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Home loan affordability improves sharply in October to mid 2004 levels after income tax cuts kick in

Posted in Property

Home loan affordability is now at its best levels since June 2009 and is back at levels seen in June 2004 before the housing boom.

Income tax cuts that took effect from October 1 improved New Zealand home loan affordability by the most in almost 2 years in the month of October, the Roost Home Loan Affordability report shows.

Income tax cuts announced in the May Budget improved median take-home pay by around NZ$30/week in October, driving all of the biggest improvement in affordability in a single month since January 2009. Interest rates were flat and the median house price was unchanged nationally in October from September.

Home loan affordability is now at its best levels since June 2009 and is back at levels seen in June 2004 before the housing boom.

“Home buyers now have the wind at their backs,” said Margaret Smith, spokeswoman for mortgage broking group Roost Home Loans.

“Incomes are rising at the same time as buyers have the upper hand in a housing market where choices are growing as more properties are put on the market,” Smith said.

The national median house price was flat at NZ$350,000 in October and is now down 3% from a record high of NZ$360,500 in March.

The average two year mortgage rate was flat at 6.73% in October. The Roost Home Loan Affordability report measures affordability nationally and regionally for income earners and households, taking into account median house prices, interest rates and incomes. The Roost Home Loan Affordability measure for all of New Zealand showed the proportion of a single median after tax income needed to service an 80% mortgage on a median house improved to 55.7% in October from 57.9% in September.

This was the biggest improvement since a 6% improvement in January 2009 to 54% from 60% at a time when interest rates and house prices were falling sharply together. Affordability improved significantly in most regions and cities with the biggest moves in areas where median house prices dropped substantially. The Central Otago Lakes region, which includes Wanaka and Queenstown, saw its affordability improve to the best levels since June 2003.

Southland best in 6 years

Southland affordability improved sharply to its best levels in six years and Invercargill retained its position as the most affordable city in New Zealand. Affordability in central Auckland, which includes the CBD and surrounding areas on the isthmus from St Heliers to Blockhouse Bay, improved dramatically to its best level since February 2004. This followed a drop in the median price to NZ$462,900 in October from NZ$536,200 in September.

Affordability has been improving since December 2009 as house prices have flattened out and interest rates have fallen, the monthly measure calculated by in association with Roost found. Most home owners are still on fixed mortgages, but more borrowers are choosing to float, given floating rates at around 6.2% are cheaper than average longer term fixed rates at around 6.7%. However, the gap has closed over recent months, making the fixed vs floating decision more evenly balanced.

Home loan affordability hit its worst level of 83.4% in March 2008 just after house prices peaked and 2 year mortgage rates were close to 10%. Affordability is difficult in Auckland, Wellington, Christchurch, Hamilton and Tauranga for those on a single median income, but homebuyers in smaller provincial cities will find home ownership much more affordable. Households with two incomes are also in a stronger position.

Affordability for the typical first-home-buyer improved to 48.5% in October from 49.8% in September to its best level since March 2009 as the improvement in median incomes was partly offset by a rise in the first quartile house price to NZ$250,000 in October from NZ$247,500 in September. It is now down from a March peak of NZ$257,500.

Household affordability

Meanwhile, affordability for households with more than one income improved to its best levels since June 2009.

This measure of a ‘standard typical household' found the proportion of after tax income needed to service the mortgage on a median house fell to 37.2% in October from 38.7% in September. This measure assumes one median male income, half a median female income aged 30-35 and a 5 year old child that receives Working-for-Families benefits. Any level over 40% is considered unaffordable for a household, whereas any level closer to 30% has coincided with increased buyer demand in the past.

The survey’s measure of a ‘standard first-home-buyer household' found the proportion of after tax income needed to service the mortgage on a first quartile home fell to 23.4% in October from 24.0% in September. This measure peaked at 35% in June 2007. This measure assumes a first home buyer household includes a median male income and a median female income aged 25-29 with no children. Any level over 30% is considered unaffordable in the longer term for such a household, while any level closer to 20% is seen as attractive and coinciding with strong demand. Roost Home loan affordability for typical buyers

Question and Answers about the report

How does work out these numbers? gathers data from Statistics New Zealand and IRD on wages in each region, data from the Real Estate Institute from each region each month, and data from banks and non-banks on interest rates. It has calculated home loan affordability going back to the beginning of 2002.

How is this survey different from the Massey University survey of affordability?

The Massey study is only done quarterly rather than monthly and uses an index of Home affordability rather than actually measuring home loan affordability. It uses an index rather than the actual measure of the proportion of after tax pay needed to service an 80% mortgage on a median home. The exact composition and meaning of the index is not detailed.

