Af­ford­abil­ity home truths

The Tribune (NZ) - - DINNERTIME GOODNESS - ROB STOCK MONEY MAT­TERS rob.stock@fair­fax­me­

A re­port by a land­lords’ lob­by­ing group has proved houses haven’t be­come more ‘‘un­af­ford­able’’ to the young.

Phew, that’s a relief, be­cause I was un­der the im­pres­sion that in our big cities they were se­verely un­af­ford­able.

I had been see­ing signs of se­vere un­af­ford­abil­ity every­where; fall­ing home own­er­ship, in­creas­ing years to save a de­posit, par­ents guar­an­tee­ing mort­gages, young­sters need­ing gifted de­posits, and the sky­rock­et­ing ra­tio of house prices to house­hold in­comes.

But then the Prop­erty In­vestors’ Fed­er­a­tion (PIF) Hous­ing Af­ford­abil­ity Re­port as­sured me: ‘‘Com­men­ta­tors who state that it has never been less af­ford­able to get into your first home are wrong and may in­ad­ver­tently be doing a great dis­ser­vice to first home buy­ers.’’

I was sus­pi­cious about the re­port, which com­pared the ‘‘af­ford­abil­ity’’ of mort­gage

pay­ments in 1985, 1995, 2005 and 2015. I wouldn’t ex­pect a land­lord lobby group to re­lease a re­port that con­cluded houses were se­verely un­af­ford­able.

Buy­ing a house when I came to Auck­land in the early 2000s was eas­ier than it would have been to­day for some­one in the same po­si­tion as I was then.

In­ter­est rates were higher, but de­posits were far smaller. Peo­ple ex­pected to pay the loans off over 25, not 30 years.

The PIF re­port sug­gested homes were more ‘‘af­ford­able’’ back then.

I have a num­ber of is­sues with the re­port.

It uses a na­tional house price fig­ure, when most young peo­ple are in the cities, where the jobs are. The re­port would’ve been more in­struc­tive had it sep­a­rated out Welling­ton, Christchurch, and Auck­land.

In 2015, $460,000 may have bought the me­dian house in New Zealand, but it didn’t buy much in Auck­land!

Also, the re­port’s au­thors

‘‘Giv­ing up on the home own­er­ship dream would have long-term im­pacts on young lives.’’

didn’t ap­pear to con­sider the size of mort­gage mat­tered.

The re­port has 2015 buy­ers need­ing a $370,000 mort­gage on an in­come of $61,200, com­pared to 1987 buy­ers who needed a $64,000 loan on an in­come of $23,500.

The re­port found the pro­por­tion of house­hold in­come needed to cover a mort­gage on that me­dian house with a de­posit of 20 per cent was ac­tu­ally lower now than in 1985, and 2005.

But hang on. Over 30 years in­ter­est rates move around. 1985 buy­ers faced float­ing mort­gage rates of nearly 20 per cent, but that was an aber­ra­tion.

As rates fell to nor­mal lev­els, the value of their homes rose, and their pay­ments came down.

Peo­ple spend­ing roughly the same pro­por­tion of their in­comes on mort­gage re­pay­ments now are fac­ing ris­ing rates.

Af­ford­abil­ity of homes is a wider is­sue than the af­ford­abil­ity of mort­gage pay­ments in one year of a 25 or 30 year home loan.

Also, work­ing lives lare ess se­cure. The young must pay more for their ed­u­ca­tions, and prob­a­bly their re­tire­ments.

Home af­ford­abil­ity must be judged with those things in mind.

I do how­ever agree with the PIF that gloom and dis­cour­age­ment are the en­e­mies of the young. Giv­ing up on the home own­er­ship dream would have long-term im­pacts on young lives.


There’s no doubt houses are less af­ford­able than at many times in the past.

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