Is it really harder to be a first home buyer right now?

Economists, politicians and Kiwi are wringing their hands over the cost of living in 2023, with inflation at a reportedly 32 year high at 7.2%. Rents are at an all time high and the Official Cash Rate (OCR) has once again been increased, so for those saving to buy a home and more, it feels like they can’t catch a break, even with falling house prices and low unemployment. So how bad, or good, are current conditions compared with decades past?

If you go back over the decades you’ll find conditions were, at times, equally challenging though with different variables. For instance, did you know that in the 1980s, the inflation rate was over 13% thanks to the monetary policy at the time and mortgage rates were over 20% for many. So the first few years of a mortgage were very hard work but houses were cheaper so things got easier after a while.

Chart Summary: The Consumers Price Index (CPI) measures changes to the prices of the consumer items New Zealand households buy, and provides a measure of household inflation.

These double-figure inflation rates in the 1980s were matched by a similar growth in incomes, says Infometrics chief forecaster, Gareth Kiernan, author of the Housing Update 2022 report which looked at relevant data from the past 70 years.

While current wages aren’t increasing by double figures as they were in the 1980s, wages are strong at the moment, the highest percentages and the fastest growth in the past 30 years, says Gareth. There’s been a 7.4% increase in average hourly earnings for the year to December 2022 up from a 3.8% increase in 2021, according to Stats NZ. He's expecting to see above-average wage inflation for the next 12 to 18 months, at around 3.5% to 4%.

At the same time, current inflation is right across the economy, food, fuel, household utilities and services. The CPI inflation rate of 7.2% hasn’t been this high since 1990, says Gareth. Between 1973 and 1990, inflation was running at 13% to 14% per annum.

“We’re not at critical levels, just higher than it’s been for a generation,” says Gareth.

But it’s not all good news. Sense Partners’ economist Shamubeel Eaqub says compared to the peak of the housing market things have gotten better on the deposit front but servicing the mortgage has become more expensive.

“The difference between now and the 1980s and 1990s is you could save a house deposit within 10 years of working and you could pay it off in 10 years if you were putting one third of your income into the mortgage,” he says.

Now it could take you decades to save the deposit if you’re on a normal salary, he says, with people spending up to 40% of their income on rent.

“The goal posts keep moving,” argues First Home Buyers’ Club director, Lesley Harris. First home buyers are renters, and on top of that they have the cost of living to contend with, Auckland rents currently over a third of people’s incomes, she says.

And those 20% deposits are hard to get to when you’re buying a million dollar house. “When I bought my first house in the 1990s I could get 10% lending, which is very hard now. There was a lot more 5% lending in the 1990s but interest rates were higher then,” says Lesley.

Wages may be rising but house prices have risen by more in recent years, she says. The average asking price in Auckland for a home is $1,116,850 according to Trade Me, compared with December 2017 figures of $941,850. Peoples wages haven’t gone up by that much, she says.