Why use a single median income rather than household income?

It’s true that most homebuyers are using a combination of one or more full or part time incomes to service their mortgage. Each household is different and may be using incomes from different sources. The best measure of average national household income is calculated officially once in every three years by Statistics New Zealand. chose to use the median income data series from IRD and Statistics NZ because it can be measured monthly and can be drilled down by region and by age.

We do include a chart showing how many median incomes are required to keep mortgage payments at 40% of take home pay. It is currently around 2 median incomes.

Why is home loan affordability important?

It is a useful way to work out if a housing market is overvalued. It’s clear house prices stopped rising when the national affordability ratio rose above 80% or 2 median incomes to service the average home loan. It’s a way of comparing affordability of housing markets with a national average and comparing housing values from one year to the next. For example, the affordability ratio in 2002 before the housing boom really took off was around 41%.

About Roost

Roost is the sponsor of this Report. Roost, owned by AMP, is one of New Zealand’s largest independent home loan and investment property mortgage brokers with 16 franchisees nationwide. Roost offers to source the perfect loan for its customers from a panel of lenders and insurance advice from Roost insurance specialists.

Roost was established in 1996. See more information here.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

We welcome your comments below. If you are not already registered, please register to comment in the box on the right or click on the "'Register" link at the bottom of the comments.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current Comment policy is here.


This is like looking at the

This is like looking at the Revenue line for a business rather than EBITDA for Debt Servicing ability.

This affordability is only concerned with Income and does not reflect the massive increase in costs the domestic household has experienced. The Income increases are offset by increases in GST, Petrol, Vehicle Registration, Alcohol and all manner of domestic goods.

Add to that households factoring in the possible loss of an income or loss of any chance of a payrise in the future, the household now factoring in having to work till 70-75+

It is far from the most affordable time to purchase a house.

Thanks for pointing that out

Thanks for pointing that out GoldenFox. You can be sure that the sub-editors and their bosses won't be working it into their articles. We'd be among the minority of NZers who would bother heeding such advice but I kind of like it here out on the fringe in Skepticville.

Thanks for pointing that out

Thanks for pointing that out GoldenFox. You can be sure that the sub-editors and their bosses won't be working it into their articles. We'd be among the minority of NZers who would bother heeding such advice but I kind of like it here out on the fringe in Skepticville.

  Well what a


Well what a surprise....and no way could this be a part of the planned advertising splurge by the players and parasites in the residential ponzi scheme....aimed at sucker Kiwi family.....

"Home loan affordability is now at its best levels since June 2009 and is back at levels seen in June 2004 before the housing boom."......RUBBISH

I put this report into the market manipulation and management box of crap.

 "Roost is the sponsor of this Report. Roost, owned by AMP, is one of New Zealand’s largest independent home loan and investment property mortgage brokers with 16 franchisees nationwide. Roost offers to source the perfect loan for its customers from a panel of lenders and insurance advice from Roost insurance specialists."

In other words suckers....this mob exist to take money off you for finding the "best' mortgage for you from their best friends the banks...and right now with bugger all sales taking place...they are screaming out for more fools like you to chase the cheap credit on offer in the bank are being done over.

Do not be fooled...the market is dropping fast and your best move is to wait until the prices return to 03 levels at least.

Wolly is right, the last

Wolly is right, the last disclosure with regard to sponsorship is the most relevant bit.

The last property boom didn't start in 2005, it was well underway by mid 2003 with the Roost affordability index at just over 40% in late 2002. Prices will still need to drop by 50% to reach that level, or, disposable income to rise similarly, which is not going to happen anytime soon.

The average punter can only get around this by doing what many immigrant populations have done over the years..... pack them in..... with multiple incomes per household. Those extra square meters in our leaking McMansions will be useful after all.

Bernard, are there any stats on residential property price trends in NZ (or Aussie too)? in terms of floor area/dwelling size (m2) etc? Apart  from its use when  haggling with the builder or architect  when knocking up a house; price (and yield) per m2  appears to be confined largely to commercial property - it escapes me why.

The other question is; why is their no effort to use more statistically robust pricing tools as per the USA where the Case Shiller index is widely used -which uses  weighted repeat sales data? At least Auckland  and Wellington sales data should be large enough for a local index.

This is like the Takeways

This is like the Takeways Food Association put out a health report saying it's OK to eat lots of MSG wthout any ill effects! "yeah Right"

Gives new meaning to the

Gives new meaning to the saying...." a boost from roost"!

"Why is home loan

"Why is home loan affordability important? It is a useful way to work out if a housing market is overvalued."

Spot on ! And here's what happens when property purchase prices are too high.

