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.

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

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.

In early 2012, the median house price was a bit under $500,000. I thought this was crazily high given the quality of housing on the market. But it got crazier. Over the next five years, the median house price rose by 60% to just over $800,000. This was a rapid change that has been hugely beneficial for people who already own homes (and who benefit on untaxed capital gains on those homes).

It’s also been disheartening and destructive for young people like me who don’t own homes but who might want to. Rising house prices have forced us into a series of unpleasant tradeoffs and deferred dreams.

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 $400,000 loan. According to Sorted.org.nz’s mortgage calculator, repaying the loan over a 25 year period would cost me around $560 a week. This is basically affordable for a two-income household, although many people may need to earn some extra income by getting a flatmate. It’s also not that much more expensive than paying the rent on a comparable home.

But in 2017, buying a median home for around $800,000 would mean saving $160,000 for a deposit and taking out a $640,000 loan. This loan would cost around $900 a week – over 50% more than the mortgage on an average home in 2012. This is far less affordable, because young people’s incomes certainly haven’t risen by 50% in the same time. And it’s also significantly out of whack with rental costs.

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.

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86 comments

  1. New Zealand is a small country with quite honestly limited opportunities for recent graduates to gain great careers and start earning good money straight away. I think more young New Zealands need to gain a few years experience in NZ then take the opportunity to live overseas to earn good money; the UK doesn’t give away its youth mobility visas to too many countries so we are very luckily in that regard. New Zealand also needs to look at what is done in the UK – capital gains tax and stamp duty. In the UK you also cannot borrow more then x5 your salary for your mortgage. One thing is for certain I do not expect superannuation from the government when I retire – I’ve been contributing to my kiwisaver whilst overseas. I finished my Masters in 2012.

    1. Which is all well and good Kirsty except that foreign investors (particularly Chinese) don’t care about the 5x limit as they are paying cash. China is converting near worthless funny money into hard assets in NZ at the expense of New Zealanders and NZ inc.

    2. I’m living in the UK and loving it, however I’m not really earning a lot more than I would in New Zealand, especially with the drop in the value of the pound. This varies between industries of course but most people I chat to are finding it to be the same. Yes we get work visas but until Brexit is carried out we’re competing with the everyone in the EU for jobs here.

  2. Agree. But this post leaves out the most important thing…what happens when.interest rates climb to 7 or 8%. Most people who bought a house in the last 3 years will be up against the wall. That is, at this time, the most financially responsible thing to do is to NOT buy a house

      1. Hmmm. When I lived in the UK, you couldn’t borrow more than 3 x your salary. On a junior architect’s salary of 20,000 pounds a year, that didn’t go far… But if they are now loaning on the basis of 5 x salary, that may explain why house prices there have gone even further out of reach.

        1. Obviously that’s extreme and you probably have to be earning A LOT but yeah its still 3x generally. I have no idea what it is in NZ all I know is that 20% deposit is unreachable for all my fellow late 20’s / early 30’s friends.

          1. Auckland median household income was $76,500 at 2013 census. Reserve bank gives 9% wage inflation between Q1 2013 and Q4 2016, so 1.09*76500= $83,385 household income. Auckland average house price is ~$1m at them moment. That’s 12 times the household income.

  3. I want to question this statement:
    “This was a rapid change that has been hugely beneficial for people who already own homes (and who benefit on untaxed capital gains on those homes).”

    I bought in 2010. I’m not sure what benefits have accrued to me from the capital increase in my home. It’s still as cold in winter as it was in 2010 and I can’t use that capital gain to pay for better insulation or a heat pump.

    All high prices do is make it HARDER for me to move into a better house, where I might actually accrue benefits

    Higher house prices benefit nobody, even the owners.

    1. Except that you’re WAY better off than someone not already in the market. You bought for say 400k and now your house is worth 800k. If you were to sell, you now have at least 400k more cash than the person who wasn’t in a position to buy when you did. You can afford a new deposit with ease – they can’t.

      This is proof that the market is completely broken: The rational thing was to not buy in 2012. But if you had, you’d be WAY better off than if you hadn’t!

