Taranaki Property Investors' Association

Phone: 027 3738 057

Email: taranaki@nzpif.org.nz

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04-08-2014

New study into Housing Affordability

Some commentators have stated recently that potential first home buyers are being forced from the market. Their reasoning is that the ratio of incomes to house prices has increased from 3.4 in 1985 to 7.3 in 2014. Similarly they point to the ratio of rental prices to house prices, which has nearly tripled since 1985.

However these ratios are simplistic in that they don't take into account changes to mortgage interest rates over the years or that new homes have increased in size from 125sqm in the 70's to nearly 200sqm today.

The NZ Property Investors' Federation (NZPIF) has researched changes in Housing Affordability from 1985 to today, to examine if home ownership has become unattainable for young New Zealanders. Results are in the table below.

While the average cost of housing has increased since 1985, mortgage interest rates have fallen from 18% to 6.3%. As a percentage of income, the amount spent on a mortgage has barely changed over the last 30 years. It actually requires less of the average household income to own a home today than it did in 1985.

"New Zealanders have more or less maintained their spending on home ownership and to some extent have sacrificed potential cost savings, obtained through interest rate reductions, to buy bigger homes," says NZPIF Executive Officer, Andrew King.

Massey University’s Home Affordability Index backs this up. The index shows that housing is actually more affordable in 2014 than it was in either 1995 or 2005.

Additional information from the study shows that it is cheaper to rent now than it was in 1985, which should make it easier for aspiring home owners to save for a deposit.

"New Zealanders deserve better information on something as important as housing affordability" says King. "This study doesn't say that housing in New Zealand couldn't be cheaper, but it does show that it is just as hard to get into your first home today as it was in 1985. This is important, as misleading information may put people off trying to buy their own home and lead to law changes attempting to address a problem that doesn't exist. This almost always leads to unintended consequences".

 

1985

1995

2005

2014

Property value

 $    80,000

 $    140,000

 $    260,000

 $    430,000

Deposit (20%)

 $    16,000

 $      28,000

 $      52,000

 $      86,000

Mortgage value

 $    64,000

 $    112,000

 $    208,000

 $    344,000

Interest rate

18.0%

10.8%

9.0%

6.3%

Annual Mortgage Cost

 $    11,654

 $      12,979

 $      21,015

 $      27,231

Household incomes

 $    23,542

 $      32,220

 $      43,720

 $      58,614

Rental prices (pw)

 $          190

 $            220

 $            260

 $            360

Mortgage as % of income

50%

40%

48%

46%

Rent as a % of income

42%

36%

31%

32%

Massey Affordability index (A high number represents lower affordability)

 

24.0

28.8

21.2

 

Tags: home affordability - nzpif study

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