We ask, what income do you need to buy a house affordably? The range is surprisingly wide depending on where you choose to live, even for Aucklanders

Discussion of housing affordability is usually about high house prices and low interest rates which help to keen mortgage payments down.

Our housing affordability stories test how incomes (take-home pay) relate to mortgage payment obligations.

We say, if you have to spend 40% or more, then the mortgage is not affordable.

We do this for first-quartile houses as a proxy for where first home buyers might enter the market. Our assumption is that you do this when you are in the 25-29 age group, and have partnered up. "Household income" is our fundamental income unit, and we report results based on median household incomes for each age range.

We then look at the next step, and do that in two ways; either trading up to a median priced home when you are in the 30-34 year age band, or doing it in the 35-39 year old age band.

Each of this two scenarios give a different level of equity from the first home purchase to take in as a deposit for that next change. In the past there have been capital gains that bolster the equity available.

But there is another, more direct way of looking at what you require: what gross income do you need to buy a home using all the normal assumptions.

If you live in Auckland and are buying a first quartile home, you will need a gross household income of $110,169 per year (assuming you can raise a 20% deposit of $132,000).

But you don't have to live in Auckland. If you live in Hamilton, the household income on the same basis to commit to an affordable mortgage is $68,795 while in Tauranga it is $85,706. In Wellington City it is $86,737, in Christchurch it is $54,620 and in Dunedin it is only $44,483.

Living is some regional centers lightens the load even further; in Whangarei you will need an annual gross income of $50,136, in Napier $56,416, in Palmerston North $47,072, New Plymouth $52,288, Nelson $62,695 and Invercargill just $26,976.

And Aucklanders who don't need to live near the centre, the incomes required are smaller too, although still high by comparison with the rest of the country; in Papakura you will need $89,361 while in Franklin it is $87,675 required.

But the fiercest requirements are in the heart of the Auckland urban area; an annual household income of $130,790 would be required to live in Rodney, $141,100 on the North Shore, $108,295 in the Waitakere region and a similar amount in the Manukau area. And remember, these are incomes needed for first quartile homes. (The central Auckland isthmus data is not a good indicator as it is a mix of some of the most expensive leafy suburbs in the country, a wide range of townhouses and apartments, and inner-city shoe-box apartments. We just don't have the data for each of these disparate groups.)

But the take-away from all this is that the range is enormous. Whanganui is the most affordable centre for first home buyers requiring an annual gross household income of just $21,343 to get an affordable mortgage, right the way up to Auckland's North Shore's $141,100 requirement.

Here is another way to view the different levels of income you would need for an affordable mortgage assuming you want to buy a median-priced house and you had a 20% deposit:

We are still learning how to embed and control this feature, so bear with us. If it locks up on you, just refresh the page and try again. Selecting a city in this map should reveal the income you would need to buy a median priced house affordably in a hover box.

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?

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41 Comments

Various models in other countries have suggested that affordable homes should actually be less than 40% of your pre-tax earnings and often include other housing costs (insurance, rates etc) in the calculation rather than simply the cost of the mortgage. And considering that in NZ cost of living is also higher than many other countries, I don't think 40% necessarily should be considered affordable. And are we talking about 30 year mortgages too, because they aren't the norm internationally and another example of life in NZ ultimately costing more.

Our model isn't 40% of pre-tax income. It is 40% of take-home pay (after-tax, and with WfF tax credits) income. 

For someone on a median income of $45,000 pa at current tax rates, that is equivalent to 33.9% of gross income. (Same for a two person household each earning a median income, as  approx used in our MM and HLA household models.)

This story uses that benchmark of 40% of take-home pay, and then adjusts the incomes back up to gross.

But to be clear, the % of gross income will shift for each income range, depending on the income tax calculated. And depend on the exact levels of individual incomes in each household.

Thanks.

Gotcha. So for someone on lower income, the model is considering the higher proportion that food/fuel etc will take up of their take-home-pay?

It would be interesting to have a detailed life time housing affordability article. Including other aspects of life in NZ compared to internationally. NZ living is often anecdotally described as more expensive. 30 year mortgages are also rare in many countries... so how much does that end up costing someone living in NZ compared to elsewhere?

