. And charts, if you can’t be bothered to read! But hey, don’t let the facts get in the way of your rant.

    2. politics is generally about searching for the median voter, which – due to their numbers – will often be a boomer. I don’t think its a generalization to say that boomers have clearly influenced the direction of policy on say housing, super, and carbon taxes in a way that benefits them and disadvantages those that come after. That’s not to say its universal or conscious, just that it seems to have eventuated several times.

    3. Tony Alexander’s article is all about denigrating younger generations. Apparently that’s fair game. But as soon as the debate considers older generations, that’s not allowed.

      The baby boomers have shaped our world, Harry. If we’re not allowed to talk about them we might as all shutter up debate.

  23. Tony Alexander is possibly a last-wave Boomer or a first-wave Gen-Xer, or otherwise a 1st-division winner of the birth lottery.

    In any case, I can smell motivational snake oil from a long distance.

    1. I don’t know (or care) how old Tony Alexander is. The point of this post is that his narrative is unsupported by the facts.

  24. I think what he said for the most part was spot on, so he exaggerated today’s expenditures on items that the boomers wouldn’t have spent money on but wasn’t that tongue in cheek, he was making some valid arguments about how we prioritize spending and if we are committed to saving for a house all other spending has to be drastically cut.

    I’m a pre-boomer as I was born before the war, but when today’s house buyers compare life after the war for the baby boomers I can only relate what it was like for them in the UK, no fridge, deep freeze, car, TV, phone, houses were in terraces (which was the main difference to New Zealand), no insulation, no double glazing, open fires,and only a holiday at the seaside once a year if they were lucky, but houses cost a fraction of what they do today to build as they were much smaller and no need for builtin garages but with most families with only one income houses had to reflect what people could afford and that is one of the drivers of today’s high cost to many people with to much to spend on housing to cover their future retirement needs.

    For people to say when interest rates were high it was OK as the inflation took care of it are belittling how difficult it was, you always had the fear the interest rate could rise and we still had to find the mortgage and cover the cost until wages increased to ease the burden, house buying has never been easy but made much worse today by rising population and silly regulations and restrictions place on people by the councils and insurance companies.

    For the record I believe in a carbon tax and Stu Donovan I agree with you and I wouldn’t oppose any of your list.

    1. That’s exactly why it’s important to consider how relative prices have changed over time. Take overseas holidays. As a high estimate, it might cost me $4000 to go on a three-week holiday to visit family and friends in North America. That’s quite a lot of money, but it could easily have been as expensive in dollar terms 40 years ago. (Note how the cost of airfares has actually fallen in dollar terms since the 1980s on the chart in the post.)

      40 years ago, a deposit on a starter home and an overseas holiday would have cost about the same amount. So back then, it would have been *completely* valid to advise someone to skip an expensive overseas holiday and buy a home instead.

      But today, when the median house price in Auckland is over $800k and the required deposit on that median home is over $160k, that math simply doesn’t work. I would have to skip 40 overseas holidays to pay for the deposit. Not one or two, but forty.

      The point is that the cost of the luxuries you’re saying I should cut back on has fallen, and the price of the house that I’m trying to buy has risen to a crazy extent. What worked for people your age does not work for people my age.

      1. “The point is that the cost of the luxuries you’re saying I should cut back on has fallen, and the price of the house that I’m trying to buy has risen to a crazy extent.”

        A more pertinent point is that the rate at which housing has been increasing in price renders economising on expenditure somewhat of a poimntless exercise for the average potential first-time buyer. It wasn’t addressed by the BNZ economist presumably because high housing prices are in the bank’s interests.

      2. It’s not just millenials impacted by higher house prices, even post-boomers like me can’t afford to trade up as was the norm in the past. That has a flow on effect to first home buyers, as it restricts the supply of entry level homes.

      3. What helped my age group back in the late 60s was being able to capitalize on your children, it meant no weekly help from the government but was well worth it to get a deposit. As a 50 pound pom when we first arrived in NZ 1967 we were in Auckland and even then house prices for a working man with a wife and 2 kids were to expensive, so we up-sticks and finished up near Nelson were house prices were far more fordable but in a way being new in a country has it’s advantages as you have no ties to bind you.

        1. Yet another thing that was available then and not now. The deposit on my parent’s first house was funded by the capitalised child benefit. They basically were able to buy a house with nothing down. Of course it meant they missed out on the $6 (x2) per week benefit that was a reasonable sum at the start of the mortgage period when repayments were ~$50 per month.

  25. Tony’s boss wasn’t too impressed with his rant at younger generations. Issued something of an apology today. Maybe an economist job going?

    I read the article as being a bit concerned about the property market with a warning to be cautious on future purchases.

  26. Great piece thanks Peter. Alexander is a nasty show pony with some pretty obvious agendas. Too bad the MSM can’t provide the sort of balanced, evidence based retort that you have!

