National living in a housing bubble
Does the constant rise in house prices help or harm the election prospects of the National government? Even the winners who have seen astronomical rises in the value of their houses may be feeling a few misgivings about whether the current price bubble is sustainable. Yet the evidence that housing affordability will be a crunch issue at this year’s election is not entirely convincing – if this were true, you’d think Labour would be doing a lot better in the polls by now.
In that respect, is National’s recently announced programme of building 34,000 houses likely to make much difference on the housing affordability front? Hardly. Only 13,500 of this projected new build will be state houses/social housing, and the government will reportedly be demolishing 8300 state homes over the same period. The other 20,600? About 80 per cent will be sold privately, at the market rate. So there’s precious little joy for aspiring first-home owners, given the stratospheric level of market prices in Auckland and – increasingly – in Wellington as well, where house prices have risen by 21.2 per cent over the past year.
Oh, and of that ‘‘sold privately’’ portion… some 20 per cent or just over 4000 homes, are being classified as ‘‘affordable’’. Under a prior government definition, this would mean $650,000 in Auckland. Is this really an ‘‘affordable’’ price? For trust fund kids maybe, but not for many other people. Earlier this year, the international housing affordability think tank Demographia ranked Auckland as the fourth most unaffordable city in the world.
Routinely, Demographia defines houses costing three times the median income or less, as ‘‘affordable’’. A house costing five times the median income is deemed ’’severely unaffordable’’. In the latest Demographia survey, however, house prices in Auckland last year were running at ten times the median income.
Admittedly, this is not an exact science. Is median income really the best measure, given that – as Kiwiblog’s David Farrar has recently argued, it includes the too young and the retired old in its net? Still, it is the international standard. Moreover, Careers NZ has calculated that the pre-tax median figure for wage and salary income in 2016 was $48,800 a year, minus any overtime and bonuses.
So to be generous… let’s call $50,000 the median income. On an allegedly ‘‘affordable’’ $650,000 house, that would still mean house prices in Auckland are running at 13 times the median income. Even if we’re really generous and assume every prospective home buyer is actually a couple earning $50,000 each, that would still mean that an allegedly ‘‘affordable’’ $650,000 home is priced at 6.5 times the household income of even those fortunate few. That’s ‘‘severely unaffordable’’ by the usual global definition.
Despite the emotion generated by this issue, National does not appear to believe that many votes are at stake. First, the government denied a housing crisis existed. It has since advocated an anti-regulatory response, as if Auckland’s housing price rises were mainly a zoning problem fixable by a burst of ribbon development out at the city’s edges. The latest house building package has a similar air of unreality about it.