Improvement in NZ home affordability may not last

Tuesday 12th January 2016

The affordability of New Zealand housing improved by 5.7 percent in the final three months of last year, helped in part by stalling Auckland house prices, according to the latest Massey University Home Affordability Report.

However, its authors question whether the improvement will last as the prospect of a prolonged period of historically low interest rates, and possibly further interest rate falls, could encourage house buyers to continue bidding up prices.

It also notes that Auckland homes remain 59 percent less affordable than housing in the rest of the country, despite a 1.4 percent improvement in affordability in the Auckland market in the last three months of 2015.

"This means that Auckland homes are more affordable than reported in September figures and that the previous deterioration trend in affordability has slowed from 16.6 percent to 3.7 percent," said the report's author, Susan Flint-Hartle, a property researcher at Massey's school of economics and finance. "Recent reductions in borrowing costs and positive sentiment about a two-year hiatus in interest rates hold the potential to keep pushing house prices higher.

"The margin by which Auckland exceeds the national figure tops historical levels. Other regions are more affordable than the national average", with Southland, Manawatu/Whanganui and Taranaki the most affordable regions for home ownership, as calculated by both real estate price trends and average regional incomes.

In Otago, affordability had deteriorated by 9.5 percent in the December quarter of last year because recorded wage levels fell 11 percent over the same period.

On a national average basis, home affordability improved by 8.7 percent in 2015.

The latest fix on home affordability follows yesterday's December building permit figures from Statistics New Zealand, with approvals in Auckland continuing to show "underwhelming" growth, according to ASB economist Jane Turner, despite ongoing evidence that the combined impact of high population growth and housing under-supply are contributing to Auckland house price inflation and budgetary pressure on low income households.

"In Auckland it appears momentum in housing construction growth is slowing," Turner said in a note. "Auckland consent issuance appears to be stable on a trend basis, having lifted fairly steadily since late 2011. More importantly, the level of issuance remains underwhelming compared to population growth over the past year. As a result, Auckland’s housing market is likely to remain supply constrained for some time."

BusinessDesk.co.nz

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