First Home Buyers and Affordability in New Zealand
The path to housing affordability for all income levels in New Zealand is well documented. Even if the phrases are not particularly inspiring - responsive elastic land supply, infrastructure financing, MUDs, different densities, pre-fabricated building - they nonetheless are the way forward.
While I do not negate these methods for one minute and still think Central and Local Government have not responded completely, there are still anecdotal stories of how first home buyers are finding the wherewithal to afford the purchase and the resulting payments. Let me be clear: this doesn't mean that we should not publicise the necessary public policy changes necessary for affordable housing. In the meantime, thousands of New Zealanders, whether their household has one or two incomes, can only see that at the moment the status quo is not changing and further that there are entrenched interests that prevent them, or make it difficult, to buy their first home:
Land bankers, who are acting rationally in a market starved of land supply, even though I find that somewhat selfish personally.
Council Planners and Councilors, who are often following Agenda 21 or Smart & Compact City policies or who have unlegitimised concerns about the cost of infrastructure or congestion.
Central Government, especially the Cabinet who have concerns on a collapse in house prices.
Given this status quo, I believe that many people refuse to take on a victim approach - one that says "this is too hard and I can't do anything to improve my lot in life." The recent story in The New Zealand Herald (1) tells of a young couple with one son who have finally managed to afford a home. At a cost of $720,000, and with repayments of $600 a week, or $2607 per calendar month, I assumed a competitive interest rate of 4.25% and a 30 year term which means a loan of $530,000 and a deposit of $190,000.
Now, while of course this represents the enormous cost Gemma and Mike have had to make, because of the policy failures of successive Governments, I have a strong sense that they would focus more on their success and ability to save, provide a home for themselves and their son, and have the financial discipline to pay it off. In fact, I would congratulate them because they have achieved something with overwhelming odds.
Because this is a public forum, I can't go into details but I know of other New Zealanders who have had some help, taken up the challenge of moving to another part of the country or renovated houses bought at budget prices and sold at a profit. In other words, some use the situation to their advantage by realizing that there are capital gains to be had, or there are parts of the country that do not have the demand that Auckland has (and a better quality of life).
Many other New Zealanders - powerless to change the status quo - have also taken up the challenge. They don't just sit there moaning in a corner, even though the situation is terribly unjust. They use their own resilience, determination, ask for help, save hard and for facing those obstacles, I think they deserve to be encouraged and not used as examples of how bad our situation is. Both are true at the same time: yes our situation is not good (and we know the causes), and yes there are people who nonetheless through sheer determination still say this is a goal I want to achieve.
I think that is one of the aspects I value about our country. People know something is wrong, but they don't let it determine the overall course of their own lives.
I think the Government is aware of this dynamic. Once people have made the huge effort, and taken on the mortgage, for Government to willingly put in place policy steps that risks a house price collapse is, from those first home buyer's perspective, a repudiation of the effort they went to and a potential cause of stress in that they are stuck in that home.
At the same time, they may be concerned that their children will find it hard to buy in the future. However, now that they are on the path to home ownership, they figure they might be able to help their own children when it comes time to make their first home purchase. They might also come to the opinion that even if there were a house price collapse during the term of their mortgage, then they would still have an asset that can be used to help their own children buy houses that are far cheaper than today.
The current policy approach is to try and build some houses, in an effort to make the bad situation somewhat more affordable. I believe they also hope that in time incomes will increase enough for first home buyers to make the leap. I do not think this will be enough to produce affordable housing in New Zealand, but I do think that in Government the problems that present themselves often require policy solutions that cause other problems.
There could well be a house prices collapse or correction in the future. The global economy has produced many surprises, even if in retrospect we could all see the cause as clear as the day. That is not something that the New Zealand Government can control or have anything other than the tiniest influence over. At the same time, it is also true that in a free market economy like New Zealand, people still have the ability to make their own choices, and, the ability to think and voice their opinion freely. In such a society, where people's ownership of their income, assets, and ability to better themselves in their employment is sacrosanct, we are all going to find ways around the obstacles of life.
It is still important to note that there are others who have not been able to cross that barrier to ownership, despite their diligence and efforts to date. The situation in New Zealand is unjust, and their stories are not as well covered across the New Zealand media. But still they try and I respect them for their efforts. I believe that some, maybe even a majority of New Zealanders, still believe that the course of their life is in their control, and that they are not a helpless victim.
