RESEND: The $1m deposit only a landed gentry can afford

New analysis only illustrates the unsustainability and ludicrousy of the assumption still underpinning our social contract that anyone with a reasonable income who works hard and saves can afford to buy their own home in time to have a family. Photo: Lynn Grieveson / The Kākā

(This is an updated resend of this morning’s email that includes an interview with Derek Handley and that corrects a detail in this morning’s email.)

TL;DR: Sometimes all it takes to expose that an emperor has no clothes is the bright light from the extrapolation of an already existing long-run average.

Tech entrepreneur Derek Handley has done that with a new index estimating the size of deposit needed to buy a home in Auckland and nationally, simply assuming that the growth rates for house prices, incomes and term deposit returns of the last 20 years are extended in a straight line out into the future.

It turns out a couple starting to save today and unable to get a deposit from family or a lotto win would have to save $1 million to buy a $5 million house in Auckland by 2048, and just under $750,000 nationally. This is not mathematically surprising or wrong, but is of course a ludicrous prospect, albeit one that relies on a commonly held assumption inherent in our political economy that it is still possible to buy a home under your own steam. This new Aera¹ index simply exposes more starkly how our housing market and society has become a landed gentry.

Elsewhere in the news today:

• National and ACT are reported to be close to a coalition deal, but Winston Peters is still not talking to David Seymour and there is fresh chatter that Peters wants to stop National’s plan to allow foreign buyers back in and to extend the pension age, both of which would compromise Nicola Willis’ tax-cutting plans 1News, RNZ;

• Labour’s new caucus of 34 MPs are scheduled to meet all-day in Upper Hutt today and are expected to endorse Chris Hipkins as leader, for now; and,

• The Reserve Bank of New Zealand may be about to get some company if it wants to hike rates again, with the Reserve Bank of Australia set to start hiking again later today.

Paying subscribers can see more detail below the paywall fold and hear more of my analysis in the podcast above.

Who is kidding who on affordable first-home deposits?