Article: Speak Easy

A History Of  Home Loans with Michael BoturA History Of Home Loans with Michael Botur

The national median house price is over $546000. Is that an affordable figure? Looking at your household’s income is one way to work out what you can and can’t afford. The median household income for the nation is somewhere above $80,000. Our median incomes are less in Northland. If the median house price in your area is $420,000, as it is in Whangarei, think about how many years it would take to pay off your house if you put the entirety of your household income towards paying it off. Some say the Baby Boomer generation (post-WWII) used to pay off their houses in around 10 years; one factor there was mortgages used to have to be paid off a lot more quickly. Today, 30 year mortgages are a reality for many people, and in Auckland, the median house price of $830,000 is ten times the median household income.

How did we get to a situation in which houses are less affordable yet home loans, with fairly modest interest rates, are quite accessible? Is it because we are living longer than our ancestors meaning longer amortisation periods aren’t a big deal?

In March, BNZ’s chief economist Tony Alexander offered an explanation for our expensive houses in his Weekly Overview column, pointing out that higher prices are a consequence of higher incomes, unfortunately. “House prices have altered to reflect the increased purchasing power of two income households over the old single income bloke-only working model,” Alexander said. “If you are a young person seeking first home ownership […] Be prepared to do what the Boomers did.”

“Start out in a desolate new suburb of clay soil far from work, do up a piece of shite, or build and live in what will become your garage whilst building the rest of the house around you in the following few years.”

“Question your assumption that when you are ready for a mortgage you will be able to get one as quickly as everyone has been used to over the past quarter of a century. And question your ability to finance expansion of your business at the pace you would like. The ground is shifting.”

His perspective, covering just three generations, is right, but the home loan history of our young country goes back a little further than that.

When urbanisation began in NZ (late 1800s,) finance came from the government or building societies, lawyers and accountants. One of our first housing crises was because we struggled to find suitable land and loans for soldiers returning from WW1. Excessive mortgage debt from the high demand and resulting boom impacted the 1930s recession.

It was the 1950s when the National government rejected state housing as suitable for mainstream or middle class households, Te Ara encyclopedia opines, saying the government introduced an income limit for new tenancies and because this filtered out middle-class applicants, tightening allocation criteria to favour our most needy people. Because of this, the privately-funded housing market (with higher interest rates and longer amortisation periods) could flourish.

There was a golden age after WW2 when low-interest (3 per cent) housing loans were provided for ex-servicemen through the State Advances Corporation and in 1959 it became possible for parents to capitalise the family benefit and put it towards financing a house or paying off a mortgage, but that soon disappeared. A large backlog of unexercised loan authorisations came about, Te Ara says, which kept drawings at a high level after the peak of capitalisation had passed.

By the 60s, cheap home loans stimulated so much demand it led to higher costs of sections and houses. Banks had it good. Eventually first mortgage housing rates peaked in 1987/88, hitting 20.5 per cent floating interest rates before the NZX plunged as New Zealand’s financial bubble burst. Today the Reserve Bank is often at odds with private banks as it adjusts the official cash rate, but we do have a housing crisis, and we have to get people into homes.

Michael Botur has published journalism in NZ Herald, Herald on Sunday, Sunday Star-Times and Mana and he writes a lot of fiction. He moved to Whangarei in 2015 and was ecstatic to be able to afford a house here.


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