Buying a house in Auckland is difficult. With average property values of more than $1 million, getting on the ladder in our biggest city seems to be out of the reach of most ordinary people and even some reality TV stars and social media influencers.
Property values have stabilised in Auckland in 2018, but the average remains in seven figures, although there is variation in values across different parts of the city.
In the eastern suburbs the average is more like $1.5 million, while in Papakura and Franklin County, the southern-most parts of the city, prices of $700,000 and below are common.
How would a young couple earning about the average salary in Auckland fare when it comes to getting on the ladder?
Let’s assume they both earn the median salary for someone of their gender in Auckland, both contribute four per cent to Kiwisaver and that one of them (let’s say it’s the woman) pays off a student loan.
The median salary for a man in Auckland is about $63,000 and for a woman it is $53,000. Together they have a combined income of $116,000. After all the deductions they are left with about $1600 a week in take home pay.
Their four per cent Kiwisaver contributions, topped up with three per cent from their employers and the $521 annual tax credit from the Government mean they collectively add about $9000 a year to their Kiwisaver accounts, before any interest is earned.
In the best case scenario they are in the market for a house worth less than $650,000 as anything under this qualifies for a Welcome Home Loan in Auckland, which means you only need a 10 per cent rather than 20 per cent deposit.
(The other condition is that a couple earn less than $130,000, which our couple do).
Houses below this price fall in the bottom 25 per cent of values in Auckland and are likely to be further from the CBD.
To get into a $650,000 home they would need a $65,000 deposit with a Welcome Home Loan. Both should also qualify for Home Start grants of $5000 after five years in Kiwisaver, so would they actually need to save $55,000 themselves.
Just relying on their Kiwisaver it would take about five years to build up $55,000, assuming an interest rate of five per cent.
They could of course make this happen quicker by upping their contributions to eight per cent, or saving separately from Kiwisaver.
Getting a deposit together is only the first step – using a $65,000 deposit to buy a $650,000 home is going to leave them with a $585,000 mortgage.
Assuming an interest rate of five per cent and a repayment term of 25 years, they are facing weekly repayments of about $800, half their take home pay of $1600 per week. Throw rates and insurance on top of that and you are looking at close to 60 per cent of take home pay being spent on housing costs.
If interest rates go up to to six per cent, repayments would increase by $70 per week, or $3640 a year.
But the $650,000 home with a 10 per cent deposit constitutes the best case scenario for our couple. And even then their circumstances are precarious, with the mortgage repayments chewing up the majority of their take home pay.
How would they fare buying a property worth the median value in Auckland of $800,000?
This immediately disqualifies them from the 10 per cent Home Start deposit, so to get a foot in the door they will need to find $160,000.
What would it take for a couple on their joint income to do that in five years?
Upping their Kiwisaver payments to eight per cent would be a good start. Over five years at an average return of five per cent, our couple would have saved about $80,000, half of what they need for a deposit.
To get the rest within five years they would need to put away about $15,000 a year, or almost $300 a week.
How feasible this is is really going to depend on their circumstances: how much rent they pay, whether they have children, what their transport costs are like. By upping their Kiwisaver contributions to eight per cent they reduce their weekly take home pay from $1600 to $1450.
Take off average rent in Auckland for two-bedroom place of about $500, add in power and internet bills, transport costs and food and it’s not hard to see how most of that could be gone before you even think about savings.
But let’s assume they somehow manage to build a $160,000 deposit over five years, convince the bank to lend them the money despite their modest incomes and buy an $800,000 property in Auckland
Their $640,000 mortgage at five per cent over 25 years equates to about $860 per week. Put rates of $40 per week on top of that and they are left with $700 each week.
So yes, it is technically possible for our couple earning the median salary Auckland to get on the property ladder. The best way is to buy in the bottom end of the market under $650,000 where they can take advantage of the 10 per cent deposit, Welcome Home Loan scheme.
But the deposit is potentially the easy part, with repayments for a property in this price range taking up the majority of their take home income they are very vulnerable to an increase in interest rates or a loss of income.
And don’t forget that as this couple both earn the median wage, 50 per cent of fulltime Auckland workers earn less.