  27. I am from a generation that have benefited from free tertiary education and consistently lower taxes. However I am embarrassed that I will continue to benefit. Why shouldn’t I work until 67 before I receive superannuation if the country can’t afford it. Why indeed if I am still working should I receive a pension. Why is this generation not investing in public transport because many of our young simply cannot afford cars.
    I worry deeply that my kids will be able to do little with their money other than to pay for my generation’s superannuation, health care and greed. Nothing will change though until other generations say loudly that this is not right.
    I am heartened that a recent poll suggests that well over 50% of kiwis support a raising of the super qualifying age to at least 67.

  28. “It probably is true that young people are buying a different mix of goods and services than their parents did at the same age. But that’s not because we’re spendthrifts: it’s because the relative price of things has changed over time. Some things that were expensive for young Boomers, like consumer electronics, air travel, and clothing, have gotten cheaper due to globalisation and technological change.”

    – quite ; so why fixate one one kind of good that arguably became more expensive ( housing ) and make such a great deal of it ? I do not hear the Boomers bitch about GenX having ripped them off because of the cheaper stereos GenX get.

    1. I’m certainly aware (and grateful) that I’ve had opportunities that my parents didn’t. But there’s an important difference between a cheap stereo and a cheap house: You can’t live in the cheap stereo. They’re not substitutes. One is a nice-to-have, and the other is an absolute essential.

      1. There might be something in that. Maybe cheap smartphones and online communications are something of a substitute for permanent housing? I don’t need much of a house to keep all my stuff in because, well, I have much less stuff. I don’t have a bookcase full of photo albums, or books for that matter, like my elderly parents do. I sure don’t need their three car garage.

      2. If watching cartoons in the 80s taught me anything, it taught me you are wrong – Soundwave spent years living in a stereo. As a stereo.

  29. Here in Taumarunui you can buy a tidy 3 bedroom home on a good sized section, for $50k. You can buy a fixer-upper for $10k.

    Mortgage payments can be $30 a week, and so long as you have a part time job or a benefit, you can buy your first home and pay it off quickly.

    A part-time supermarket shelf-filler in Taumarunui is better placed to buy their first home than someone on a $100k salary in Auckland.

    That’s how fucked up Auckland is.

    1. Indeed, it’s also how fucked Taumarunui is. Needs a whole lot of AKL refugees like you Geoff to stimulate some kind of economic activity there. Auckland property prices are too high and inequitable, but places like Taumarunui are suffering badly from the opposite problem… Be good to move the markets in both places in opposite directions. But only so many can stock supermarket shelves in non-thriving towns. I hope you’re starting a business there…?

      1. You cannot say anything is too high or too low, its the market value. Auckland house prices went up because the demand existed. If every hipster moved to Taumarunui then the cost of housing there would double. On the plus side as well, you would have almost a blank canvas in which to design a car free city. Frankly, I do not understand why you have not already bought your bus ticket 🙂

        1. “You cannot say anything is too high or too low”

          Of course you can. Housing is a basic human need and the use of “too” indicates a price beyond an acceptable limit. A common metric is a median price to median income ratio and in much of New Zealand that has increased dramatically in recent years. It really is about time that the property speculators took a back seat to those for whom housing is primarily a place to live. Time for a capital gains tax.

        2. Property is a commodity and owning it is no more a basic human need than owning Gold or the Dow Jones. As the post above points out, there is plenty of ‘cheap’ housing in other parts of NZ and you can find affordable rentals in Auckland.
          Now, if you say you are miffed because the easy money has already been made on property speculation, then I can sympathise, but stop pretending that people off the Auckland housing ladder are anything other than jealous investors.

        3. “Property is a commodity and owning it is no more a basic human need than owning Gold or the Dow Jones.”

          Try telling that to anyone living in a car or on a park bench. And while houses are cheap as chips in places like Taumaranui or Detroit or Middlesborough, they’re the sort of places where the local major industry has left town, need a helicopter-length commute, and/or have massive crime rates. Also, NZ Inc still seems behind the 8-ball on telecommuting.

      2. Sounds like an argument against capitalism to me.

        You may have heard of the term “policy window” i.e. what is acceptable

        Nowadays, the window is narrowed incredibly – just adding 2 years to retirement is seen as “right wing/libertarian” and increasing rates is seen as “socialist”

        When we restrict ourselves to a tiny part of the political spectrum, we ignore some potential policies that might solve these problems (nationalise all housing stock? maybe not that radical)

    2. In 1966, there were 6,800 people living in Taumarunui. In 2013, there were 4,500. Those kinds of declines do keep property prices low, and there’s plenty of towns around like that, but the situation would change pretty quickly if people starting moving back there en masse.

