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Home affordability heads for uncharted territory

Houses across New Zealand decreased in affordability by 14.1 per cent over the 12 months ending November 2014, according to the latest Massey University Home Affordability Report – and on current trends Auckland’s lack of affordability could reach historic levels.

But the national picture is reflected to some extent in all regions, says the report’s author Professor Paul Gallimore from Massey’s School of Economics and Finance.

“In some regions the annual worsening in the affordability index has been kept at single figures, but the majority of regions are into double figures,” he says.

Looking over the whole of the past year, the decrease in affordability has been driven in roughly equal measure by rising house prices and increased borrowing rates. A 0.46 per cent increase in interest rates, coupled with an over $30,000 rise in the national median house price, far outstripped the $19.35 increase in the average weekly wage.

“What this means is that a progressively higher slice of people’s income is needed to fund home buying.  This tends to bite harder at first homebuyers, and is especially the case in Auckland,” Professor Gallimore says.

Auckland again tops the list of least affordable regions, followed closely by the Central Otago/Lakes region. Both areas experienced steep house price rises during the report’s most recent quarter, which ran from September to November 2014. Auckland sits at 40 per cent above the national median, while Central Otago/Lakes is now 39 per cent more unaffordable than the national average.

“If you look at only at the last quarter, hikes in prices have really dominated, with around 85 per cent of the change in the national index over that period due to this factor,” Professor Gallimore says.

Professor Gallimore expects housing affordability to continue to deteriorate into 2015 and, in the case of Auckland, may reach levels not seen since before the global financial crisis.

“While Auckland’s affordability score still remains below the peaks seen in 2007/2008, its current trajectory suggests it may soon return to or exceed those levels,” he says. “Even without further price rises – which no one is predicting – a one percentage point rise in interest rates, without substantial wage increases, would put it on par with 2007/2008 levels.

“A rise in house prices of 10 per cent, with wages rising at the same pace as last year and no interest rate increases, would also push it close to those peaks. But if this situation was combined with a modest half-point rise in borrowing rates, the index would be propelled into what, for Auckland’s recent record of affordability, would be uncharted territory.”

Download the entire Home Affordability Report at: http://bit.ly/home-affordability-report-dec2014

Key findings:

  • Annual deterioration in national affordability of 14.1%
  • Quarterly deterioration in national affordability of 10.2%
  • Affordability projected to continue to deteriorate into 2015
  • Rate of deterioration in Auckland affordability quickens pace in most recent quarter.

Worsening in affordability over the past year – by region:

  • Northland – 10.5%
  • Auckland – 16.4%
  • Waikato/Bay of Plenty – 13%
  • Hawke’s Bay – 16.4%
  • Taranaki – 7.1%
  • Manawatu/Wanganui – 18.8%
  • Wellington – 7.6%
  • Nelson/Marlborough – 5.5%
  • Canterbury/Westland ­–12%
  • Otago – 11.5%
  • Central Otago/Lakes – 15.4%
  • Southland 7.5%

Least affordable region: Auckland – 40% more unaffordable than national average

Most affordable region: Southland – 54% more affordable than national average


Tags: massey affordability

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