      1. You wouldn’t have a least $400k more, likely you have been paying a mortgage during this time which is much more than typical rent, so in theory the person who doesn’t own has been able to offset this in savings. So you would actually have at Max $400k if the other person was absolutely crap at saving and spent anything extra saving over rent on other luxuries. Over the previous years house prices have been rising more than people are able to save so you are obviously better off in the housing market. But at the moment that is changing with the market stabilising somewhat, meaning at this very moment in time the person renting is in the better position.

        This situation changes constantly, however if you have managed to get yourself in a position where you don’t require a large mortgage than yes being in the housing market is hugely beneficial. Hence investors love the housing market.

        20% deposit is still the major factor with people not being in the housing market, doing the figures, home loans are cheap when compared to wages to service now than when my parents first brought, but the risk is so much higher! Educated people are normally quite risk adverse so this is not a small factor. instead of 22%interest rates we are as low as 4% (once bargaining with banks is complete). Not much room to go down, but a lot of room to go up, and even small raises when servicing a $400’000.00 – $900’000.00 home loan is massive.

      2. Benefits don’t exist until realised.
        My house delivers “living services” that were valued at X in 2012 and at 2X in 2017. The services are the same. It is no warmer, more comfortable etc.

        If I bought a 2010 Corolla in 2011, and for some crazy reason it was now worth 2x as much, nobody would say I’ve got a better or more valuable car. Same top speed. Same stereo.

        1. You’ve much greater capacity to borrow to pay for improvements if you like. Or you could sell, taking your large capital gain and buy a slightly cheaper house, and use the difference to make improvements.

          Benefits are real even when not realised.

          1. Sell, buy a slightly cheaper house, but because of inflation it doesn’t deliver more services
            Like selling the Corolla and buying a Yaris.

    2. I think you raise a very good point, for the majority of people the gains are only on paper at the moment, and yes it’s a challenge for those that are ready to upgrade their houses as well.

      However, I don’t agree that no one has benefited. For everyone who has joined the property market someone has left it (not quite as the number of houses increases), people who have benefited are those who have cashed up and moved out of Auckland, kids have left home so have cashed up and downsised, and people benefiting from estates.

    3. Actually you can use that capital gain JDELH. The banks will let you borrow more against the increased value of your house. So yes you could invest in improvements including insulation. Insulation in particular is a good one as it increases the value of your house for you further but it also reduces your ongoing power bills etc so pays itself off quite quickly.

      1. The Bank wouldn’t let me borrow against my increased capital gains for a new car though 🙁 apparently its not going to add value 🙂

        I am joking on the above, never asked, but still would advise increasing loan unless adding true value to your investment, on increasing investments (such as second property). Remember second property is investment so still need 40% deposit, thats a lot of increased capital.

        1. Banks don’t give a damn if you are adding value or not. They only care that you have sufficient equity to cover the loan so if you fail they don’t lose. They have little or no interest in your success, only their own.

        2. Peter you haven’t really covered why this has occurred. There are economic and social reasons. The economic ones are simple. More people have flooded in and the supply of land and houses has been held back by regulation. The social reasons are because while the depression and war generation were concerned about making sure people were fed and housed, the boomer generation never much cared about others. The result is less social housing, stricter land controls, less subdivision and no financial support for first home owners. The boomers killed off home ownership accounts, State Advances loans, Family Benefit and all the other things that allowed my parents to get going. This country has been run by the Me Generation since 1984.

          1. I didn’t want to get into causes and solutions, but yeah, that sounds about right. A lot of this is systemic and will require a consistent, long-term focus to unwind.

      2. They will let me borrow but I still have to pay for it. So I’m still paying for the new insulation. I can’t take 50k out of the capital gains and use them for renovations. Houses are not companies comprising individual shares

    4. I agree. Although people who bought homes have done well on paper, in terms of quality of life etc this means/adds nothing.

      When you think about the value of housing in real terms, the recent property boom has actually made it much harder to get an improvement in quality of life, because although proportionally that ‘next step’ is no further away, in real dollar terms the gaps between your own homes value and this ‘next step’ is approx 50% further away. That is, 100% of $600k is double that of 100% of $300k.