"Renting a home is more expensive than buying one in 80 per cent of British towns, new figures have revealed."

Rents here will go the same way; but not nominally ~ they can't unless we get massive wage rises, but comparatively. So. The only thing that will make renting more than owning a property in NZ ( which is the way it should be, commercially) is for property prices to fall...a long way.

Complete BS - who would rent

Complete BS - who would rent if it was cheaper to own!! 

The fact is that if you own, your interest payments are relatively fixed over time, but if you rent, your rent will increase over time (its called inflation) - so if they cost the same now, then owning will be much cheaper in 10, 20, 30 years time!  On top of that your house is likely to increase in value over time (its called inflation) while your debt stays the same (if you were paying interest only), meaning you are making a capital gain.

It's fact, Jimbo. People rent

It's fact, Jimbo. People rent when they cannnot afford to , or do not want to, own. People who don't have a job; the young, who can't save the deposit when all their other costs ( student loans etc) have to be paid; the elderly, who have lost their savings to a finance company collapse; people who just plain want the flexibility to move whenever they like and especially people who see prices of property falling at a rate greater than the extra cost of paying rent compared to a mortgage payment! Not everyone aspires to be imprisoned by a bank loan, Jimbo. Because 'capital gains' are just a mirage; something that people saw in the distance. Those that got to the waterhole and cashed in did well.  Those times were 'the norm', but are no longer.

Ok, of course some people

Ok, of course some people would rather rent. But I doubt in NZ that home affordability will ever be below renting levels or even anywhere near renting levels - NZers love to own homes!!

What people want, and what

What people want, and what they can afford, can be different things. Obviously I'm picking NZ to go the way of other 'home loving peoples'( we aren't different to any other Westerners in that regard) and we having the same 'it's cheaper to own than to rent' scenario in the near future.; it won't last long, ( negative arbitrages never do) but it will happen. It's only a matter of timing.

A word in your ear

A word in your ear Jimbo...when next it dawns on English that the spin machine isn't producing the much promised 'recovery' and he is forced to look again at chopping away some of the entrenched pork handouts...the rent benefit paid to landlords by WINZ will be top of the list....that's because Treasury will finally get the message through the fat, that the govt must see off the bubble regardless of short term pain or kiss goodbye to ever seeing some real gain. Reduce the benefit by 10% per year for ten years until it is all gone and low income folk will find rents have dropped as the landlords discovered they had no bloody tenants if they remained greedy. The first landlords to bailout would be the overleveraged....the ones paying off their properties on the back of taxpayer subsidies......

Accommodation Supplement is a payment that can help with your rent, board or the cost of owning a home. You may be able to get it if your income and cash assets are lower than a certain amount," govt

"But but the peasants would end up on the street" I hear you scream....not if the govt had the guts to impose barriers stopping landlords from booting out tenants who were getting the AS to pay their rent.....forcing the landlords to enjoy the lower rents that come from tenants on lower the long run the landlording AS rort operating in Noddy would come to a sudden halt and the supply of ex rentals on the market would drive property prices low enough for low income folk to buy them.

And ten years down the road we might see some real reductions in govt splurge.

Gold is the money of the

Gold is the money of the Rich

Silver is the money of Gentlemen

Barter is the money of Peasants

Debt is the Money of Slaves

FYI I had a conversation

FYI I had a conversation yesterday with a landlord, and she said EVERYBODY is putting the rents up because of the depreciation thing, I got the impression that she thought that when the landlord has a problem, the tenent has a problem, because she emphatically said to me "and the landlords wont lose". It occured to me that there is definetly a culture of landlord vs tenent here, but I got the feeling its not because she was greedy, but they felt like they did what they had to do and bought a rental, it made me question who will win though, landlords or tenents, I guess it all comes down to supply and demand.

Disclosure - I own a rental but don't jack up my rent all the time, I believe the best things in life are free.

Muppet King....take a long

Muppet King....take a long hard look at the landlord's benefit scheme operated by will soon see the rort....follow the money MK.

Putting up rents in a

Putting up rents in a stagnant or falling wages environment is a self-defeating game for property investors. The more that rents rise; the less $ tenants have to put towards a deposit; the fewer the number of buyers come to market; the lower prices of property goes ~ until we get prices low enough that the rent/buy equation becomes affordable ~ at a new lower property price point.

Does history show this? If

Does history show this? If thats what happens historically then I am inclined to believe it, and I do not believe for a second that this time is different, thats a croc and any reasonably intelligent person will know that.

