Professor Paul Gallimore
Houses across New Zealand decreased in affordability by 14.1% over the 12 months ending November 2014, and on current trends, Auckland’s lack of affordability could reach historic levels.
This is according to the latest Massey University Home Affordability Report.
But the national picture is reflected to some extent in all regions.
In some regions the annual worsening in the affordability index has been kept at single figures, but a majority of regions are into double figures.
Looking over the whole of the past year, the decrease in affordability has been driven in roughly equal measure by rising house prices and increased borrowing rates.
Wages outstripped
A 0.46% increase in interest rates, coupled with an over $30,000 rise in the national median house price, far outstripped the $19.35 increase in the average weekly wage.
What this means is that a progressively higher slice of people’s income is needed to fund home buying. This tends to bite harder at first homebuyers, and is especially the case in Auckland.
Least affordable
Auckland again tops the list of least affordable regions, followed closely by the Central Otago/Lakes region. Both areas experienced steep house price rises during the Report’s most recent quarter, which ran from September to November 2014.
Auckland sits at 40% above the national median, while Central Otago/Lakes is now 39% more unaffordable than the national average.
If you look at only at the last quarter, hikes in prices have really dominated, with around 85% of the change in the national index over that period due to this factor.
I expect housing affordability to continue to deteriorate into 2015 and, in the case of Auckland, may reach levels not seen since before the global financial crisis.
While Auckland’s affordability score remains below the peaks seen in 2007/2008, its current trajectory suggests it may soon return to or exceed those levels.
Unchartered territories
Even without further price rises – which no one is predicting –one percentage point rise in interest rates, without substantial wage increases, would put it on par with 2007/2008 levels. A 10% rise in house prices with wages rising at the same pace as last year and with no interest rate increases, would also push it close to those peaks.
But if this situation is combined with a modest half-point rise in borrowing rates, the index would be propelled into what, for Auckland’s recent record of affordability, would be uncharted territory.
| Home Affordability Report 2015
Key Findings
Worsening in affordability over the past year by region: Northland 10.5%; Auckland 16.4%; Waikato/Bay of Plenty 13%; Hawke’s Bay 16.4%; Taranaki 7.1%; Manawatu/Wanganui 18.8%; Wellington 7.6%; Nelson/Marlborough 5.5%; Canterbury/Westland 12%; Otago 11.5%; Central Otago/Lakes 15.4%; Southland 7.5% Least affordable region: Auckland- 40% more unaffordable than national average Most affordable region: Southland-54% more affordable than national average |
Professor Paul Gallimore is Property Specialist at Massey University based in Auckland. He was previously at Reading University (United Kingdom). He took charge of the Home Availability Report from Professor Bob Hargreaves who retired last year.
As well as the latest Home Affordability Report, Professor Gallimore has expertise in Commercial Property and the psychological dimensions that drive real estate markets.