    5. JDELH says he doesn’t accrue any benefits from unrealised capital gain, but that isnt true. He just chooses not to use them.
      I bought a house in 2010 and so did a colleague of mine. I had my house so I was happy. Not interested in buying any more even though my equity has actually quadrupled in that time. Technically it is unproductive capital tied up in my house. He chose to rent his out and live with his parents and save money and bought a second house shortly after that using the rapidly increasing equity of his first house. The banks happily let him increase his mortgage. Sure he is mortgaged to the hilt but he now owns 5 houses which he got at great prices that continue to rise. We no longer speak as I said his purchase of multiple properties beyond his need was unproductive and depriving others of purchasing their own home and that rent-seeking behavior was verging on immoral given the ridiculous rents desperate tenants are forced to pay.

      Anyway, owning a house gives you a huge advantage over someone who doesn’t in terms of purchasing a second,third or 10th property.

  4. And at the other end of the scale are the retired who live on the pension with a top up from interest on savings, which they religiously put aside over the years to remain comfortable in old age. The problem with recent low deposit rates is that the returns have diminished considerably. So it’s not just the young feeling strapped, it’s the elderly too. Of course there will be those quick to jump in and say “sell their homes, live somewhere cheaper”. To those, I say look at the cost of homes in retirement villages and the weekly cost of nursing care in the final years ($1500 per week). There is no cheap ‘out’ for them. I could say “don’t live in Auckland” to the young, which is an equally valid argument and equally equally silly at the same time. So this is an all encompassing conversation, not just for the young, the middle aged, but also for the elderly. There have been indications recently of Auckland prices plateauing, which I have witnessed at recent sales / auctions, the big dollars aren’t there at the moment, or are being held back until the market can be read with confidence again. Whether this continues, who knows. The core problem for the author is supply and demand, Auckland is only so big and whilst we have people (national and foreign) wanting to live there in droves, not a lot will change. What is the answer? Lots of apartments? Even those are being sold at high prices. We in Auckland are the victim of our own success it seems.

    1. 1. NZ is getting older. 25% over 65 by 2040ish
      2. Auckland is getting more expensive especially for those on a fixed income
      3. Old people like warm places

      4. Is Northland the Florida of the future?

      1. Is Northland the Florida of the future?
        Are you suggesting that it might be overrun by alligators and Trump by his climate change policies will be doing his very best to sink it?

    2. So the elderly are struggling because the interest of their savings on top of their government superannuation isn’t enough?

      Easy solutions, they can:

      a) live within their means like many boomers screech for millennials to do. Stop spending so much money.
      b) draw down from their savings. Say they want an extra $200 a week and they’re on a very generous 5% interest. That’s a touch over $200k. Ignoring interest, that extra $200k at $200 a week will last for 20 years.

    3. Ricardo the difference between the elderly and the young is that the elderly can live anywhere. The young have to live where the jobs are ie Auckland. This is why many elderly have moved to places with a pleasant climate like Tauranga. If more sold up in Auckland and bought elsewhere where it is cheaper then they would have quite a substantial bank balance to use in retirement.

      1. Having said that, at a certain age many will want to be close to their local hospital, and many within a short distance of public transport after they can no longer drive. Which you don’t find in rural areas, or smaller towns. Plus there’s a lot of value in staying where your friends and support network are. I imagine a lot of people would find it a scary and unpleasant task to move to a completely new town for retirement unless they had some connection there already.
        So I’m not sure that overall there will be much of an exodus to smaller cheaper places as people age.

        1. quite often the irony of many situations, is that yes, when retiring many would prefer close knit, walk-able neighbourhoods. But that same generation and previous ones zoned the crap out land so that it was dominated by the car and sprawled. Transport, land use, well being, economics, all inter-linked! who would have thought

    4. The gap between interest rates and inflation, which is what really matters to retirees, isn’t that different to what it has been in the past http://greaterakl.wpengine.com/2017/03/07/no-boomers-its-not-like-it-was/. I think most retirees would prefer the current low inflation environment where their principal remains relatively stable, as many will draw down on their principal as well.