History may not have shown

History may not have shown that in NZ... yet. But it does, is and has happened in any number of other counrties ( eg: the UK link I posted; ~ 8.59 am. It also happened last time, in the late '80's-'90's, there, as well). Heres' why we are about to enter 'our time'.



That's lower NZ growth and no  general wage increases to support nominally higher rents.

you guys forgot to take into

you guys forgot to take into account the "across the ditch" effect.  Low wage + high rent = let's go to Australia.

I would be very interested to

I would be very interested to see the results of a widespread rent strike, especially if the numbers involved overwhelmed the capacity of the eviction process to cope.  It's an interesting thought experiment to run.

Seems about time for some pressure from business too - hospitality, retail etc.  They're taking a double hit from having to pay inflated rents themselves, and losing business as customers' discretionary income is reduced.

And with ratchet clauses

And with ratchet clauses being common place in the dominant Auckland District Law Society lease, and most tenants not being on to it enough to realise they can actually negotiate it out of there we have a commercial property market that can only remain static or go up.  No allowance has been made in this system for a recession so business end up closing up and someone else moves in. I predict the rate of tenant turnover is going to shoot up, paticularly in retail.

The fact is that rents didn't

The fact is that rents didn't rise much during the boom years because landlords made enough in Capital gains so they didn't care about rent as much.  So rents can rise now because they are not much more than they were 5 years ago yet wages are significantly higher than they were 5 years ago. Most people can afford it, they might just have to cut back on LCD TVs and takeaways.

Is your household income more

Is your household income more than it was 5 years ago, Jimbo? Maybe it is. But for those who have lost an income earner, say the husband, theirs is likey to be >50% less than it was. Unemployment is nasty that way. Try getting an increased rental amount out of those people. And what about those retirees etc. who depend on their investments to pay the rent/mortgage? Their income has likely haved with the drop in interest rates, as well ~ assuming is wasn't wiped out entirely in the fnanace company debacle.

My income is probably 30%

My income is probably 30% higher than 5 years ago + we have had tax cuts too. Yes some will be worse off now, but most are better off even if they don't think so.  Most people aren't living off mince and potatoes...

You know what, Jimbo? With

You know what, Jimbo? With fillet at $50 per kilo ( that's also a metaphor for housing, by the way), a lot of people are on mince and potatoes...

"Cut back on LCD TVs and

"Cut back on LCD TVs and takeaways" = blasphemy!!

LCD TVs and takeaways are part of NZ national religion, right up there with Rugby/Racing/Beer.

I think a lot of families would rather move to a cheaper rental (or just not bother paying rent for a few months) rather than give up on LCD TVs and takeaways

So good luck with those rent increases

Bernard, is there anything

Bernard, is there anything stopping you from graphing affordability (nationwide only) back to the 1970s?

(Obviously the 2 yr fixed will need to change to floating - as this term of loan was only really common from the mid 90s on).

If you do create a chart like this you will see that 2000-2001 was a 25 year nadir in affordability.  The fact that we are now returning towards those levels demonstrates that current housing prices are not far away from sensible and sustainable valuations.

Bernard, are you man enough to publish such a chart or will your one-eyed anti-property agenda prevent you from doing so?

I don't want to see a list of excuses, comparable data is available, so give us the truth and publish the graph!

why do you read this site if

why do you read this site if you hate it so much? it seems you come on here every day pretty much to abuse bernard, even when you want him to do something for you!

Mark, I'm just trying to keep

Mark, I'm just trying to keep Bernard honest!  Of course Bernard has the choice to edit his own publications however he chooses, but drawing conclusions from data presented in a way that promotes a certain view is dangerous at the best of times.

Clearly when the tax and interest rates of the 1980s are considered home affordability today looks reasonable.  Presenting a chart that begins at a turning point in affordability and rising sharply through to the 2007/08 market peak is certainly suggestive (to the uninformed) of housing being more affordable prior to the period shown on the chart - which is certainly far from the truth.

Disclosing the real situation would leave readers better informed to make their own decisions.

2000-2001 was obviously

2000-2001 was obviously important because it marked the end of the tech bubble and heralded the start of the global property bubble (if you don't think the NZ property market is related to the global boom, then stop reading). Just because prices are getting closer to those of 00-01 doesn't mean the whole shebang will suddenly become "sensible and sustainable." It might mean that deleveraging is starting to have some effect, but it doesn't account for debt positions and credit availability going forward.

Chris J: Because the

Chris J:

Because the specific data for incomes (the huge IRD LEEDS data series; we focus on income levels for 30-34yrs) does not go back very far, we can't take our series back much further than we do. But we do take our median multiple series back to the 1970's using RBNZ data, and can go back a bit further with separate StatsNZ data.

