Te Tai Waiora Wellbeing in Aotearoa | New Zealand 2022 reports housing takes up a high share of our income in Aotearoa | New Zealand. Over the last two decades, house prices have been increasing faster in Aotearoa | New Zealand than in any other OECD country, and we have experienced the greatest increase in the ratio of house prices to income across OECD countries. Except for the Slovak Republic, we paid the highest share of our income on housing in 2019.However, renters tend to pay a much greater proportion of their income on housing than homeowners, following a large increase in the 1990s. Renters in the lowest income quintile also pay a larger share of their income on housing than similarly positioned renters in any other OECD country.
Renters also tend to live in houses of lower quality. Rentals tend to be smaller and are more likely to be crowded than owner-occupied housing and are also more likely to be in a poorer state of repair, less healthy and less conducive to stable tenure.
This situation is cause for concern in a context where owner-occupation rates have been falling for almost four decades and are lower than the OECD average, with first-home deposits taking almost twice as long to save as they did in 2011. Home ownership is also not equally distributed. Rates of home ownership are higher for Pākehā, for older people and for people who are not disabled.
These issues have resonance for young people, who are more likely to rent than own and are facing increasing challenges in getting on the housing ladder. Older age groups have disproportionately benefited from the long-term increase in house prices. Since the turn of this century, the gap between wealth of the over 65s and under 35s has more than doubled, with house prices being an important contributing factor.
There has also been an increase in the total number of people in severe housing deprivation between 2013 and 2018, defined as being without shelter or being in emergency and transitional accommodation. While the number of people without shelter or in publicly funded temporary accommodation fell over this period, there was an increase in those who were a temporary resident in a severely crowded private dwelling. We do not have more recent data on total severe housing deprivation as this data is only collected in the census. However, we have seen a continued upward trend in public housing applications in recent years, particularly for Māori. The number of households in emergency housing surged over the lockdown periods, particularly in Auckland. However, this surge has since subsided.
The Demographia 2022 report only records Auckland’s affordability relates to other world cities. Auckland has a severely unaffordable median multiple of 11.2. This is up from 8.6 in 2019, an increase of 2.6 times the annual median household income. Auckland ranks 85th in affordability out of 92 markets.
A 2022 update from Infometrics looked at a new way to assess affordability by comparing the payments over the lifetime of the loan against the value of the asset when the mortgage has been repaid. This approach takes into account a broader range of factors that affect the financial costs and benefits associated with homeownership. Their report found that 2022 is the worst time since 1957 for first-home buyers trying to get into the housing market in Aotearoa | New Zealand, drive by two key factors:
The average proportion of a household’s income needed to service the loan throughout the mortgage: people taking on mortgages now are committing to having an average of 33% of their income tied up in mortgage repayments for the next 25 years or longer. At 49% of income, initial debt servicing costs are like 1987, but without the likelihood of the very strong income growth that quickly reduced the debt burden during the 1980s.
The increase in the value of the property over the life of the loan: the scope for house prices to rise rapidly from here, and provide today’s purchasers with significant capital gains, appears heavily limited. First-home buyers purchasing after a sustained period of strong house price growth risk buying at the peak of the market and enjoying less capital appreciation than buyers after a period of flat or falling house prices. Judging when the market is at its peak requires considerable foresight, but the reversal in house prices in the first half of 2022 suggests the boom that has persisted since the Global Financial Crisis has finally run out of momentum
Data from CoreLogic reported in August 2022 that housing affordability reached the worst levels on record in 2021, declining abruptly following a 41% surge in the average property value during the COVID era. Affordability has now started to improve on most measures, however higher mortgage are likely to increase debt servicing costs relative to household income.
Comparing property value to income, Tauranga is the least affordable main centre, with a value to income ratio of 11.5 in Q2 2022. Auckland still has a value to income ratio close to 10, but it has also seen an improvement in the past three months as values have fallen and incomes have risen – as have Hamilton, Wellington, and Dunedin. Christchurch’s value to income ratio has risen a touch in the past three months, hitting 7.1, which is a new record high – albeit not too much different from the figure of 6.9 in both Q4 2021 and Q1 2022.