Generations apart: structural changes affecting access to home ownership Australasian Housing Researchers’ Conference Brisbane June,2007

2 Home ownership trends : est. 8% decline in 15 years 74.9% > 66.9% (adjusted for ‘family trusts’) 2000’s - key features deteriorating affordability thru’ prolonged housing boom house price growth exceeds mortgage rates and real wages less pressure on rents (due to investment & AS review) first home buyers ‘crowded out’ political and policy spotlight on cyclical ‘drivers’ of housing inflation, incld. constraints on supply YET, supply-side remarkably responsive

3 Source: Massey University Real Estate Unit Housing Affordability Index

4 Source: compiled by DBH from StatsNZ data

5 Role of underlying structural change What’s changed in a generation? 1950s-60s v. 1980s and 2000’s Weekly h’hld exp ($ ) Mortgage payments Rent, rates & house repairs Power and fuel Private transport Total spending Source: Easton, B Consumption in New Zealand to 64-95; StatsNZ

6 household change - disparity btw 1 & 2 earner households immigration policy, migrant ‘waves’, composition adjustments impacting on workforce structure - removal of tarrif protection - wages legislation - female participation rates expanded tertiary education, loans and debt Changes affecting demand:

7 Source: Rodney Dickens, Strategic Risk Analysis Ltd

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9 Changes affecting ‘capacity to pay’: liberalisation and deregulation of financial markets overseas investment in residential property mortgage rates relative to general inflation bank competition for market share ‘borrowing’ culture replaces saving more favourable tax treatment of property - capital gains problematic; ‘family trusts’; ‘LAQCs’

10 Changes to housing assistance : 8% growth in home ownership in 15 yrs ‘universalism’ replaced by ‘selectivity’ > 1970’s - State Advances loans and capitalisation of child endowment > 2000’s - mortgage insurance scheme ‘shared equity’ Kiwisaver – access to retirement savings in 2010

11 Changes to housing supply subsidized mortgage finance no longer tied to construction of new ‘entry-level’ homes developers building larger homes for upper end building & design standards gradually tightened infrastructure and services more elaborate councils operating cost recovery regime

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13 Impact on access and affordability In the 2000’s escalating house prices main obstable to access mix of borrowers has changed –‘late-comers’ have more debt –‘baby-boomers’ ( ) are in peak earning yrs, are outright owners, ‘trading up’ and investing –property investors have increased market share –first-time buyers are being ‘crowded out’ one income insufficient – rates declining for yr- olds and Maori and Pacific households

14 Longer term implications greater dependence on life time renting less security in retirement for non-owners greater concentration of housing wealth potential for inter-generational transfers to amplify income inequality could ‘over-investment’ in housing jeopardise fiscal stability?

15 Composition of net wealth for couples Wealth quintile Housing¹ Pension NZS Other ² Total Ages ,500 1, ,100 -1, , ,900 35, ,400 1,197,800 2,035,700 Ages ,400 3, ,600 20, , ,600 39, ,300 1,264,200 2,094,600 ¹ Net equity in own home ²Other investment property Source: Scobie et al., NZ Treasury (2007) based on SOFIE