Themselves out of the market’
the trade-off between smaller rewards that are available soon compared to larger rewards available at a point in the future.
“Saving up to buy a house presents this tradeoff between smaller-sooner versus larger-later rewards in it starkest form. When you add a significant amount of uncertainty and a negative framing to the mix, the choices become even more challenging, which may well prompt people to walk away,” Chaudhuri says.
He also points out that many people, when making this decision, often tend to look at their current situation and make forecasts based on that without taking into account that for most people circumstances change. Salaries might increase, for example, making mortgage repayments easier.
He says a behavioural economics concept of “loss aversion” may be at play. Because they can’t calculate what their future earnings will be, the repayments appear larger than they may be in the future when they are earning more.
“This often leads to an underestimation of one’s ability to pay over the 25 to 30-year life of a home loan,” he says.
Chaudhuri suggests that anyone looking to buy their first home should avoid erring either on the too positive or too negative side. He suggests sitting down with an objective person and do a realistic assessment of future mortgage payments and future income potential. This gives a better picture of whether home ownership is affordable or not.
Psychology is not the only reason people are not saving. It’s one of a host of factors. Simply saying: “I’m going to buy a house,” won’t suddenly magic up a deposit. Saving is contextual and depends on a whole lot more than just psychology. Skills, knowledge, connections and privilege all come into the mix.
Some people from lower socio economic groups do defy the odds despite intergenerational inequity and other roadblocks.
“I’d advise first home buyers to look internationally, to shift away from the Kiwi quarter acre dream,” says Wilson. “First home buyers should embrace more intensive housing options and reap the lifestyle rewards of these properties being more centrally located than freestanding alternatives.”
Wilson also says buyers shouldn’t expect to live in a first home like the one they were raised in “They don’t call it the property ladder for nothing!”
They need to think long-term, not speculative or quick buck re-selling.
Saying it’s impossible, however could turn out to be a self-fulfilling prophecy.
“Most importantly, don’t give up hope,” says Wilson.
“This ‘I will never be able to afford a home’ mindset quickly becomes self-fulfilling and can quickly drive behaviour away from even trying to buy.
“Stay focused, keep saving, use your Kiwisaver fund wisely and focus on property which is realistic to your current lifecycle.
“You will find a way to enter the market.”
MANY Kiwis are not buying new home through a lack of self-belief, according to research by Massey University.