      Retirees had it hard in the 70s and 80s when inflation eroded away at principal and at times was higher than interest rates, they did of course benefit from Muldoon’s generous super at 80 % of the average wage.

  5. PS as an economist, Peter, there are plenty of opportunities in Wellington (every department is crying out for economist wonks!) and I am also sure your skillset is entirely suitable to any of the many local government councils we have across NZ. So you’re lucky in that you aren’t chained to Auckland.

    1. Sure, it’s good to have transferable skills. I’m fortunate in that regard. I could get a job in any of the big Australian cities without too much trouble. But I quite like being in Auckland. Plus, if I worked for government I’d have to stop blogging!

      1. Why would you be unable to blog?

        “Generally, public servants acting in a private capacity have the same rights of free speech and conduct of their private affairs as other members of the public. They should, however, ensure that their personal contribution to public discussion maintains a level of discretion appropriate to the position they hold. Senior public servants, or those working closely with Ministers, need to exercise particular care.”

        https://cabinetmanual.cabinetoffice.govt.nz/3.50

        1. The Wellington public service culture tends to be quite conservative when it comes to speaking out publicly, especially in areas where you personally work. So while there’s no rule against blogging or other public engagement, there are strong norms that discourage it. For what it’s worth, I think this is a basically good thing as it helps keep the public service independent and nonpartisan, but it does have some negative side effects.

  6. When interest rates go up, the most leveraged will be ruined, and they’ll be brought out at bargain basement prices by the richest. In other words, the current situation of increasing wealth concentration in property will just be made worse. The concentration of land and power into fewer and fewer people in a revanchist class of nouveau aristocratic, landed rent seekers has huge implications. Once established, history tells us getting rid of such a rentier parasite class is very, very difficult and usually has to involve violence. The problem isn’t just the power of such a landlord class. It is the entitled, anti democratic latifundia mindset that comes with it. Rent seeking landlordism sucks the innovation and dynamism out of the economy in favour of income protection of the elite’s rent at any and all cost.

    1. But Sanctuary surely to be politically correct, the ruin of the most-leveraged is acceptable, because these are almost certainly members of the working class who have embraced kulak-values and attempted to become property owners and eventually, landlords? Those who breach their class roots are class traitors. Nobody cried for the kulaks in 1920, nobody should cry for them now.

      (Note: I am merely pointing out the logical extension of S’s Marxism here…)

    2. Why wouldn’t new to the market first home buyers and people like myself who have been patient and avoided committing to a large mortgage buy these houses if they are going cheap? Houses were cheap in the 1990’s, why didn’t these rich people just snap them all up then?

      1. If everybody thinks houses are the No 1 investment asset with unprecedented capital gains, then investors will all flock to houses and push up the prices. If not, prices will linger. Sometimes I think economics is just a large collection of self-fulfilling prophecies.

  7. Just wait for having to pay 350$ a week for childcare and having to slow your career progression because of the impossibility to work extra hours or to be cool with the boss at after job drinks because childcare closes at 5pm strictly on a Friday

  8. It’s impossible for an average person on an average wage to buy an average house in Auckland. That’s now an indisputable fact. So what that person (you?) has to do is change something in that equation. The only realistic way is for the buyer to be a couple, or even better, a triple. Combine 3 people’s salaries and you can buy an average house. Pretty much your only route out of shitsville.

    1. I can see the headline on the Stuff article already: Millennials embrace polygamy to get a foot on the housing ladder.

      1. It gets a little more tricky having 3 owners in a one bedroom apartment, I agree, but financially, logistically, and polyamorously, its the only answer! “Three in a bed = foot in the door”. Worth trying anyway….

  9. Peter, I hate to be blunt but quite simply National/ACT/Maori Party/Peter Dunne but most especially National, do not give a shit about your generation. I feel for you and yours, I hate seeing what I see, the naked greed and entitlement by an older generation although I must stress not all are like that. I will never buy a home other than the one I live in as it will deny someone else a home of their own, and I do NOT mean investors/speculators, who I loathe with a passion, Yes I could so profit from that, based on the time I was born, but I ain’t doing it.

