No let-up in dismal news on housing
New Zealand’s housing unaffordability has reached another international high, in relation to how much we earn.
The International Monetary Fund’s quarterly global housing watch report shows that New Zealand outpaced 30 other of the world’s richest countries when house prices were compared with income during the first quarter of this year.
New Zealand hit nearly 130 points, topping an index which uses the year 2010 as its middle point.
It eclipsed Austria and Sweden, and Australia, which came 11th.
Labour’s housing spokesman, Phil Twyford, said New Zealand’s house prices were now replacing The Lord of the Rings films for international headlines.
He accused the Government of letting housing get out of hand.
‘‘John Key and his ministers now appear to be the only people in the world who don’t believe there’s a housing crisis in New Zealand,’’ Twyford said.
Housing Minister Nick Smith said he did not have time to look at the report and declined to comment.
Also in the report, New Zealand nearly topped a list of 64 countries for house price growth in the last year.
Kiwi house prices rose 11 per cent, second only to Sweden’s 14 per cent. Australia’s grew 6.4 per cent, although price growth was no doubt higher in its biggest cities.
Concerns about high house price to income ratios were raised by Forbes magazine in 2013, when it warned that interest rates were so low, they were masking how affordable houses really were.
When wage rises failed to keep pace with house prices, it only took a rise in interest rates to create homes that were too expensive for the typical median wage.
ANZ chief economist Cameron Bagrie said New Zealand wasn’t at that point yet because there was no pressure internationally to raise interest rates.
‘‘You’ve got to look at the bigger picture. Debt to income has very clearly deteriorated, but if I look at debt servicing to income, that’s actually OK, because we’ve got record low interest rates.’’
Nevertheless if the situation changed, and if mortgage rates lifted from 4.5 per cent to 5.5 per cent, ‘‘that’s a 20 per cent lift in people’s borrowing costs’’.
Bagrie said he used a threepronged test for a housing bust: excessive house values; structural indicators, such as falling savings rates; and an excess of houses on the market.
House prices were clearly out of touch, and some of the structural indicators were showing signs of stress, but a shortage of housing and strong migration in certain cities were keeping prices high.
‘‘The warning lights are starting to flash … so I think at the moment we’re on what’s called ‘amber alert’ rather than red alert,’’ Bagrie said.
The IMF report also looks at the gap between rents and house prices, which showed house prices growing faster than rents in about half the countries surveyed.
New Zealand had a very wide gap, coming fifth highest with a house price-to-rent ratio of 124 points, behind Turkey on 145 points, Sweden, Germany and Israel.