For years little data existed on the mythical first home buyer and how much of the housing market they occupied, so CoreLogic NZ started tracking “buyer classification”. Nick Goodall, head of research at CoreLogic, says despite market and regulatory changes, first home buyers are holding on.
New Zealand has a vivid image of the “first home buyer”: hard working young New Zealanders, looking to carve out their own small secure corner of the Kiwi dream. Whenever there’s analysis of value changes in the property market, we inevitably wonder how it relates to and affects first home buyers.
As a nation, we’re obsessed with property and property ownership – it’s part of our psyche. We’ve seen the financial success our parents’ generation had with home ownership, and we love the tangibility that a “bricks and mortar” investment offers. There’s the stability and security of being our own landlord, a favourable tax system for property compared to other investment classes and the ability to borrow large sums of money (up to 100% of the value, if you’re lucky) to get into the market. This obsession has guaranteed extensive coverage whenever anything is said or done regarding the property market, and a lot of it centres on the emotional argument for first home buyers. Yet for years there was no market measure of first home buyer activity.
Click to watch Unsettled: Housing in Crisis, an interactive documentary on the housing crisis.
Before the first round of loan-to-value ratio (LVR) restrictions put in place by the Reserve Bank of New Zealand in October 2013 there was no way to measure the effect these changes to borrowing would have on first home buyers. This drove CoreLogic NZ (Property IQ at the time) to create one: “Buyer Classification”. This data series classifies all property sale transactions into a few buckets to determine who is buying property, the type of properties being purchased, where those properties are and how much is being paid. The series was retrospectively applied all the way back to 2003, so historical context can be provided too. What we found was Kiwis are desperately clinging onto the dream of home ownership.
Before the LVR restrictions came in, the feeling was they would “kill the market”, especially the first home buyer market. But we quickly saw that wasn’t happening. Nationwide value growth did slow (from 10.0% in the year to the end of 2013 to 4.9% a year later) but things soon took off again, reaching 15.0% by November 2015.
Meanwhile first home buyers dropped in the short term. Responsible for 21.3% of all sales in Q3 2013 they dipped to just 17.6% in Q1 2014, before gradually increasing their share back to 21.0% in Q2 2017. This is despite further iterations of LVR limits targeting parts, or all of the market, at different stages.
Of course, there are differences across the country. Wellington is very much a first home buyer market with 30.7% of all sales going to this group so far in 2017, while Tauranga is not (at just 14.8%). Even in hotly contested Auckland, 21.2% of sales are to first home buyers.
We were able to learn more about what properties first home buyers were purchasing. They continue to favour houses: in fact, now more than ever. So far in 2017, 80% of all first home buyer purchases have been houses. In the mid-2000s the equivalent percentage was 75-76%, with apartments mostly making up the difference.
First home buyers also tend to favour properties worth less than the typical average, but they still move with the market. The average purchase price for a first home buyer across NZ in 2017 is $516k, an increase of 80% against the average in 2005 ($285k). The increase market wide was 96% ($641k, up from $327k).
When they do buy property, first home buyers are more likely to pay over the odds than other buyers. The stats do vary across years and cities, but most often we see first home buyers paying a small percentage over and above the Capital Value of a property. Even in 2017 in Auckland, first home buyers have paid on average 46.5% over the CV, while investors average 44.7% over. Movers are further back on 44.0%.
First home buyers are more emotionally driven because there’s more riding on the purchase being successful (and the cost of having to continue looking) and they are most often buying for both shelter and the long term, so a few extra thousand dollars is easily justified.
The future of property continues to appear secure. With the general election looming, there’s no shortage of policy discussion, party promises and tax debates. But with neither of the established parties so far proposing any major changes, it seems the market will continue along the same trajectory – stable or slightly increasing.
As long as mortgage rates stay low, first home buyers will remain a firm presence in the market with our nation’s collective emotional attachment to property continuing to represent the Kiwi dream: even if we are evolving our fantasy away from the original quarter acre plot.
Unsettled: Housing in Crisis was made possible with funding from New Zealand on Air. Click to begin the experience.