From 1992 to 2021, here’s how much you needed to earn to afford a house in New Zealand
How much would you have had to earn to afford a house in the past? The question is about part of the generational divide that seems to dominate the housing conversation in New Zealand, writes Emma Vitz.
Sean Rush has some tips for first time buyers. At a recent council meeting, Wellington’s councilor said, âIf you want a house, you have to save. You must work. You have to make sure that you are making the right decisions and the right lifestyle choices, it doesn’t come to you overnight. This is a common view, but difficult to reconcile with the experience of many people who are trying to buy their first home now.
Looking back over the past 30 years, we see interest rates that now seem comically high, house prices that today would hardly be considered a deposit today, and inflation. It can be difficult to disentangle these factors to reveal how much more expensive housing really is these days. I wanted to level the playing field on interest rates and inflation and see what really changed.
To do this, I took the median REINZ home price in each region since 1992, as well as the floating interest rate at the time. I then calculated the household income you should have had to spend 30% of your gross income on mortgage payments. The 30% limit is common financial advice aimed at keeping housing costs at a level where a household can still meet its other needs. Inflating that number to $ 2,021 allows us to compare things like the others.
My calculations assume a 20% down payment and the buyer has a 30 year mortgage that is paid weekly. It uses the RBNZ consumer price index to inflate past prices to those comparable to 2021.
The result? New Zealanders have never had to earn as much as they do today to afford an average house.
Nationally, the required household income in May 2021 was $ 132,863. This creeps in just before the last time housing was almost as unaffordable in July 2008, when you should have earned the equivalent of $ 125,061 in today’s dollars to afford an average house in New Zealand.
In Auckland, the amount required in 2008 was $ 154,487, while Wellington needed $ 136,463 in today’s dollars. As of May 2021, the Aucklanders needed $ 186,009 and the Wellingtonians $ 143,396 to make this possible. A few areas, notably Canterbury and the West Coast, have more affordable house prices today than they were in the high interest rate environment of 2008.
One of the main factors in housing affordability in 2008 was interest rates. In July 2008, interest rates were at 10.7%, their highest level since 1998. A year later, the floating interest rate had fallen from 4.4% to 6.3%. It increased slightly in July 2014 and rose 6.6% for almost a year. Since then, interest rates have only come down and house prices have only gone up.
The engine of housing affordability is now housing prices. Today, the middle house in New Zealand costs $ 820,000. In 2008, the median house across the country cost $ 420,522 in today’s dollars.
Sean rush graduated in 1991 from Victoria University of Wellington with a bachelor’s degree in law. Making some assumptions about his age when he started college and how long it took him to complete, he was my age around 1995. At the time, the income required to buy an average house in New Zealand was of $ 66,812 in today’s dollars. Now it’s $ 132,863. It’s easy to overlay our experience in the current housing market and assume that if the hard work was enough to get on the property ladder, it must be enough now. But the numbers tell a different story.
Emma Vitz is an actuarial analyst for Finity Consulting. The opinions expressed in this story are his own and do not represent those of his employer.
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