Housing affordability drops as prices go up
More bad news for first-home buyers: New housing affordability data shows the country’s house price-to-income ratio has climbed to its equal highest point since data gathering began in
2004.
The latest CoreLogic Housing Affordability report puts the average house price to average household income ratio in the last quarter of 2020 at 6.8 nationally.
That is the highest level since late
2016 and in 2004, when it was also 6.8. It climbed from 6.5 in the third quarter of 2020, reflecting a dramatic upturn in the housing market in the last part of last year. Average property values nationwide rose by 6.1 per cent in the final three months of the year, and by
11.1 in the whole of 2020. CoreLogic senior property economist Kelvin Davidson said average household incomes had not kept pace with property value growth.
The latest Infometrics figures showed a rise of 1.3 per cent in average household income over the last quarter of 2020.
‘‘To get the true picture of housing affordability you have to look at the price-to-income ratio and, based on the historical data we have, houses are as unaffordable as they have been at any time for at least 17 years.’’
While CoreLogic’s data only goes back to 2004, Davidson said his sense was that housing affordability was probably at its worst ever – even though mortgage rates in the 1980s were in the
20 per cent range.
‘‘The fact that mortgage rates are now so low is contributing to the issue as they are helping push house prices higher,’’ Davidson said. ‘‘The net result is that housing affordability has begun
to deteriorate again and the growing ‘divide’ between the wealth of existing homeowners and those that are struggling to get their first home has quickly become a very hot political topic.’’
Looking at the number of years required to save a deposit, there is a similar state of play. Nationally, CoreLogic puts this measure at 9.1 which is just shy of the highest reading since 2004.
Most of the main centres have experienced deterioration in housing affordability, particularly Tauranga, Hamilton, Wellington and Dunedin. Auckland remains relatively less affordable than most other parts of the country but it is still in a better position than in late 2016, while Christchurch continues to stand out as the country’s most affordable main centre.
Outside the main centres, most provincial areas are less affordable than normal on the price-to-income and years-tosave-a-deposit
measures. Kawerau, Rangitikei, Tararua, Masterton, Waitaki and Clutha are at their worst levels for at least 17 years.
Davidson said the growth in house prices, and therefore decreasing affordability, in provincial areas might be attributable simply to their lower starting point as well as declining affordability in the main centres.
‘‘The key message from this report is that housing affordability worsened quite appreciably in the final three months of 2020. Any further declines will increase the divide between existing owners and those who aspire to buy, and lessen the pool of people who can actually enter the market, ensuring that this issue remains right at the top of the public agenda for some time to come.’’
New Zealand needed more supply of housing and more intensified housing, he said.