Median multiple is a slightly different beast looking at the same issue. It relates house prices to household income (before-tax not after-tax household income). You can see both the current data, and the long-run data here >>

David, With all due respect,


With all due respect, that sounds like an excuse!  If specific median income data is not available, you could easily approximate using a portion of the overall median income; or simply create a separate chart using median household income data for the whole period which is entirely comparable in terms of shape and direction of the chart.

Median multiples tell us nothing as tax changes (such as the move to consumption taxes) are not included, nor are the sharp changes in interest rate environment from which have seen interest rates more than halve since the mid/late 1980s.

In fact using median house prices also leads to some distortion.  A better indication of how affordability has changed may be to look at the average cost price of say a brand new middle class outer suburban home and see how the affordability of that has changed.  Of course doing so would take considerable research but would at least dispel myths about housing being unaffordable.  For this type of housing prices have only doubled in the past 20 years whereas overall house prices have more than tripled.

Consider that according to RBNZ's average hourly wage, that a single full time worker would earn about $22k after tax in 1990, where as today they earn about $44.5k after tax.  While interest rates in 1990 were around 15% and today are around 7% yet the average brand new suburban home home in ChCh cost $220k in 1990 while the equivalent brand new house today costs maybe $480k. 

ie. The interest payments for a houshold with 2 average full time incomes and an 80% mortgage on an equivalent middle class house has dropped from 60% of total income in 1990 to 30% today. 

It just shows that pre-2000 certainly wasn't some halcyon period of easy home ownership.

But it's not just about the

But it's not just about the interest repayments, is it Chris_j? The 20% deposit on the $220k house in 1990 of $44k has risen to... $96k, today. An increase of $52K. Has the average  single wage compensated for that increase? No. According to your figures it has only caught up by  $22,500. So the buyer today has to find $29,500 more,  before they even get to the start line!

And back in 1990 that $220k

And back in 1990 that $220k bought one hell of a house. Now it's what they're asking for a 1 1/2 bedroom box in a bad suburb.

Great post Chris_J I was

Great post Chris_J

I was thinking along the same lines

Wolly just a question. What story/news item would actually say something positive and think NZ is a great country to live in? :)


Hang on...there are so

Hang on...there are so many...let's go with this: All of the trading banks in NZ have agreed to form a partnership and divert a % of the salaries of all senior staff into the fund every year and for the fund to finance the fight against cancer in children.

You guys are idiots - no one

You guys are idiots - no one questioned this report when it said housing was getting less affordable, but when it says it is getting more affordable suddenly it is biased!!

The thing is the calculations that are applied are logical, completely visible, and haven't changed. Face it, houses are just as affordable as they were in 2004 (except it will take you a long time to save for the deposit).

 ..said Margaret Smith,

 ..said Margaret Smith, spokeswoman for mortgage broking group Roost Home Loans.  

“Incomes are rising ( ...are they really, Margaret?..I'll bet those in the Mortgage Broking and Real Estate industries, to name but two, aren't seeing much of a rise...) at the same time as buyers have the upper hand ( ..yep; you're right about that, Margagret ..) in a housing market where choices are growing as more properties are put on the market, ( so, Margaret, more supply to, and choice in, the market is going to stop prices falling further ?!)”

I know guys in companies that

I know guys in companies that have been on pay freezes for the past two years. Incomes are rising... riiight, is that why so many people are leaving for aussie?

Depending on what their

Depending on what their incomes are they may have had up to 6% in tax cuts in the last 2 years

And the GST rise of a nominal

And the GST rise of a nominal 2.5% ( or 20% in real terms) ??

And here's why property will fall here, as well. We, likewise, have artificially low interets rates.

"...the banks are scared stiff of the housing market and while their housing loans are at low interest rates, the bank equity requirements are so high that most people can't meet them – so house prices keep falling because buyers can't raise the cash to buy."

NA ... you hit the nail on

NA ... you hit the nail on the head !

The bankers are scared sh*tless of the property market deflating, as most of their equity is tied up in residential property (in fact more so here, than in Aussie) . So with my limited knowledge of economics, this would mean the value of their securites will be devalued.... not a good word in the banking industry.

The gummint know this and are great buddies with the banks... so all related parties  including the general media are going "hammer and tongs" to push the barrow that "all is well" in residential property land.

I still can not get over why so many people and not just PI's think that a deleveraging of property values "will never happen here". It seems to be ingrained in NZ society ... I know people are sick of hearing this, but the mantra out there still, with the majority is "ya can't lose with property mates!"

Thank you BH for providing such a venue where "real news" can be dispensed, not the "washed up, diluted and filtered crap" from the mainstream media.