Auckland's middle class plummeting down property ladder

Monday, 2 July 2018

An Auckland Council report examines housing affordability at 10 and 20 per cent deposit rates for different income levels.

Auckland's middle class have seen a huge drop in their ability to own the home of their choice.

Auckland Council has released a report Who can buy Auckland's houses analyses housing affordability at 10 and 20 per cent deposit rates for different income levels.

Younger people who graduated in 2012 could very well feel unfairly locked out of the housing market.

David Norman, Chief Economist at Auckland Council says middle class groups in Auckland 'actually had it pretty good' in housing terms after the global financial crisis of 2008.

Most did not lose their jobs and as property prices stalled and interest rates plummeted their ability to afford a house was better than it had been before the crisis.

Median income households have experienced a sharp drop in the quality of house they can afford to buy in Auckland.

* NZ tops IMF's housing unaffordability list

* New Zealand house price rises outpace all but one country

* Summer stirring for house prices, except in Auckland**

But since 2012 middle income groups had experienced a steep decline in the quality of houses they could afford at their income level.

In 2012 a household earning the median income could afford 48 per cent of the houses in Auckland with a 20 per cent deposit.

Five years later they could afford just 18 per cent of houses in the market with a much larger deposit in dollar terms, Norman said.

'They're feeling that pain of getting cut out.'

Affordability was defined as the ability to use 35 per cent of a household's income to pay for a 30-year mortgage at the Reserve Bank of New Zealand's first mortgage new customer housing rate.

The new analysis could also account for the concerns of 20 and 30-year-olds who would have graduated in 2012 and were now moving into the middle-income bracket but finding home ownership increasingly out of reach.

These groups were now unable to assemble a deposit or meet mortgage repayments on a house someone at their income level would have been able to afford five years earlier.

Harshal Chitale, Auckland Council senior economist, says their analysis shows middle-class income groups would now even be unable to afford a home at the Kiwibuild cap of $650,000.

A household would need to be earning $118,300 a year to afford a $650,000 home with a 10 per cent deposit, he said.

The study noted interest rates had changed less than one per cent over that time period so the main changes in affordability were due to price increases.

Housing affordability has fallen across all income groups according to the study, but the steepest fall was across middle-class income groups.

Households in the bottom 35 per cent of incomes are unlikely to be able to buy anything, the study says.