We previously used Kāinga Ora First Home Grants (FHGs) in the Quarterly Economic Monitor as measure of first home buyer activity. However, the First Home Grant scheme was scrapped in May by Housing Minister Chris Bishop. We are introducing a new indicator for first home buyer activity – First Home Loans. This article explores first home buyer activity in the housing market from a few different angles and introduces our new measure.

The first home buyer is an important colloquial grouping in the housing market, as whether first home buyers can buy a house or not says a lot about the affordability of housing. However, the status of home buyers is not consistently captured which makes them hard to track – there is no tick box on property sales agreements for “first home buyers”. Different aspects of first home buying are captured in different processes by the Reserve Bank, Kāinga Ora, and CoreLogic – among others.

The Reserve Bank asks banks to report on the mortgages that they issue, including indicating whether these mortgages are to first home buyers. The Reserve Bank defines a first home buyer as someone entering the home ownership market in New Zealand for the first time. In the case of more than one borrower (for example a couple, group of friends, or parent and children), they are only counted as a first home buyer if all parties are first home buyers. For example, if a first home buyer jointly borrows with their parents, who already own a home, then this would not count as a first home buyer mortgage. The Reserve Bank only reports at a national level.

Kāinga Ora reports on First Home Grants granted. First Home Grants are subject to eligibility requirements in terms of maximum incomes and house prices, so only represent a portion of eligible first home buyers that have applied for a grant. First Home Grants are reported on at a territorial authority level, making it ideal as a Quarterly Economic Monitor indicator, but the scheme is being ended.

Kāinga Ora also reports on First Home Loans, which are low-deposit (as low as 5%) home loans underwritten by Kāinga Ora and issued through some trading banks. First Home Loans were previously known as Welcome Home Loans. First Home Loans carry a 0.5% insurance premium, to cover risks associated with such a low deposit, so they are only utilised by a subset of first home buyers with a small deposit. The impact of the tighter restrictions varies by region depending on house prices and incomes, so the First Home Loans share of first home buyers varies between regions. However, Infometrics has obtained First Home Loan data reported on at a territorial authority level, which is ideal for the Quarterly Economic Monitor.

CoreLogic classifies homeowners as first home buyers, based on whether the registered owner name has appeared previously on the land ownership registry. This measure is an approximate process on an individual property level, but provides a good indication of overall trends in first home buyer activity. However, data for this measure isn’t reported at a local level, nor are actual numbers usually reported – only proportions of house sales at a national level.

Now that we have outlined the different measures, we can compare how they capture first home buyer activity. Chart 1 shows that the CoreLogic measure counts the greatest share of first home buyers – 26% in the March 2024 quarter. The Reserve Bank measure follows, identifying that 15% of borrowers in the March 2024 quarter were exclusively first home buyers. We would expect these two series to track slightly differently – for example, first home buyers who purchase with a non-first home buyer (for example, a partner or parent that has previously brought a house) will count as a first home buyer in the CoreLogic data but not in the Reserve Bank data. Additionally, a small portion of first home buyers would be cash buyers, and therefore not count in the Reserve Bank’s mortgage data.

The two Kāinga Ora measures – First Home Grants and First Home Loans – generally track below both the CoreLogic and Reserve Bank, reflecting that their eligibility is restricted to a portion of first home buyers.

The First Home Grant series tracked around 15% of all purchases, or around 70% of CoreLogic first home buyer purchases, over 2017 to 2020. From mid-2020, rapid rises in house prices fuelled by record low interest rates pushed an increasing proportion of houses beyond the price caps for the First Home Grant. By 2022, at the peak of the housing market, the number of First Home Grants amounted to just 5% of house sales, or 22% of CoreLogic first home buyer activity. As house prices have come down, First Home Grant usage has come back up, and in the March 2024 quarter, First Home Grants amounted to 10% of total sales, or 39% of all CoreLogic first home buyer activity.

