For the last few years we have been inundated with media articles and opinion pieces on how we have a housing crisis and that the young are doomed to be tenants for life.
People who believe this are focusing on the cost of housing relative to incomes. House prices have increased at more than twice the rate of incomes, with the ratio of house prices to incomes increasing from 3.4 in 1985 to 7.5 in 2015. On the face of it, this looks like a criss.
However a look at some other numbers involved in housing affordability paints a different picture. The NZPIF has looked at the situation of a first home buyer in each of the decades since 1985 and found that while individual factors have changed, over the last forty years it has always been difficult to get into your first home.
The results looked at house prices, incomes, interest rates and how hard it has been to save for a home deposit. While house price increases have made it more expensive to buy a home, interest rates declining from 19% in 1985 to 5.6% in 2015 have made it easier to afford the higher mortgages.
When looking at saving for a deposit, property prices increasing faster than incomes would suggest that it is much harder to save for a home deposit today than in the past. However there have been other factors that have helped first home buyers.
A large benefit has been rental prices as a percentage of income falling from 42% of income in 1985 to 32% of income in 2015. This 25% reduction allows first home buyers to save more of their income for a deposit.
Another factor is income tax. On average, income taxes are lower today than they were in 1985, again allowing a higher share of people's income to be saved for a deposit.
Probably the greatest help for first home buyers has been the Kiwisaver First Home Owners Grant. Home Ownership Accounts helped people in the 1980's, but they were abolished in 1986. It is interesting that home ownership rates started to fall soon after Government help was taken away.
Looking at incomes, rental costs, taxes and subsidies, the NZPIF have calculated how long it would take to save a home deposit in each of the four decades. The shortest time was in the 80's when it took just over four years. It took 6.3 years to save a deposit in 1995, 7.5 years in 2005 and 6.8 years in 2015. (This assumes a single person saving, so it would be shorter if a couple were saving)
So while house prices have certainly increased over the last forty years (as houses have also grown in size), the cost of servicing the mortgage is actually cheaper now than forty years ago and it takes approximately the same number of years to save a deposit now as it has over the past 30 years.
The results of the NZPIF study show that it is wrong to say that today's young people are being forced out of home ownership. It is certainly hard to buy a home today, but it has been for at least the last forty years. Rather than rental property owners forcing people into being renters for life, they are being put off by the constant message that home ownership is an impossible dream. If they are told this constantly, many will not even try to buy their own home.