Rising regions make NZ's housing market less affordable

Saturday, 18 January 2020

Housing affordability in New Zealand went up last year, despite a slowdown in the Auckland market.

New Zealand's housing affordability is getting worse, with prices now seven times the median household income.

Research group Demographia's annual housing affordability survey shows that New Zealand has a 'median multiple' of 7, or seven times the median income for a median house – up from 6.5 the year before.

Prices rose 6 per cent nationwide over the second half of 2019.

The survey, which monitors cities in eight countries, found Auckland was the sixth most unaffordable major market, level-pegging with Toronto at 8.6.

But the real surprise was Tauranga, which beat Auckland with a price-to-income ratio of 9.3.

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

* Housing consents hit highest level since 1974

* Dunedin house values outstrip Christchurch for first time in 30 years**

Of just over 300 cities, it was fifth, beaten only behind Hong Kong, Vancouver, Sydney and Melbourne. However, it's likely that Tauranga's high proportion of retirees, which would have skewed its median income, is part of the reason.

Hugh Pavletich, the report's Christchurch-based co-author, said housing affordability in New Zealand should have improved because the Auckland market flattened for a number of months.

Ohinewai in the North Waikato is set to become where Sleepyhead plans to build a massive facility which also includes affordable housing for their staff (This video was first published in November, 2019).

Instead it went the other way, because of rising prices in Wellington, Dunedin, Hamilton and Tauranga.

He put the situation largely down to council inaction.

'They just haven't allowed enough land to meet demand,' he said.

'We're by a country mile the worst in the hemisphere. Australia's about 5.9 in comparison.'

He also told RNZ that the high house prices were 'a threat to the middle class'.

Property researcher Hugh Pavletich blames council inaction over land release for higher house prices in the regions.

And that was a problem for everyone because the middle class includes teachers, nurses, firefighters, police officers, social workers.

The survey defined 'affordable' housing as three times or less than the median income – a ratio not seen here since the early 1990s.

All of the eight New Zealand markets were above 5.1, making them 'severely unaffordable'.

The government wants to direct city councils to loosen up planning rules and scrap unnecessary restrictions for developing higher-density housing. (First published August 2019)

However, one centre, Christchurch, was 'becoming quietly more and more affordable,' because of an increase in housing supply, Pavletich said.

With a population now above pre-quake levels, Christchurch houses cost buyers 5.4 times the median income.

The other cities were Wellington (6.8), Palmerston North (6.0), Dunedin (6.9), Hamilton (7.0) and Napier-Hastings (7.4).

While geography can be a barrier to land release, Pavletich said there was also was a reluctance among some councils to fund the necessary infrastructure. He blamed budget blowouts.

'My personal view is they shouldn't be reimbursing these councils, they should just be forcing them to [release] land and provide infrastructure and then tell them to figure out themselves how to finance it.'

The good news was that New Zealand was moving in the right direction with regard to planning, particularly the Urban Development national policy statement passed late last year.

Other commentators have noted a correlation between looser land supply, infrastructure and lower house prices.

Oliver Hartwich of the New Zealand Initiative said extremely high house prices were not a sign of success, but of failure by authorities.

'Demographia's annual reports have become a sad routine. Every January, we hear how New Zealand is among the least affordable countries when it comes to housing.

'And though the problem has now been researched enough, we are still waiting for decisive political action to fix or dysfunctional land and housing market.

'To make housing affordable, we need to liberalise our planning regime, incentivise councils for housing development and, if privately, fund new infrastructure. If we don't implement these reforms, Demographia's future reports will continue to document our housing crisis.'

The report's most unaffordable city was Hong Kong, with housing 20.8 times the median income, well ahead of Vancouver (11.9) and Sydney (11.0).

Only 10 markets were deemed affordable and they were all in the United States.

Demographia's figures were drawn from the September quarter of last year and do not capture the recent pick-up in house prices, inspired by continued low interest rates.

Looking ahead, ANZ senior economist Liz Kendall said the housing market was likely to show 'a bit more strength' in the near term, given the lack of house listings in some areas.

But housing affordability was still one of several potential headwinds, 'and at this stage, are expected to keep the market bounded in coming years'.

'That said, the housing market is tight and house price expectations have risen, so the possibility that the market gathers self-reinforcing momentum is a key risk that we are watching.'

Critics of Demographia's survey have said in the past that it reveals how high New Zealand house prices are, but not why.

Contributing factors include interest rate movements, high building costs, and a tax regime which many argue favours property to other forms of investment.

One comfort is that the building of new housing has been gradually creeping up. Consents have now breached 37,000, the highest level since 1974.

House price to income ratios

* Tauranga's median house price: $654,000; median income $70,000.

* Auckland $830,000; $96,000.

* Wellington $637,000; $93,000.

* Christchurch $461,000; $85,000.

* Dunedin $472,000; $68,000.

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