NZ house prices are among the most unaffordable in the world: survey

Monday, 21 January 2019

Auckland's median house price is now nine times the median household income.

New Zealand's house prices are among the most unaffordable in the world, a new survey shows.

The Demographia International Housing Affordability Survey rates housing affordability using the 'median multiple', a measure of median house price divided by median household income.

Authors Wendell Cox and Hugh Pavletich ranks as affordable cities where the median price is up to three times the median wage. Areas are classed as moderately unaffordable when the ratio is up to four, seriously unaffordable between four and five and severely unaffordable when the ratio is more than five times income.

The United States was home to all the affordable housing markets in the survey - with nine including Pittsburgh and Rochester, which had ratios of 2.6.

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Hong Kong had the most unaffordable houses, with prices 20.9 times income.

Auckland, at nine times income, was severely unaffordable, and up from 5.9 in 2004.

The country as a whole also ranks in this range, with a ratio of 6.5.

Auckland is the seventh-least affordable city of the 91 major housing markets surveyed.

'There is severely unaffordable housing in the two largest markets outside Auckland. Christchurch has a median multiple of 5.4, while Wellington is at 6.3,' the report authors noted.

'In New Zealand, as in Australia, housing had been affordable until approximately a quarter century ago. However, urban containment policies were adopted across the country, and consistent with the international experience, housing became severely unaffordable in all three of New Zealand's largest housing markets, Auckland, Christchurch and Wellington.'

The report noted that over the past year Auckland's house prices have been stable but a restatement of median incomes had pushed up unaffordability.

The New Zealand national median house price increased 1.5 per cent year-on-year to $560,000 in December, according to the Real Estate Institute, and in Auckland prices rose 0.2 per cent for the region as a whole to a median $862,000.

The house price index, which includes the values of houses that have not been sold recently, showed Auckland values dropped 1.7 per cent on the year before.

New Zealand's price-to-income ratio was below three times in the early 1990s.

The report said the Government's intentions to remove the Auckland urban growth boundary, free up density controls and fund new infrastructure through infrastructure bonds, were the best approach to create a market for housing units responding to demand.

'These measures, even when forcefully formulated, require time to be implemented as representative branches of government have to pass new laws and design implementation guidelines. After the government has successfully passed these reforms, the international community will watch with great interest the impact it will have on Auckland's price-to-income ratio (PIR) in the next few years. It is hoped that the example of Auckland will create a blueprint that could be used in other high PIR cities.'

BNZ chief economist Tony Alexander said the report was no surprise.

'Another January and another Demographia report telling us what we already know. Housing affordability in NZ is poor. And what will ensue is another year in which much discussion will occur about the problem but solutions will again fail to appear. As I have been pointing out for upwards of a decade, there are many factors which account for the structural shift upward in the ratio of average house prices to average household income.

'One is low interest rates and recently expectations have shifted to borrowing costs remaining lower for longer. That will help underpin prices. So will the ongoing shortage of people in the construction sector.'

He expected no change in housing affordability this year.

'And I am watching for the government to start laying the political groundwork for a pre-election shift in KiwiBuild focus away from affordable housing for graduate doctors toward social housing where needs appear to be soaring and scope for actually making a difference is far greater and much more necessarily.'

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