I moved to Auckland to take up a full-time job in early 2012. Prior to that, I’d spent a few years working in Wellington, a year getting a master’s degree at University of Auckland, and a few months travelling around between jobs.
At that point, I was in my mid-20s. I’d saved money while working, but between study and travel I’d spent most of those savings. I had enough money to put up the bond on a rental flat and pay for necessities while waiting for my first paycheck, but not a lot more. After the paychecks started to come in, I paid down student loans and – like most other young people – saved a big chunk of my paycheck for the future.
Up to this point, my experience wasn’t that much different than my parents’. They were just about to start their careers, with about the same bank balance as me (ie very little). But our experiences quickly started to diverge: they were able to buy a home, and I wasn’t thanks to Auckland’s crazy housing market.
Since I started full-time work in Auckland, I’ve saved a large portion of every paycheck. A chunk of the money has gone to Kiwisaver, in anticipation of the fact that my parents’ generation will vote to protect their superannuation and minimise their taxes at all costs while raising my retirement age. But even more money has gone straight into a savings account, both to give me short-term financial flexibility and to save up towards a deposit on a home.
I did the right thing. A lot of other people my age did the same. But society didn’t do right by us. If house prices had stayed at their 2012 levels, I’d be able to buy a home, but as it is, it’s not affordable.
Contrary to the media focus on saving for a deposit, that’s not actually the main sticking point. The problem we face is that rising prices have also contributed to increasing mortgage repayments, which are structurally unaffordable (or at least severely undesirable) for most young people.
Let’s look at the maths. Over the last five years, average mortgage interest rates haven’t budged much – they’ve been in the range of 5.5%. So young people borrowing for a home generally aren’t getting a better deal on debt servicing costs.
In 2012, buying a median home for around $500,000 would mean saving $100,000, or 20%, for a deposit, and taking out a
But in 2017, buying a median home for around $800,000 would mean saving $160,000 for a deposit and taking out a
For most young people (or young couples) paying an extra $340 a week is the difference between a decent savings rate and hardly any savings. Borrowing to buy a first home means committing to saving very little between the ages of 30 and 60.
In effect, young people who want to own a home must now commit to tying up their entire net worth and a huge chunk of their discretionary income over their entire working life in the property. The mortgage eats everything else. Forget starting a business, starting a family, studying to get a new job, travelling, or saving towards an early retirement: that money’s all going towards payments on an overinflated mortgage.
It doesn’t help that the Government just announced that they’re going to raise the retirement age for everybody under the age of 45, while leaving the Boomer generation alone.
I think it’s hard for middle-aged people, most of whom own homes that were bought in much easier times, to understand how challenging this is for young people. I followed my parents’ advice: get an education, start a career, and save hard. But while I’ve been saving, the required mortgage repayments have climbed to stupefying new heights.
This isn’t just bad for individuals: recent increases in house prices have created a social and economic time-bomb. Mortgage payments now compete with other important aspirations, such as starting a family, building a business, or saving for an early retirement. Left unchecked, this will ruin many things that are good about New Zealand, like the laid-back lifestyle, the focus on family and friends, and the opportunity to start up something new in the garage.
We can’t pretend that we can have a decent society for all while property prices stay high or climb even higher. Something has to give.