    I stand to be corrected, but younger people do not vote in the numbers like boomers do and that is all National care about, well that and their secretive donors of course!

    You and others like you must rally people of your generation, Gen Y and Millennials to vote them out! Otherwise fulla, its status quo!

    1. But Waspman, if there is to be ANY rental accommodation then somebody has to own it. The way to avoid the “greedy landlord” syndrome if you own an investment property is to charge your tenants affordable rents – i.e. well below the rapacious market rates. This way you can provide necessary accommodation to those that need it, while allowing them also to save for their own requirements. Investment-property owners who have paid off their mortgages (maybe after a lot of hard work themselves), can be discretional about the rents they charge and are in a position to offer helpful deals to their valued tenants. This can happen you know. Renting/landlording needn’t be all bad, but like all things, it is susceptible to human greed and avarice.

      1. Maybe, but no more tax handouts. I know some rather well off people who don’t pay tax because of their investment homes and when you take into account they are receiving rental subsidies via their tenants they are in fact nothing more than “bennys” been paid by tax payers. May as well sign up at WINZ!

        When our “investors”, as they do, start taking 3 or 5 or 10 or 20 plus houses off the market to add to their “portfolio’s” whilst they lord over a nice tax free business with negative gearing and depreciation you really cannot keep wondering where all the housing stock is going and why there is a shortage. They are a major contributor to our problems and it needs to be dealt to and the debt they rack up is incredible, none of it productive.

          1. The utility of a rented house is notably inferior to that of a house you own though. If you own, nobody is going to evict you on a 42-day notice. And that appears to happen often over here, my impression is that renters can expect to be evicted on average every couple of years.

            And the stupid thing is, when that happens, it’s probably because your landlord wants to sell in vacant possession, and his buyer is just going to get new tenants.

            In some countries in Europe renting is a lot more acceptable, but that’s because the conditions are better. It’s really hard to evict a tenant unless you’re moving in yourself.

          2. Simple solution, make rental agreements binding to the property, not to the owner. If you sell the house, you sell it with the rental agreement intact. Alsoemove the bullshit provisions that allow a landlord to evict tenants so they or their family can occupy the house instead, that gets rorted. This is how commercial property works.

            Then people would be able to negotiate long term leases with agreed rent conditions and exit conditions.

          3. Nick it is not that straight forward as it makes it hard for those buying their first home if they have to become a landlord until the tenants decide to move out of their house. If that had been in place when I bought mine, I would still be renting across the road while my tenants more rights to my house than I did.

          4. roeland – sorry but the family eviction thing is crucial. I have a family member whose marriage broke up and she needed an urgent place. Luckily her parents (my uncle/aunt) had a rental property they managed to clear for her.

          5. I think it is bullshit, I don’t think you should be able to kick someone out before a term is up just because your housing situation changes.

          6. Nick very few renters will take fixed term rentals as it restricts the renter more than it restricts the owner, I can’t think of any owner that would not want a guaranteed income for a guaranteed fixed time.

        1. I agree, untaxed capital gains on sale of investment property is a rort and I think many investors know deep-down that this should be taxed.
          But beyond this, I don’t see that property-investors get much tax advantage. They must furnish accounts of all income and expenses and are taxed on profit, as with any other business. True, they can offset any losses against other income sources, but other businesses can do that too. And to make a loss on property investment must mean that expenses are exceeding income, for whatever reason. If any expenses materially add to the value of the property (rather than simply maintaining it), then they are deemed to be capital improvements and cannot be claimed.

          There used to be a provision whereby ‘depreciation of buildings’ could be claimed as tax-deductible allowance, at the same time that ‘repairs and maintenance’ (to keep the building from depreciating) were also deductible. Any tax-deduction claimed on depreciation had to be paid back out of any profits at the time of selling. However this was viewed by many as an over-generous ‘interest-free loan’ to investors until the time of sale, and the provision was scrapped some years ago (and anything claimed prior to this must still be paid back out of sale profits).

          To provide a quality rental property often involves a lot of work and expense in keeping the place maintained and up-to required standards. However I accept that in the current market conditions at least in the main centres, landlords if they are so minded can skimp on maintenance and still command high prices for trashy places. Unfortunately an excess of demand (or supply), inevitably gives an unreasonable advantage to one side or other.

