First Home Buyers vs. Housing Affordability: What’s Changing
in New Zealand?
For many New Zealanders, purchasing a first home has long been considered part of the quintessential Kiwi dream, but in the past few years, the cost of housing has faced significant challenges. A rise in property prices and interest rate fluctuations mean first-time home buyers have faced an uphill battle to get onto the property ladder.
But is the tide turning?
Rapson explores what’s changing in New Zealand’s housing landscape and uncovers how these shifts impact first-home buyers.
The Current State of Housing Affordability
Housing affordability is a hot topic, even though the property market has recently softened. Prices are still relatively high in relation to income, making it harder for first-time home buyers to enter the market and save for a deposit.
Industry reports have indicated that the average house price has dropped, but the market remains out of reach for many. While affordability is improving, factors like the rise in the cost of living, lending criteria, inflation, and access to only a handful of inexpensive properties put pressure on buyers.
The question still remains: Are first-time home buyers finally catching a break?
Adapting to the Market
Government initiatives such as the First Home Loan and access to KiwiSaver have slightly relieved home buyers. Another notable shift is the scrutiny placed on investors with restrictions to interest deductibility and higher deposit requirements. This means the competition has cooled and given first-home buyers more opportunities.
A recent CoreLogic First Home Buyer Report found that first-time home buyers are holding onto their presence and account for 27% of property purchases, above the 21% average.
Here are a few notable first-home buyer shares across the country…
- Wellington leads the main centres, with nearly 35% of purchases.
- Tauranga maintains a solid 23%.
- Hamilton and Tauranga have recorded market shares 7% higher than historical averages.
However, the 17.8% affordability ratio still pegs New Zealand as less affordable compared to 32 other countries, some of which include the United Kingdom, Australia, and Canada, as reported by NZA. The reasons for this are insufficient wage increases, property shortages, high rental costs limiting individuals’ capacity to save, and living costs. New Zealand, with an average monthly rental cost of $1085, places 16th on a list of 25 countries with the highest rental costs per data sourced by Numbeo, the world’s most extensive cost of living database.
Thus, home buyers are considering low deposit lending (5% and 10% compared to the gold standard of a 20% deposit), supported by an increase in major banks assessing lending outside of the fixed debt-to-income ratio. Buyers are also considering the types of property they are looking for and have expanded their search to incorporate more locations.
The median price paid by first-home buyers has decreased in recent years, dropping from $715,000 in 2022 to $695,000 in 2023 and further to $685,000 during the first nine months of 2024.
CoreLogic NZ chief property economist Kelvin Davidson has indicated that this decline persists despite standalone houses, which are generally bigger and costlier, making up a growing share of first-home buyer purchases.
Overall, 66% of individuals in New Zealand are homeowners, compared to 2018’s data, which reflects 64.5% in homeownership.
Interest Rates: A Double-Edged Sword
Interest rates are notorious for influencing affordability. Record lows experienced after the pandemic have meant that the Reserve Bank of New Zealand has had to increase the OCR to beat inflation. This has meant larger mortgage repayments, which have put a strain on budgets.
Luckily, this is changing.
The latest OCR cut in November 2024 saw rates drop from 4.75% to 4.25%. The following announcement, set to take place on 19 February 2025, will encourage more individuals to review their house-buying plans. Chris Tennent-Brown, ASB Wealth senior economist, and Gareth Kiernan, chief forecaster and operations director at Infometrics, are predicting another 50-basis-point cut to the OCR, with cuts possibly benefiting borrowers by the end of March this year.
More Housing Supply Options for Buyers
Housing supply has been another key factor. Over the past few years, the government has invested in boosting supply by enabling higher-density housing and speeding up consent processes.
5 Tips for First-Home Buyers
Navigating New Zealand’s housing market can be challenging, but there are steps first-home buyers can take to thrive:
- Leverage KiwiSaver
- Explore government schemes
- Consider looking at properties outside of high-demand areas
- Work with a mortgage adviser
- Keep an eye on market trends, interest rates, and policy changes
Looking Ahead
While housing affordability remains an issue in New Zealand, there are promising signs of a stabilising market. However, economists are doubtful that Kiwis will ever see their prices fall by 20% as they did in 2021, with 2024 almost nearing that figure with a drop to 16%.
For Kiwis looking to take their first step onto the property ladder, now could be the time to act—with the right strategy and support in place.
Talk to the team at Rapson to get started!