Kāinga Ora-backed First Home Loans have played a fairly minor role in the housing market historically, accounting for less than 3% of total house sales and less than 15% of CoreLogic first home buyer sales up to mid-2022. However, use of the scheme has accelerated over the past two years, and in the December 2023 quarter, First Home Loans amounted to 4% of total house sales, or 14% of CoreLogic first home buyer sales.

Long story short, First Home Loans will undercount first home buyer activity, but is both available at a local level, and provides a basic if limited idea of the trend for first home buyers.

Shifting from using Kāinga Ora First Home Grants to First Home Loans affects the measure of first home buyer activity differently in different regions, with Table 1 comparing these two measures for each territorial authority area. These differences reflect that the eligibility criteria have a different effect on different regions. The First Home Grant share of house sales is correlated with housing affordability, reflecting that in areas with more affordable housing, buyers with middle incomes (below maximum income for Kāinga Ora products) can feasibly purchase an average house. The top ten areas for use of the First Home Grant all have a house price to income ratio well below the national average of 7.0, and the First Home Grant was used in more than 19% of purchases.

Conversely, in more expensive areas, the level of income required to purchase a house is beyond the maximum income for First Home Grants and Loans. For example, in Thames-Coromandel, the house price to income ratio is an eyewatering 14.6, and the First Home Grant amounted to just 6.5% of purchases in the year to December 2023, with no First Home Loan purchases at all.

Uptake of the Kāinga Ora First Home Grants and Loans tracks similarly, but not exactly the same. Out of the top 20 areas for use of Kāinga Ora First Home Grants, only eight are in the top 20 for use of First Home Loans. This difference reflects the differing effect of house price caps, which were applied to First Home Grants, but not First Home Loans, and other subtleties in the eligibility requirements. These differences mean that we shouldn’t compare the rate of First Home Loan or Grant usage across areas for a like-for-like comparison. However, both measures are more useful for understanding trends over time – for example, is first home buyer activity increasing or decreasing?

With tracking and opining on the property market a favourite national pastime, discussions around the housing market, and first home buying in particular, are inevitably driven by anecdotes. Two points often discussed without reference to data are the typical price point and deposit of a first home buyer.

CoreLogic’s first home buyer report analyses first home buyer purchases based on their buyer classification data. In CoreLogic’s analysis of first home buyers across the six main centres in March 2024 quarter, they found that the median price paid by first home buyers was roughly halfway between the lower quartile and median house price. In other words, first home buyers typically purchase houses that are cheaper than average, but not the cheapest available in the market. This halfway point also suggests that the mean or median house price is equally appropriate for estimating first home buyer affordability as the lower quartile price.

First home buyers don’t necessarily buy the cheapest available houses on the market for a range of reasons. Often the cheapest properties face higher deposit requirements which make them unfeasible for first home buyers to borrow against. Banks will often insist on higher deposits for properties with significant deferred maintenance, insurance challenges, unusual title structures such as leasehold land, or unusually small floor areas (like so-called ‘shoebox’ apartments).

Analysis of the Reserve Bank’s mortgage lending statistics for the year to June 2024 indicates that the average first home buyer mortgage had a deposit of 29% - well above the conventional requirement of a 20% deposit, or the 5% deposit allowed under Kāinga Ora’s First Home Loan scheme. This higher deposit is somewhat surprising given how much is made of the challenge to save for a house deposit, but serves to illustrate that first home buyers have a wide range of financial situations and not all are scraping over the line. That said, in some higher-priced regions, first home buyers with a 29% deposit may still be marginal for servicing their mortgage from an income perspective.

Our quarterly economic monitor currently shows Kāinga Ora First Home Grants and First Home Loans, but we will be turning off the First Home Grants when we publish the September 2024 quarterly economic monitor on the 21st of November 2024. We would encourage Quarterly Economic Monitor subscribers to have a look at the First Home Loan series for their area, and get in touch if you have any questions.