What does Aera's Time-To-Deposit Index report mean for you?

We hear a lot about First Home Buyers out in the media, but are First Home Savers being forgotten?

The reality is, saving a house deposit in 2024 is an ambitious goal. Housing is one of the biggest challenges facing NZ, but there are good solutions out there to support savers like you to get into your own home.

It starts with making sure everyone's working with honest, clear information. That’s why our Aera team commissioned a new report. A comprehensive, validated Index that gives a more realistic picture of exactly what First Home Savers are up against. At first glance, it's a daunting read - we won't pretend the path is easy. But this transparency means First Home Savers have the information they need to make solid savings plans while people like Aera push help to develop (and encourage!) fairer products that support those goals.

Here’s a breakdown of what we found, as well as some ideas for what we can do to help support people as they work toward buying a house in NZ.

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What’s wrong with the current data NZ commentators use?

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Before we started researching our Time-to-Deposit Index, we needed to figure out why the mainstream models were producing data that was so different to the numbers we saw in our own work with first home deposit savers.

It came down to two main things:

1. They didn’t take into account the fact that house prices grow. So they’re calculating how long it would take you to save a 20% deposit on a house that costs $800,000. Not factoring in the truth that by the time you’ve saved the $160,000 you need, that same house is now worth $1million and you’re back to saving.

2. Not factoring in growth in household income or savings rate. People can usually increase how much they’re saving as they get further along in their career. They also earn compounding interest on the savings they already have as time goes on. Unfortunately, these increases don’t match the speed property prices are also increasing.

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Aera Time-To-Deposit Index: The key findings

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1. Saving a 20% deposit from scratch is now technically impossible based on average Auckland or national home values, without the bank of Mum and Dad.

2. New Zealand house prices have only dropped three times in the last thirty years. And they’re already starting to rise again after the latest cool-off.

3. In Auckland a 20% average first home deposit will hit $1m by 2045.

4. A recent model has suggesting it would take 9.6 years to save for the average national house deposit. That is only possible if the median income earner earns 9% annual compound interest on their savings, and has yearly 8% raises in household income. Both these rates are unrealistically high for most New Zealanders.

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Click to read the full report here.

So what can a First Home Saver do to improve their chances?

It’s not hopeless! Putting down the avocado toast and saving pennies might not be enough on their own anymore, but there might be other ways you can improve your deposit saving speed or better your chances of getting into your first home.

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Increase how fast your savings are growing without you.

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You might not be able to increase how many dollars you put away each month, but it might be possible to increase the rate at which those savings grow while they’re sitting in an account.

A typical bank savings account will earn you 4-5% per year on any savings you have sitting in there. That’s slow growth and won’t help you keep pace with the 7.04% average increase in house prices we’ve seen over the last decade.

But now we’re starting to see more options pop up that let typical First Home Savers take advantage of some of the methods the super-wealthy use to increase that savings growth rate. Some are very high risk - like personal investments and trading. But some are lower risk like our own Deposit Accelerators that offer higher interest accounts with flexible terms that take advantage of more stable asset types like corporate bonds or retail managed funds. There’s always some risk involved with these approaches so it’s definitely worth making sure you understand how it works before you commit.

If you’re curious, you can learn more about Aera’s method here.

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Consider shared ownership or co-investment to get onto the ladder.

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Combining resources with friends or family members and buying under a shared or con-investment model can get you off the starting blocks a lot faster.

The two most common paths you could explore here are:

1. Creating your own agreement with friends or family members. You might team up to raise the deposit value together, or share responsibilities for loan repayments and maintenance costs. Regardless of how you design the structure, you’ll be wise to formalise it into a Property Sharing Agreement that clearly outlines each co-owner’s rights and obligations so you’re all aligned from the start.

2. Partnering with a company or organization that offers property co-investment as a product. There are a few of these in the market (you can see ours here!). They all offer different terms, eligibility criteria and buy-out structures so it’s worth doing some good comparison.

Investigate government grants or schemes.

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In New Zealand, these are primarily offered via Kāinga Ora and the specific programmes, grants and eligibility criteria can change periodically, so it’s wise to keep an eye on the news for updates.

As well as these grants, it’s a good idea to make sure you’ve investigated access to your Kiwisaver. Talking to an advisor or broker about this is definitely worth doing.

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If you can, consider the bank of Mum and Dad.

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There are still a few people who are fortunate enough to have family members who already own property and can lend or gift a lump sum to top-up deposit savings. Whether it’s bringing forward an inheritance, freeing up capital by refinancing their own home or dipping into their savings, this is a great option if it’s available to you. As with any major financial agreement, making sure any terms associated with this loan or gift are clearly agreed by all parties is wise.