Aera's new Time-To-Deposit Index report: Saving from scratch for an average NZ house impossible
Aera's new research exposes the sobering reality facing New Zealanders saving for their first home: Saving for a deposit from scratch is now impossible based on average home values, without the bank of Mum and Dad.
Aera Time-To-Deposit Index report in brief
Saving for a deposit from scratch now impossible based on average Auckland or national home values, without the bank of Mum and Dad.
New Zealand house prices have only dropped three times in the last thirty years.
In Auckland a 20% average first home deposit will hit $1m by 2045.
Mainstream economic ‘time to deposit’ models are misleading New Zealanders. They fail to account for growth in house prices, household income, and savings, while a first-home saver is building their deposit.
November 5th, Auckland:
New research from first home financial services platform, Aera, has exposed the grim reality facing New Zealanders saving for their first home.
The Aera Time-To-Deposit Index report revealed that median-income first-home buyers who started saving today would never be able to save enough for a 20% deposit for an average-valued house.
In Auckland, the 20% deposit for the average home remains an impossible dream for any median incoming earning household, without additional support from the bank of mum and Dad.
The numbers suggest that a short term cooling of the market won’t last, as national values have grown at a rate of 6.58% annually over the last 30 years, and only dropped three times over that period.
Assuming the house price value continues the 6.4% growth rate in Auckland, home buyers will be looking at $1m average house deposit by 2045.
Aera’s Time to Deposit report includes crucial factors such as income growth, interest earnings on savings, and the relentless rise in house prices, which had been systematically ignored by all other mainstream measures.
A recent model has suggested it would take only 9.6 years to save for the average national house deposit from scratch; a number that would only be possible if the median income earner was earning 9% annual compound interest on their savings, and having yearly 8% raises in household income.
Frustrated that incumbent house price deposit indexes failed to factor real world factors, Aera CEO Derek Handley says he wanted to correct the record 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. 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,” said Handley.
Importantly, says Handley, the report dispels the myth that simple hard work will be enough to get into their first home.
“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,“ said Handley.
“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.”
“Overall, Aera’s Time to Deposits give an honest picture of the pathway to ownership, I hope will drive more urgent dialogue from banks, government, and decision makers that we need new solutions,” said Handley.
Methodology
The Aera Time-To-Deposit Index uses publicly available data on household income averages, expected interest earnings on savings, house price growth rates, and median house prices. Unlike other measures, this index factors in deposit size, savings rate, income growth, and the evolving 20% deposit target.
Distinguishing Aera’s Time-To-Deposit Index from other mainstream measures, the report points out three significant flaws in incumbent models. Mainstream models fail to account for growth in household income, house prices, and savings while a first-home saver is building their deposit.
Auckland Market Assumptions:
• Savings growth based on the historical average of 6-month term deposit savings rate (4.5% p.a.)
• House price growth rate from the Real Estate Institute of New Zealand House Price Index (REINZ HPI) (6.4% p.a.)
• Household income growth from the Labour Cost Index (2.33% p.a.)
National Assumptions:
• Savings growth based on the historical average of 6-month term deposit savings
• rate (4.5% p.a.)
• House price growth rate from the REINZ HPI (6.84% p.a.)
• Household income growth from the Labour Cost Index (2.33% p.a.)
Assumptions are for the period 2000-2023, covering multiple full economic cycles.
About Aera:
Aera is a financial services platform designed to help New Zealanders overcome the deposit hurdle and enter their first home faster. Their offerings include the Deposit Accelerator™ and Ownership Accelerator™, which provide competitive returns and solutions to bridge the deposit-gap for first-home buyers. Aera is backed by private investment firms Still and Icehouse Ventures and charitable trusts Whakatupu Aotearoa Foundation and Aera Foundation.
Infometrics model peer review
www.infometrics.co.nz
Aera’s model has been reviewed by Infometrics, with the model’s calculations and outputs verified as being mathematically correct based on the input variables provided. The primary input variables below have also been verified against the respective source data:
• Historical term deposit savings rates
• Historical house price growth rate
• Average house price data
• LCI growth rate
• Average household income levels
Infometrics expresses no view on any of the input assumptions used in the model
To download the full report, click here
For further comment
For more information or comment, please contact Leni Ma'ia'i (leni@digpr.co.nz)
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