New research reveals how big the bank of Mum and Dad is, and it has practical and societal implications writes Anna Rawhiti-Connell in The Bulletin.
Fifth largest source of housing finance for owner/occupiers
Research from Consumer NZ has revealed just how big a helping hand parents are giving their children when buying a house. “The bank of Mum and Dad”, something of a ubiquitous phrase now, ranks fifth after ANZ, ASB, Westpac and BNZ when it comes to owner-occupier loans. Parents have contributed $22.6bn in loans, monetary gifts, rental expenses (by allowing children to live with them rent-free), repayments, purchased property and other means of financial help. 14% of families have assisted children to buy a house. As Tess McClure reports for the Guardian, 58% of children who bought property in Auckland had family support.
The return of the landed gentry?
Like Simon Bridges, I read Max Rashbrooke’s “Too Much Money” over the summer (reviewed here by Danyl McLauchlan). It sets out the ways wealth disparities are changing Aotearoa. In the very first paragraph, Rushbrooke introduces “the bank of Mum and Dad”. He refers to “the return of the landed gentry”, a phrase he attributes to economist Shamubeel Eaqub. The Consumer NZ research found only 10% of those surveyed experienced financial hardship as a result of their contribution which suggests there is a level of existing wealth required to be able to assist your children in the first place. Housing wealth is the most widely held type of wealth in New Zealand according to Treasury. Wealth that is now being transferred to the next generation, for the purchase of more property.
“It’s the deposit”
This isn’t Downton Abbey – land and jewels are not being passed down among an aristocracy. For many, the need for parental financial support is the product of a big jump in house prices. The median house price in New Zealand rose from $620,000 in May 2020 to $890,000 as at March 31. “It’s the deposit” has been a catch-cry of first-home buyers and the research revealed that 61% of parents were contributing to a deposit. Rising interest rates may add “it’s the repayments” to the list. According to an interest.co.nz survey published yesterday, housing affordability is the worst it’s been in 18 years desite a drop in house prices.
Frayed social fabric
There are practical implications to all this. It’s something that increasingly needs to be factored into divorce settlements. Evidence of a sizable financial gift is considered when applying for residential care subsidies from the government. Money being plumbed back into the housing market is money not being invested elsewhere. It impacts retiement savings. There are also societal implications. Where we can afford to live and, as the research shows, how we afford it can depend on the wealth of our family. The Prosperity Index for Auckland revealed income disparity between areas of the city. We increasingly live further away from people who don’t live like us. Rashbrooke argues this creates fractures and that as “the social fabric becomes frayed”, “democracy is diminished”.