Housing
Buildings at a government housing development in Caracas Venezuela Reuters/Stringer

New Zealand is witnessing a decline in home ownership among the youth or the Generation Y, mainly in the age group between 21 and 28. The concern is that the Reserve Bank's stringency norms on loan to value ratio (LVR) and successive rises in the official cash rate OCR) are hitting retail interest rates and curtailing access to mortgages, reports NZ Herald.

The data analytics company Veda New Zealand and its International managing director John Roberts commissioned a study and found that young New Zealanders are no longer applying for mortgages as in the previous years. Rather they have increased borrowing from personal loans and credit cards, in a marked shift of credit habits and spending.

Housing Unaffordable

The Australian housing economist, Jeremy Lawson, had remarked that New Zealand's house prices were overvalued by 20 to 30 per cent. A climate of low interest rates and lax controls on lending pushed up house prices. In recent times, the Reserve Bank placed many limits on high loan-to-value loan ratios.

The aim was to check the danger of mortgages outpacing economic growth. From the whopping ratio of mortgage debt to GDP at 87 percent in 2010, the situation has eased now. As a result, the GDP growth in the last four years exceeded the growth in bank assets and mortgage debt. The Veda study termed the youngsters "property orphans" because they lost the zeal to save the 20 percent of the deposit as per the Reserve Bank of New Zealand LVR norms. Parallely, they are stonewalled by soaring property prices," Roberts quipped. By seeking to depend on personal loans and credit cards, Gen Y is seeking to spend on consumer items and travel and temporarily given up on home ownership, as it appeared almost unattainable.

Unsecured Borrowing

In contrast, Gen Y's personal loan and credit card inquiries for the period went up drastically. The credit card inquiries of Gen Y in the August quarter were up by 19.66 percent compared to last year. This indicated a major structural change that New Zealand has to cope with and had already played out in Europe. The Gen Y is showing a pattern that baby boomers had showed prior to the 1987 downturn, when consumer spending was driven by unsecured borrowing from personal loans and credit cards.