Dear first home buyers: property ladders are meant to be climbed

In July 2012 we had some advice for first home buyers that went a little like this:

It [your first home] doesn’t have to be in the exclusive suburbs, have views of Everest or contain 23 bathrooms either. It’s called a ‘property ladder’ because it’s meant to be  climbed.

It would be fantastic of course to own your dream home in your ideal location right off the bat. Alas, it usually only works like that if your dreams are modest.

Where are we going with this, you ask?

The Herald on Sunday wrote of the trials of a young Auckland couple looking to buy their first home. They are finding it tough to buy one in their range – due, they say, to investors swooping in and paying more.

They’re quite right that Auckland is becoming more and more pricey. Alas, this couple have made their six-month-and-counting search so much harder than they should. And if you’ve already clicked on that above link, you’ll know exactly where they’ve gone wrong.*

In late 2008 their target location, Herne Bay, became New Zealand’s very first $2 million suburb. Keep in mind that’s the average price. In 2012, according to QV, the average house price there was just over $1.87 million.

If you were to put Auckland’s suburbs on a metaphorical ladder, Herne Bay would be on the top rung. Want to get there? Don’t try making a giant vertical leap because you’re likely to fall and do yourself a mischief. No, as with any ladder you put your foot on the bottom rung and climb your way up.

Climbing the property ladder WWE style

Climbing the property ladder isn’t always pretty or easy, as these prospective house buyers demonstrate.

There is no denying that housing could be more affordable in New Zealand – and a report released yesterday by Demographia (full report here) shows how tough we’re doing it.

Demographia measures affordability in 337 metropolitan markets all over the world, including New Zealand. Their instrument of measurement is the ‘median multiple’, which is found by dividing the median house price by before tax median household income.

Those markets with a median multiple of 3.0 and under are rated ‘affordable’. 3.1-4.0 is ‘moderately unaffordable’. 4.1-5.0 earns the title ‘seriously unaffordable’, while markets 5.1 and over get a special badge that reads ‘severely unaffordable’.

Guess what they say about New Zealand?

Demographia Table 10 NZ housing affordability

Source: 9th Annual Demographia International Housing Affordability Survey

Scary stuff. Nationally our median multiple is 5.3, which is just about level-pegging with the United Kingdom and Australia, less affordable than Canada, Ireland and the United States, and way way behind Hong Kong.

In the latter’s case they have a good excuse. Hong Kong isn’t exactly known for its ranges full of playing deer and antelope. Meanwhile New Zealand, as this Quartz article points out, have an average of 0.5 people per square kilometre. So with all this land, why are prices so high? And with prices so high, why are so many people still buying?

So many apparent paradoxes. What does make sense, however, is this advice for first home buyers: be prepared to compromise. Look outside your ideal suburb, because chances are if you’re willing to live two towns over you will find a more affordable price. Keep one eye on your dream suburb anyway, because you never know when a bargain-priced fixer-upper might come along. But you can probably forget about Herne Bay for now.

There are bargains available for first home buyers if you’re willing to climb the ladder. So before you search our website for the richest suburbs just remember: dreams may happen overnight, but they often take longer to come true.

* [cue dramatic music] OR DID THEY? Subsequent editing in the Herald article shows the couple were househunting in Glen Eden, which – being further west – is a far more affordable suburb for first time buyers. The photo caption still suggests Herne Bay as a possible candidate, but clearly these two are doing the right thing and looking at homes in sensible, cheaper locations. All the best to you both!

(Best of all, our advice to the rest of you remains valid. Phew!)

2 thoughts on “Dear first home buyers: property ladders are meant to be climbed

  1. Pingback: July Property Report: big stats, curious theories and Auckland refugees | Open2view

  2. Pingback: The property ladder: two new sites to help your climb | Open2view

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