Affordability at peak?
Rising property prices could be another blow to inter-generational relations, bringing with them a risk the recent trend toward an improvement in housing affordability is coming to an end.
Figures published by the Real Estate Institute of New Zealand show the nationwide median house price was 8.2 per cent higher in October than it was a year earlier.
That rise took the median to $607,500, the first time it has topped the $600,000 mark.
In Auckland, where the trend in the median price has been flat for the past two years, the median was up 0.8 per cent from a year earlier to $868,000 – its highest level in
19 months.
The REINZ figures build on data from QV last week, which showed the average value nationally was up 2.8 per cent in the year to October, with a rise of 1.4 per cent in the past three months.
QV general manager David Nagel said even markets that had been struggling, such as Auckland and Christchurch, were showing a resurgence in prices.
But he also noted strong property market drivers were being countered by affordability challenges, with prices in several places up to a ‘‘level many New Zealanders simply cannot afford’’. QV put the average value in the Auckland region at
$1.03 million.
Back in May, Westpac predicted annual house price inflation would accelerate to 7 per cent during 2020. That was on the back of the Government’s decision not to go ahead with a capital gains tax, along with falling mortgage rates.
On Thursday, Westpac chief economist Dominick Stephens said the recent data supported the prediction: ‘‘I think it is pretty clear house prices are going to get a bit of a lift over the next year or two.’’
While the Reserve Bank held off cutting the official cash rate for a third time in 2019 on Wednesday, he thought there was one further cut to come.
‘‘But the main point is we are starting to get toward the end of the Reserve Bank’s easing cycle, therefore we are not far off the bottom of fixed mortgage rates.’’
For the next couple of years he expected house prices to lift, and for there to perhaps be a small lift in mortgage rates.
The tax system had an influence on house prices and some kind of tax reform was still needed, Stephens said.
It was a ‘‘tragedy’’ that many people were not able to afford to buy a house. ‘‘We have created a situation in New Zealand where some people are just never going to be able to muster the deposit required to get into the housing market.’’
He was not convinced that just building more houses would be a solution. ‘‘How do we know property investors aren’t going to buy them up the way they have previously.’’
More housing would bring rents down but would not change access to home ownership much because first-home buyers would remain in competition with investors.
He was dubious about some of the measures used to try to assess housing affordability but thought the debt servicing to income ratio was one of the better indicators.
‘‘Those levels of affordability are at their lowest now I think. Affordability has improved. I think over the next two years it is probably going to get worse.’’
Affordability was also becoming more of an issue in some of the smaller centres, compared with the problem previously being more restricted to the most expensive markets, such as Auckland and Tauranga, Kiwibank senior economist Jeremy Couchman said.
Now quite big increases were being seen in, say, the house price to income ratio in some smaller places, such as Manawatu¯ / Whanganui and Hawke’s Bay.
A key issue was that house-building had not been keeping pace with population growth. While construction was getting to levels needed to address the shortfall, activity would need to remain at current levels for some time.
Addressing the supply shortage was one way to improve the situation but there was no easy answer, Couchman said.
The data published by REINZ on Thursday put the proportion of homes sold nationwide for under $500,000 in October at
33.9 per cent, down from 41 per cent a year earlier. In Wellington, the proportion of homes sold for under $500,000 is down from
47 per cent to 23 per cent.