Auckland’s housing affordability has improved - slightly

Tuesday, 4 June 2024

Auckland is no longer one of the world’s 10 least affordable housing markets after its affordability improved to its best level in 10 years, a new report shows.

While the annual Demographia international housing affordability report ranks Auckland as the 12th least affordable market, it is more affordable than Sydney, Melbourne or Adelaide.

Each year the report assesses affordability using the 'median multiple', a measure of median house price divided by median household income.

It then ranks 94 major housing markets, with populations of more than one million in Australia, Canada, Hong Kong, Ireland, New Zealand, Singapore, UK and the United States.

Auckland was found to have a 'median multiple' of 8.2 this year, which meant house prices were 8.2 times the median household income.

That still met the report’s definition of “severely unaffordable”, as markets with house prices more than three times the median regional income were defined as unaffordable by the report authors.

But it was an improvement from 2022 when Auckland’s price to income ratio was 11.2, and 2021 when the city was ranked fourth least affordable.

The last time Auckland’s price to income ratio was 8.2 was in 2014, although the report noted it was 8.6 in 2019, the last pre-pandemic year.

Factors behind the improvement were strong income trends, combined with the recovery of about half of the Covid-era demand shock that occurred from 2019 to 2021, the report authors said.

Of the markets featured in the report, Hong Kong remained the least affordable market in the world with a median multiple of 16.7, an improvement from 23.2 two years ago.

Sydney and Vancouver were the second and third least affordable markets with median multiples of 13.8 and 12.3 respectively.

Melbourne, Adelaide and Toronto were all considered more unaffordable than Auckland with median multiples of 9.8, 9.7 and 9.3, while Brisbane and London were at a similar level of 8.1.

Housing affordability researcher Hugh Pavletich said many Australian cities had big problems with housing, and the situation was far worse than often thought here.

The New Zealand results were positive, and showed the impact of many years of campaigning to focus politicians’ attention on the need to address the problem by building more, he said.

“Our new home consent rate per 1000 residents is well over 15% ahead of the Australians, and on that basis it is also holding up better, despite the construction slowdown, whereas theirs is in severe decline.

“The improvement will continue because the new Government has made it clear it is not going to allow the ridiculous issues around land supply to go on, and not be dealt with effectively.”

House prices coming back from the market peak had made a difference, and when interest rates started to fall a bit that would help too, he said.

But CoreLogic chief property economist Kelvin Davidson said while the house price to income ratio had improved, it was important to use more than one measure to assess affordability.

“By our analysis, Auckland’s ratio now sits at 7.7 because of big falls in prices, and then an ongoing flat period, while incomes grew.

“So on that measure affordability has gotten better, but the problem is it doesn’t tell us what people are actually paying for their mortgages, and that impacts on affordability.”

Interest rates remained high, and CoreLogic’s most recent figures showed mortgage payments on a relatively new loan were at 55% of gross average household income in Auckland at the end of last year.

Davidson said that was down from 59%, but it was well above the long-term average of 44%.

It showed that Auckland’s affordability was better than it was a couple of years ago, but it was still stretched, he said.

“Having said that, people are still buying, so despite the ratio they are finding ways to get into the market, and we have debt-to-income ratios (DTIs) now, and they could have an impact long-term.

“When interest rates come down, traditionally house prices might start to go up, but the DTIs could mitigate future price growth long-term, which would help with affordability.”

Housing was unlikely to return to being as affordable as it was once, but DTIs were likely to mean affordability would not get as stretched as it otherwise would, he said.