Most renters would struggle to afford a home, new government measure shows

Wednesday, 10 May 2017

Building Minister Nick Smith said the data would help central and local government target policy.

Four-fifths of potential first home buyers cannot comfortably afford a house in New Zealand, according to a new government measure.

The picture is even worse in Auckland, with 86 per cent of renting households not making enough to meet rocketing house prices, up from 74 per cent in 2003.

The long-delayed housing Housing Affordability Measure (HAM) was finally released today after almost two years of delay. The renting households HAM looks at is roughly a third of the population.

Officials at the Ministry of Business Innovation and Employment (MBIE) who built the tool wrote that they were worried about a 'lack of ministerial agreement' with the measure in a 2016 briefing released to Stuff under the Official Information Act.

*Labour say Nick Smith 'probably' suppressing housing data**

Across the country, the measure shows a gradual increase in housing unaffordability disrupted by the financial crisis in 2008, then stabilising since. In Auckland, a marked increase in unaffordability is shown after 2013, while Canterbury has become steadily more affordable.

The measure is only current to June 2015, and is technically still in the 'experimental phase', although MBIE said it would be immediately using the measure to design policy.

Spokespeople were at pains to note that the measure was 'relative' and looked at changes in affordability over time, rather than an absolute measure of what the Government considers unaffordable, which they say is too subjective to nail down.

'It gives us a reference point so we can compare affordability for potential buyers to other groups,' MBIE deputy chief executive Chris Bunny said.

'The data that we have currently suggests that it is becoming much more challenging for first home buyers in Auckland relative to elsewhere.'

The data suggested affordability was worst in Manakau, where 95 per cent of renters would not be able to comfortably afford mortgage payments in the area.

Two to three fulltime employees had been working on HAM since Cabinet commissioned it in 2012.

HOW DOES HAM WORK?

HAM uses household level data on income, rents, and house prices to paint a picture of affordability in New Zealand, broken down by territorial authority or ward in Auckland. It finds the affordability level by measuring the income left over after housing costs, and then comparing that to a baseline figure extracted from the 2013 household economic survey.

That benchmark figure is $662 per week, adjusted for inflation and household size. HAM counts the amount of households that are currently renting who would have less than that left over after mortgage payments on a lower-quartile house - a small 'starter' home.

'We don't say that $662 is a magic number and anything less than that is un-liveable and anything more than that is absolutely living well,' Bunny said.

The $662 figure was what the median household New Zealand household had left over after housing costs in June 2013.

Berl chief economist Ganesh Nana said the measure was robust but didn't say much people didn't already know.

'Affordability clearly got worse during the leadup to the GFC,' Nana said.

'Since then it's been relatively stable at the national level, but there's clearly been a marked deterioration in affordability in the Auckland area.'

The difficulty of saving for a deposit isn't directly measured by HAM, as the government don't have detailed enough data on household wealth.

Nana said the measure would be stronger if initial deposit price was calculated, but understood the reasons why it wasn't included.

An MBIE briefing considers the risks and benefits of a 2017 release. Emphasis added by Stuff.

Buildings minister Nick Smith welcomed the new data in a release.

'This Housing Affordability Measure gives more detailed data than other measures offer and allows a better understanding of housing affordability trends. It has been developed independently by Statistics New Zealand and MBIE, with Ministers being informed but not deciding on the measure,' he said in a written release.

'Being able to assess housing affordability at a local council level, and a ward level in Auckland, will help central and local government policy-makers identify and respond to affordability challenges that are specific to each housing market.'

MBIE expected to shorten the lag time with the next release before HAM became a Tier 1 statistic in 2018.

RENTING FAR MORE AFFORDABLE

While many measures exist to examine real estate affordability, HAM is one of the first to look at whether renters can afford to continue to rent.

The data showed that renting was consistently more affordable than buying.

Renting unaffordability rose considerably after the GFC before falling off in 2014.

In June 2015 more than 63 percent of renting households in Auckland were below the affordability benchmark of $662 pre-tax income left over after rent each week, down from 67 percent in March 2013.

Canterbury had seen the biggest increase in renting affordability.

'This is a pretty good illustration of the things that come together to create affordable housing,' Bunny said of Canterbury.

The economic stimulus from the rebuild and strong income growth made for growing affordability, but Bunny said some of the lessons from Canterbury could be applied elsewhere.

Wellington was consistently more affordable for both renters and first home buyers.

Bunny attributed this to high income levels in Wellington.