Does your house earn more than you do?

Wednesday, 31 October 2018

Why are Kiwi houses so pricey?

Auckland property owners are being told they're likely to out-earn their houses for the next few years.

Through the city's housing boom, the rate of price increases easily outstripped the median income being earned by those living in Auckland.

Property price growth started to pick up speed in 2013 and by 2015, Auckland was experiencing house price inflation of almost 25 per cent a year.

In September that year, the Real Estate Institute reported that the median sale price in the city was up $125,950 on 2014.

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Compare that to the median earnings for employed people in Auckland that year, of $49,400.

Central Auckland's capital value growth has outpaced median wages many times over in recent years.

New data from CoreLogic compared the median value growth of suburbs around the country each year to the year's median wage.

In 2008, during the global financial crisis, Winton in Southland had the biggest annual increase value of any New Zealand suburb but it was equal to less than half the national median wage.

But by 2009, Glendowie had increased in value by double the median wage.

In 2010, St Mary's Bay shot ahead – before returning a $300,000 value increase in 2015, about six times the median wage. It was just one of 202 suburbs around the country where houses earnt more than the median employee's wage.

In 2016, 400 suburbs out of 661 had median value increases of more than the national median wage. Auckland suburbs were a big component of that but others parts of the North Island also featured, including Whangarei, Hamilton, Napier, Hastings and Wellington.

Since 2016, the prevalence of suburbs with value growth above wages dropped to 200 in the year to September 2017 (29 in Auckland) and just 45 (only one in Auckland) in the past 12 months.

'It's important to note that we've compared property value growth to national individual wages and clearly these differ by region, plus combined household incomes are also much higher than individual salaries,' said researcher Kelvin Davidson.

'In addition, value growth is only on paper until the property is sold and people often need to buy and sell int eh same market, where everything has changed in value by similar amount. It's only a cash profit if the owner actually sells and perhaps moves from an expensive areas to a cheaper location or a big house to a small house or exits the market altogether.

'Even so, the fact remains that earning more from owning a property that going to a day job has been pretty common across the country over the past six or seven years.'

He said that was likely to continue in a selection of localised areas over 2019. 'With many headwinds facing the property market such as the ring-fencing of rental losses and the foreign buyer ban, it wouldn't be a surprise to see a general pattern across the country of property value growth falling short of the typical wage.'

CoreLogic head of research Nick Goodall said growth rates were expected to diminish around the country.

But he said some regional areas and centres such as Wellington and Dunedin were still experiencing strong value increases. 'A big reason is the low levels of listings. There's been a reduction in demand but also in supply so those that are buying are still competing well for properties and are assisted by low mortgage interest rates.'