PHOTO: First home buyers. FILE
A recent report from Aera, a first home financial services platform, paints a grim picture for renters in New Zealand by claiming that saving for a house deposit is now an insurmountable challenge for median-income first-time homebuyers. The Aera Time-To-Deposit Index report, released on Monday, reveals that saving for a first home without financial assistance has become unattainable for many New Zealanders.
The report underscores that even median-income first-home buyers, starting their savings journey today, would never be able to accumulate enough funds for a 20 percent deposit on an average-valued house. In Auckland, the dream of securing a 20 percent deposit for an average home remains out of reach for households with median incomes, unless they receive support from their families.
These findings suggest that any short-term cooldown in the housing market is unlikely to endure. Over the last three decades, national property values have increased at an average annual rate of 6.58 percent and have only declined three times during that period.
Assuming the house prices in Auckland continue to grow at a rate of 6.4 percent, prospective homebuyers will need to amass an average house deposit of $1 million by 2045.
Aera’s Time to Deposit report takes into account critical factors such as income growth, interest earnings on savings, and the relentless surge in house prices. The report debunks a recent model suggesting that saving for the average national house deposit from scratch would only take 9.6 years. In reality, achieving this would require a median income earner to earn a 9 percent annual compound interest on their savings while experiencing annual 8 percent raises in household income.
Derek Handley, CEO of Aera, expressed his frustration with existing house price deposit indices for neglecting real-world factors. He aims to set the record straight for first-time home savers.
“We now have data to support what many have felt for years, that house deposits are becoming unattainable for a growing number of people and continue to move further out of reach,” Handley said. “The scale of this crisis is even more significant than many have imagined, and diligent saving is no longer sufficient without assistance from family.”
Handley also dispels the notion that hard work alone will suffice to make homeownership a reality. He emphasized that many New Zealanders are sold the idea that saving 15 percent of their gross income in the bank and working hard will enable them to accumulate enough for a house deposit on an average-priced home in 10 or 11 years, but this has not been true for a considerable period.
The fact that first-time homebuyers cannot enter the housing market without external help is distressing and contributes to inequality. Handley calls for urgent discussions about alternative methods of saving and raising these deposits.
He hopes that the report will catalyze more immediate conversations among banks, government authorities, and decision-makers to explore innovative solutions.
The Aera Time-To-Deposit Index distinguishes itself from other conventional measures by considering deposit size, savings rate, income growth, and the evolving 20 percent deposit target. The report points out three key flaws in existing models: their failure to account for growth in household income, house prices, and savings while prospective first-time homebuyers are building their deposit.
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