First home buyers (FHBs*) have generally been paying the highest prices relative to each area’s average property value in less expensive markets, like Palmerston North and New Plymouth. Buying budgets can stretch a bit further in locations where property is generally cheaper, potentially helping FHBs to enter the property ladder at a higher rung - so this all makes sense. It’s also not surprising that FHBs tend to account for a higher share of purchases in NZ’s cheaper areas. By contrast, FHBs are struggling to compete in more expensive areas, like Queenstown..

CoreLogic Property Economist Kelvin Davidson writes:

Our Buyer Classification series shows that, despite high prices and reduced affordability across many parts of the country, FHBs still have an appetite to get into the property market and are finding ways to do just that. Their share of purchases in 2018 was about 23% (levels like this were last seen way back in 2007), with their ability to buy assisted by tapping their KiwiSaver funds for the deposit and/or a willingness to compromise on the location/property type - particularly in the priciest markets.

But what about the prices they’re actually paying to get into the market? In locations where property is generally the most expensive, FHBs have chosen (or been forced) to target the lower end of spectrum.

Average price paid by FHBs in 2018 and current average value for all properties (Source: CoreLogic)

The first chart above shows the average prices paid by FHBs in selected parts of NZ in 2018 versus the current average value for all properties in each area. The gap between the two numbers (or the ‘discount’) is shown above the bars. As you can see, the prices that FHBs have paid relative to the average value are lower in NZ’s most expensive markets of Auckland (18%) and Queenstown (22%), than they are in Palmerston North (13%) where property is cheaper. What’s quite staggering is the increase in prices that FHBs have been paying in Queenstown over recent years. From a trough of about $420,000 in 2014, that figure has now risen to more than $943,000: an increase of nearly 125%. The average price paid in Queenstown by a FHB in 2018 was almost $87,000 more than in Auckland (see the second chart).

Average FHB price paid (Source: CoreLogic)

Given the high prices that they face, it’s not surprising that many FHBs struggle in the Queenstown market, where they account for just 15% of purchases in 2018 (see the third chart). It’s also no surprise that FHBs play a bigger role in cheaper markets such as Palmerston North and Invercargill - and as noted above they may well find it easier to access the better tiers of property in these markets too.

FHB % market share in 2018 (Source: CoreLogic)

Of course, when looking at FHBs’ market share against the prices they’re paying, Auckland stands out – it’s expensive, but FHBs still account for a reasonable share of activity. On face value, that seems weird but this apparent anomaly is explained by two key factors. 

First, FHB’s market share in Auckland only rose in 2018 because they found a way to “hang on” better than other buyer groups – i.e. their number of purchases has basically flat-lined in a softening market, so their % share has naturally risen (see the fourth chart).

Auckland FHB activity (Source: CoreLogic)

Second, there are obviously two sides to affordability: house prices and wages. With Auckland’s job market more heavily weighted towards higher paying sectors (e.g. banking and legal services) than, say, the tourism/hospitality-heavy Queenstown job market, FHBs in our biggest city are evidently finding it easier to compete with other buyer groups than they do in Queenstown (where accumulated wealth of other buyers is also likely to be playing a role).

* We define FHBs as not having owned residential property in NZ before and making a purchase with a mortgage. Theoretically, then, this definition could include say a foreign buyer purchasing with a mortgage. But given the tightening of standards around approving a mortgage to people without an NZ-based income, this is unlikely to be a significant factor.