Not without the help of the bank of mum and dad
New Zealand’s first home buyers are grappling with the harsh reality that saving for their initial home deposit is an increasingly unattainable goal, according to a recent report from the first home financial services platform, Aera.
The Aera Time-To-Deposit Index report paints a grim picture for median-income first home buyers, suggesting that diligent saving alone would not enable them to amass a 20% deposit for an average-valued house without additional financial support, typically from their parents.
In Auckland, accumulating a 20% deposit for an average home is an unattainable goal for households with median incomes, without additional support from the bank of mum and dad.
According to the report, a short-term cooling of property prices won't provide respite, as national house values have seen an annual growth rate of 6.58% over the past three decades and have only declined three times over that period.
If Auckland’s house prices continue to grow at a rate of 6.4%, potential home buyers may be facing a staggering $1 million average house deposit by 2045.
Aera's Time to Deposit report incorporates crucial factors, including income growth, interest earnings on savings, and the persistent increase in house prices, which have been consistently overlooked by mainstream measures.
A recent model has suggested that saving for the average national house deposit from scratch would take 9.6 years. But this would only be feasible if the median income earner was earning 9% annual compound interest on their savings and experiencing annual 8% increases in household income.
Frustrated with the shortcomings of existing house price deposit indexes, Aera CEO Derek Handley (pictured above) aimed to provide a more accurate representation for first home savers.
“We finally have the data to back up what many have felt for years, that house deposits are slipping out of reach for many people, and only getting more so,” Handley said. “The scale of this crisis is beyond what many have imagined, and scrimping and saving is no longer enough without the bank of mum and dad.”
Importantly, the Aera chief said the report debunks the misconception that sheer determination and effort will suffice for individuals to step into their initial homes.
“New Zealanders are being sold this story that if they scrimp and save 15% of their gross income in the bank, and work hard they will in 10 or 11 years have enough for a house deposit for an average priced home. That hasn’t been true for a long time,“ Handley said.
“The fact that first home buyers can’t buy a home without outside assistance is a travesty, and fuel for the fires of inequality. From here we need to have practical discussions about alternative ways of saving, and alternative means of raising these deposits.”
He hopes Aera’s Time to Deposits will drive more urgent dialogue from banks, government, and decision makers to come up with new solutions.
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