  10. As a boomer, I am in total agreement with most of the comments in this post. However, when talking about the retirement age, please remember
    we had the goal posts moved on us too – the age was raised from 60 to 65 (in the late 1990’s ?) – which crashed many older folks plans.

  11. young people need to get out and vote, in large numbers like the oldies do. voter apathy in millenials frustrates me.

  12. Following on from the comments made on the post about the site re-branding, this seems like a good example of the type of non-transport type post that seems to move away from the transport focus of the site and into the wider social policy/political sphere. I feel that this sort of post, if they do become more common risks diluting the evidence based, and authoritative transport focus that has allowed the site to grow over the past few years without being tared with the political brush. Please stay focused on the technical transport side of things.

    1. Yeah well it touches on things unique to this government, they pander to special interest groups, namely those who donate and or vote National and those who don’t. Hence nearly 9 years of this lot have given us motorways, that jam up and laughably named “Roads of National Significance”, which they talk about a lot but have nothing to show for it but at the same time either dangle the carrot to or deliver to the trucking and road building lobby. And for the rest, well they have done next to nothing for alternatives to gridlock and nothing to show for public transport. Yes there’s been a sop to cycling but that has cost very little.

      Same goes for housing, those who own houses/property and vote and or donate to National and the rest. Its all relevant!

      1. This housing crisis has been unfolding under Labour and National govts. I don’t really care who it is but someone needs to do something about it.

    2. But Rob – don’t you see / understand that provision of Public Transport and growth in roading are intricately entwined in the whole economics of buying a house thing? You can’t debate one without the other. No point saying “Built more houses in more suburbs out the back of beyond” without equally saying “how do we transport those people out to those houses?”

      Conversely, no point in advocating for a new rail line to Wherever unless you can successfully build housing there that will make the return worthwhile. Two sides: same coin.

  13. Couldn’t agree more with Mr Nunn. Government is so slow and clunky when it comes to reacting to change. My generation had free Education, Super that Muldoon canned, and low interest rates. We had a fair suck of the sav and yeah we had 22% interest rates for a few years and global meltdowns restructering Successive governments selling the family jewels but overall it was easier to get a nest egg together. It’d be political suicide to say we’re raising retirement age next year but at some stage someone has to have the guts to say it needs to be done and it’ll be happening in five years not 20.
    Thing is this generation has automation of just about everything to deal with on top of everything else, paying to study for careers that’ll be redunadant by the time they’ve graduated. It’s scarey because I don’t see our current crop of politicians have the testecular capacity to do anything about it. I’d say we’re all going to be on a universal salary/pension in another 20 years and Google, Facebook and Uber will have to foot the bill.

    1. There’s nothing wrong with giving people 20 years notice that the age for super is going up, it helps people plan financially for retirement. The problem is that is wasn’t announced 10 years ago by the Clark/Cullen government, but I guess they had an election the wanted to win.

      1. Bullshit. They made it 20 years like all their other pie in the sky aspirations, as who the hell knows whats going to happen then. And if these idiots stopped cutting taxes to satisfy their blind ideology and bribe voters and they continued contributions to and encouraged people to sign up to Kiwisaver we need not even have this discussion.

        1. So you think it is OK to suddenly change the age on people who have been saving for their retirement based on getting the pension at a certain age?

          1. From another perspective, how are young people supposed to plan if they have no idea what the retirement age will be when they get to it. You could argue that it is 65 (or 67) but I don’t doubt there will be a need to change it / abolish it before today’s young people get to 65. Where do you draw the line on what’s fair?
            The obvious answer is to make a long term plan and stick to it. Something that can’t be changed by whichever party is in power without the agreement of parliament.

          2. Personally, I think 15-20 years is probably about fair enough, as people tend to do most of their saving in the 2nd chunk of their working lives. It’s a pretty typical lead in time in other countries such as Australia and the UK, who are both raising their pension ages.

            It does have to be passed by Parliament for it to become law, the Government will need 61 votes to get it into legislation.

