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The pull of the regions for first-home buyers

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Encouraged by cooler prices, first-home buyers (FHBs) are returning to the market in force. In May, FHBs borrowed $1.116 billion from the banks – up over $267 million on 2017.


Encouraged by cooler prices, first-home buyers (FHBs) are returning to the market in force. In May, FHBs borrowed $1.116 billion from the banks – up over $267 million on 2017. They also withdrew $89.4 million from their KiwiSaver funds, up by a third on last year’s numbers. And much of this cash is being spent in the regions.

New research by CoreLogic shows that FHBs account for a record share of property buyers in 15 of New Zealand’s 66 districts, mostly in rural and regional areas. Kelvin Davidson, the report’s author and CoreLogic’s Senior Research Analyst, says there are two key drivers behind the growth.

“As long as you can get the deposit together, mortgages at today’s low interest rates mean buying your first home is often cheaper than renting, which is a really strong incentive to buy. And in terms of overcoming the obstacle of a deposit, KiwiSaver funds are giving FHBs a real leg up. The average KiwiSaver withdrawal to buy a first home is about $20,000, which is a nice top-up for your deposit.”

Nationally, the percentage of buyers purchasing a first home is 23 percent. But at the bottom of the North Island, in Hutt City and Porirua, FHBs are punching above their weight, making up 36 percent of buyers. Not far behind are FHBs in the dairy industry strongholds of South Waikato and Ashburton, where they comprise 33 percent and 31 percent of the market, respectively.

They are figures that have been increasing for the past five years, and which look set to increase further. For, in addition to the over-arching economic factors, the regions also offer the added benefits of strong jobs growth and cheaper properties, which can make home ownership a more affordable proposition than in our cities.

As job vacancies in the metropolitan centres have softened over the past year, the regions have experienced a boom. Many have seen double-digit growth in advertised vacancies, boosted by our primary industries. The Government forecasts that at least 2,000 more workers are needed every year to cater for growth in the dairy sector, and last year Trade Me witnessed a 20 percent increase in advertised jobs across the agriculture sector.

Back in our largest city, a new report by Auckland Council found that Kiwibuild homes – capped at $650,000 – would be affordable only to the top 40 percent of households. And with average house prices in Auckland at around $1 million, it is little wonder FHBs are becoming concentrated in the regions.

Even disregarding Auckland’s house prices, the national average still sits at $678,000. In the regions experiencing the highest FHB activity, the average prices are considerably lower: Hutt City, $489,000; Porirua, $552,000; South Waikato, $483,000; and Ashburton: $354,000.

“In the regions, lower house prices have definitely a big role to play in the number of FHBs in the market,” says Davidson. “On average, incomes are lower in some rural parts of the country, but not that much lower in comparison to house prices. So affordability is better and FHBs are taking advantage of that. There is some pretty simple maths going on.”

As rural economies thrive and interest rates remain low, Davidson says he can’t see why FHB activity in our regions should drop away any time soon.

“Strong jobs and affordable homes are the key things. If the maths stays the same and the affordability of being an owner-occupier versus renting continues to come down in favour of buying, I can’t see FHB numbers in the regions falling off.”

For FHBs in our rural areas, it is a simple equation: jobs + housing affordability = taking a first step on the property ladder.

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