The latest report from credit ratings company Veda for the past 3 months tracking credit demand shows what they describe as Gen Y "Property Orphans" - people aged under 28 who's collective demand for mortgages has dropped by a third in the past year whilst at the same time their demand for personal loans and credit cards had increased.
When asked by media reporters about this report I stated that this was likely caused by a combination of factors, one of which was the generational change that is seeing young people question the achievability of home ownership as they in some cases choose renting as a lifestyle choice with the inherent flexibility and lower commitment to a particular lifestyle and attendant financial responsibility.
Certainly the LVR restrictions have dampened demand as it has become harder to secure a property purchase with the more common requirement for a 20% deposit, equally recent interest rate rises have increased the costs of home ownership whereas the costs of renting have not risen by as much. There is no doubt that buyers can secure mortgages with a deposit of less than 20% but the signals and commentary in the market constantly talk of the hurdle of 20% deposit and with prices in the main cities topping $500,000 on average that is a massive ask to raise $100,000 when most prospective asspiring homeowners under 28 years are probably still encumbered with student debt.
One of the difficulties in assessing the real drivers behind decisions in the property market is the lack of granular data. We do not have accurate and credible data on first home buyers. Yet we so often see articles which seem to speak to assumptions that sales of low price property or LVR impact is a result of fewer first time buyers.
We may not have such data, however other countries do and it is timely that I found this chart from the UK which tracks the number of mortgage loans made to first time buyers since 1979.
This is quite a striking demonstration that first time buyers started to be priced out of the property market as early as 2003 and 2004 as property prices in the UK took off, that demand plummeted again during the GFC - exactly mirrored in NZ. The recent resurgence in the UK is what might be regarded somewhat as artificial as government initiatives such as "Help to Buy" has been encouraging this group of first time buyers to get onto the property ladder with low deposit government back schemes coupled with record low mortgages interest rates. The contrast with NZ could not be more striking with LVR restrictions and interest rises of the past 12 months severely constraining first time buyers.
The only NZ data of a similar nature that might allude to this lost generation of property buyers is this recently published chart from Core Logic which shows an extensive historical data of property sales and the representation of these sales as a proportion of all stock of housing.
The key takeaway from the chart is the shift in transaction levels over the past 30 years. Whereas 30 years ago, even 10 years ago monthly transactions represented around 0.8% of all households in the country, but that level has fallen to around 0.5% for what is closing in on the past 10 years.
It is not appropriate to draw a single conclusion from this data, that it is a function of the decline in first time buyers but it would be possible to intuit some potential impact from this trend as a reason behind the lower relative transactions as with less first time buyers creating demand to get on the property ladder leads to lower overall transactions levels.
Again we lack the granular data to be able to assess such issues with certainty, compounding this is the fact that such data only really becomes valuable when there is an extensive historical archive upon which to analyse, however if we never start recording such data no such archive will ever exist.