          3. What difference is $50k in ten years time going to make that a 55 year old can’t plan for the loss of it but a 45 year old can make adjustments accordingly? I just can’t see what significant changes people are going to make that requires 20 years warning. Anyone saving for their retirement is going to have far more uncertainty in terms of future earnings and investment performance than the value of 2 years of super. Anyone not saving will have to work 2 more years. Hard to see how you even plan for that 20 years out let alone need 20 years (same goes for 10 years out).

        1. While I’m not a specialist in this area, 10 years seems like a more reasonable time. And to be honest, since we’re only talking about a difference in two years, even less than that would be sufficient.

  14. If I was Prime Minister I would move Universal Super to 67 (maybe progressively) immediately! Disclosure: I am a recipient.

  15. Peter, I have genuine sympathy for your plight and concern about the ability of people starting out to get onto the property ladder, without help and the dangers of creating financial eltes, however I do have some comments.

    You don’t mention what return on your savings you have made. As an economist I’m sure you believe money has to work for you. In the period you have been saving the NZSE50 has more than doubled i.e. outstripped median property price inflation. You could have been better off than you were in 2012 if you had invested.

    NZ in general needs to divorce itself from the notion that we all need to own our own home. This isn’t true for much of the developed world and people in those countries seem happy with their lot. The notion that our sole investment is the roof over our heads is a brake on NZ Inc and is driving house price rises.

    Blaming everything on boomers is just intellectual laziness. Plenty of boomers are suffering financial hardship too – which is why so many are working beyond 65. Furthermore as I’m sure you are aware but is generally not reported – the boomer generation has already seen a 5 year rise in the retirement age so the blame being dished out about the (overdue IMO) rise to 67 is evidentially wrong

    1. In general money invested in any equities should be with a medium-long term investment horizon given markets can go down as well as up. Saving for a house deposit, a reasonably short term target wouldn’t met this timeframe- you don’t want the market to crash 3 days after putting an offer in on a house taking 30% off your portfolio value.

      And I agree we need to divorce ourselves from home ownership as a requirement. To do that properly we need tennant protection well in advance of what we have now- most people renting are in a situation where they can be thrown out within 42 days and rent can be increased at will.

    2. For what it’s worth, I’m not ‘blaming things on Boomers’, but suggesting that people of that age should have more empathy and understanding for the dilemmas that my generation is facing. And maybe then decide to fix the problems that we’ll be dealing with all our lives, like housing affordability and climate change.

      With regards to investment return, Kiwisaver returns have been decent (although not double-digit) but interest on bank savings has been just ahead of inflation. Unfortunately, it’s a bit difficult to avoid having money in the bank (at low returns) if you’re actively saving for a home.

  16. One thing that I haven’t seen mentioned, is that in order to buy a home those of the ‘boomer’ generation were able to take out a “second mortgage” to circumvent the loan-to-value restrictions on their main mortgage. These 2nd mortgages were at considerably higher interest rates than the first mortgage. Effectively it was a way of borrowing to raise the otherwise out-of-reach deposit.

    But however a loan may be structured, there is no getting around the unaffordability of houses whose average prices have well-outstripped average income levels since those days.

  17. So something has to give? Is there anything that can change this situation in the near future? Since this appears be be highly unlikely then its just back to longer term building more homes. Meanwhile continue pointing the finger around trying to find someone or group to blame, boomers being the easy target right now, was cashed up Chinese last year..

    1. Well DGD, it’s a complex issue which is why you can’t just point the finger at one thing – but its also reasonably simple – too much money chasing too few houses. They’re not physically taking the houses away, they’re just not there on the market. So, any outside party stacking the market by removing houses from the pool is affecting it.
      Case 1 – external buyers, whether from China, Australia, UK, or Kiwis returning home after 20 years away – they all have an effect.
      Case 2 – internal buyers who are “collecting” a full set i.e. investors who buy 3, 4, 10, 20 houses. Still has the same effect, whether they are kiwis or chinese or boomers or ten X – any bulk buying of properties will remove them off the “for sale” pile and put them on the “for rent” pile.
      Case 3 – out of owners who want to live in Auckland. Maybe we need to make it BYO House in future.

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