    3. Taumarunui… on the main trunk line. At least it used to be. Geoff, can you still catch a train from there or have they stopped even that? I think the passenger train goes through about 3 or 4 times a week now, is that correct? But mainly just cars and trucks passing through, and mostly just refuelling for the rest of the journey? Or is there more to it than that?

  30. Kia ora.
    Tony Alexander wrote another insulting / inaccurate article back in January. It was about how the NZ government is inoculated from Trumpism and Brexitism basically by not being green or of the left and by reacting to rising issues. Left me wondering whether the BNZ have any concerns about customers abandoning them or why they accept as an economist a partisan commentator rather than you know – an actual analyst. I for one have decided to call it quits.

    I think this is bad form to include a link – but in case its of interest – I wrote up a rebuttal of his article on

    1. Jan: Another way of describing NZ as being not too far left or not too far right, is to say that politically we are dull. Certainly our current leader and our previous leader also are, politically, dull. Nothing to frighten the horses. But at a time like this with Brexit and Trumpeting and Marine la Pen etc, for once I am quite relieved we are dull. When riding a horse, I like them to be un-frightened….

  31. One of the things he never mentioned was the $750,000.000 he and his banking friends make from credit cards that was never leached from hardworking families until comparatively recently and that’s on top of GST the government takes all these are things that help to make trickle up the real endgame of the banking industry.

    Then we have the push of consumerism that places such a burden on all, nothing is made to last and when it fails it doesn’t compost away and becomes an ongoing hazard, we have created a mad world with our free market policies led by financiers and bankers.

        1. Are, I have reread the article and see it is $740,000,000 so I should have said about, but in my memory I had thought wow three quarters of a billion dollars removed from one group to the banking and finance sector. which according to others sources is the business that is still growing.

      1. And this is why I said what I did about the banks.

        This is a quote from it. (Sir Mervyn King, the Governor of the Bank of England from 2003-2013, recently explained this point to a conference of businesspeople:
        Mervyn King, Governor Of The Bank Of England “When banks extend loans to their customers, they create money by crediting their customers’ accounts.”
        Sir Mervyn King, Governor of the Bank of England 2003-2013 (Speech)

        And Martin Wolf, who was a member of the Independent Commission on Banking, put it bluntly, saying in the Financial Times that: “the essence of the contemporary monetary system is the creation of money, out of nothing, by private banks’ often foolish lending” (Article). By creating money in this way, banks have increased the amount of money in the economy by an average of 11.5% a year over the last 40 years. This has pushed up the prices of houses and priced out an entire generation. Of course, the flip-side to this creation of money is that with every new loan comes a new debt. This is the source of our mountain of personal debt: not borrowing from someone else’s life savings, but money that was created out of nothing by banks. Eventually the debt burden became too high, resulting in the wave of defaults that triggered the financial crisis).

  32. It makes me wonder what all the younger people will do as this continues on. If I was them I would be off overseas, as the chance of owning a property in NZ is virtually non-existant now days, and the future looks pretty bleak for them. So who does that leave in NZ to keep the economy going? Unproductive but asset rich (on paper) boomers and migrants to keep wages and inflation low and create artificially high GDP. The balance seems wrong and are we going to have a whole generation completely stuffed (or missing) with these policies.

  33. The issue is I see it is ….. purchased house for $165k … 1st mortgage 18% 2nd mortgage 22.5%……. servicing the house now which worth about $600k is very similar……HOWEVER…. in 1987 when purchased we could get away with 10% deposit ( $16,500 ) but now the 20% on the $600k $120,000 ) is the hurdle to get over now days and who has a lazy $120k ( for this example … ) or $200k on a $1,000,000….. the servicing as I said is comparable the gaining the deposit is the issue….. here ends today’s economics 101 lesson from a simple perspective

  34. I’m a disabled millennial. I’ll never be able to afford a house, even with my currently decent salary. Everything I save goes either to the retirement fund (as I’m going to have to retire early, and will need more expensive care as an older person) or in the emergency fund. And when you’re disabled, you know there’s an emergency coming – suddenly you can’t work for a month after an operation, suddenly you need to pay for an expensive piece of mobility equipment, suddenly redundancies are announced and you are always first on the chopping block because your disability makes you a liability. Forget spending $20 on a Sunday brunch. I’m spending $90 on a Sunday seeing the urgent doctor to get antibiotics because if I wait until Monday I’ll be in hospital again.

    Get rid of the car, or get an old one that breaks down a lot? Without my car I’d be trapped in my house some days.

    Of course, trying to find an accessible, affordable rental that’s not going to make me and my depleted immune system sick is taking up more and more of my money. Nevermind the stress of knowing that at someone else’s whim I could be desperately scrambling to find a new place to live.

    Not that it’s ever been easier for disabled people. No matter what generation, we’re at the bottom.

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