Hey Ginger, Yes I agree with you NZ has had the benefit of very relaxed mortgage regulations that don't seem to really apply to a borrowers age or even the condition of the property they're purchasing. But then again the mortgage rates here are high.

We all know that Auckland's extremely high house prices we're not pushed up by resident wages and home owner mortgage payers. This is what happens after 9 years of speculators / foreign buyers over inflating the property market unregulated.

Ironically it's the high cost of living that makes it so difficult to keep the higher wages buoyant. I've seen so many companies fold in Auckland over the last few years to high running costs especially in the tech industry.

But it's not just Auckland, internationally other cities that have had their property markets over inflated are also felling the same pain, here's an example; Better Dwelling article: Vancouver’s Tech Scene Shows Just How F**ked Up The City’s Real Estate Is

https://betterdwelling.com/city/vancouver/vancouver-tech-scene-shows-jus...

Banks only started reviewing mortgages that would still require payments past the age of 65 in the last year. So people could have been refinancing a 30 year mortgage at the age of 60 and the bank wouldn't care.

That's horrifying.

It's also made up. Banks aren't in the business of lending without an exit strategy. If you're going into a 30 year mortgage at age 60 you need to have a plan whether through passive income or downsizing. What's happened in the last year is banks will not lend as easily for someone downsizing when there is very little risk.

Agreed. Those on nz wages...short list of those that can pay that much. Time will tell. Govts ability to effectively police the ban will determine the outcome.

Ha, we all know you’re not buying a detached home in Vancouver at these prices. Those are for Beijing’s finest and people born 30 years before you, but let’s crunch the numbers anyway. Umm..yep.

I would add that a lot of Auckland FHBs these days are in their late 30's, and highly educated. I doubt this cohort is going to attempt to buy lower quartile Auckland homes.

Forget Vancouver it’s overblown property market is akin to crazy Toronto & San Francisco
Halifax is becoming a tech paradise but the secret isn’t out yet as hotter cities get the hype along with hyped property prices.
Another great article David

"the % of gross income will shift for each income range"
You're absolutely right DC.

https://www.workingforfamilies.govt.nz/tax-credits/payment-table.html

In NZ a small family with one parent bringing home the bacon and the other staying at home gets absolutely hammered. Minimal or zero WFF credits, top tax bracket. Someone with 4-6 kids can receive $400-500 a week. If the nation wants to grow the economy it needs to encourage smart people to have kids not this dysgenic idiocracy.

Meanwhile we're importing an overclass from Asia to own and control all the properties and businesses. The middle class younger citizens are sandwiched between. And just as the boomers die off the super "entitlements" will be pulled away just like the home ownership. Great job Uncle John and Auntie Helen.

Other countries allow a couples to pool their tax burden and tax properties so the productive people can have a fair slice of the pie.

Another aspect is a households’ income over a 30 year period, where income should grow from a low in your 20s then climbing to a high in your 50s. So the earlier couples or households buy a house the more likely it is that their mortgage will diminish compared to their growing income.
Add in a dip or period of single income during early child rearing years.

A more pesimistic view may be there is no increase in the value of our wages over time and with a 30 year mortgage all we can say on retirement is we own the house and have kiwisaver.

".. and have KiwiSaver." Maybe.

European nations begin seizing private pensions

A dated article, but ask those in Poland how it went...
https://www.csmonitor.com/Business/The-Adam-Smith-Institute-Blog/2011/01...

Yes,
Im reminded of the story of the wharfies in Pyrmont , Sydney, that after a lifetime of work they may own their house and the house next door.

In the next 20 years I'd anticipate a minimum of tax being applied to kiwisaver withdrawals. Best to only put the minimum possible into the scheme, and maintain separate investments outside of the scheme (where people have enough income).

Kiwisaver is a dog of an investment. Our pollies change the rules so often which makes it a joke. Kiwisaver is just another way of getting tax from the fools that trust that their money will still hold value by the time they retire. History has proven time and time again that when it comes to retirement, those funds aren't guaranteed. Best you spend it all now and pump up our economy. In a few years time, your savings will be worth nothing.

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Sorry, you are actually dead wrong on all counts ...Kiwi saver is one of the best financial investments around and it has been doing great in the past 7- 8 years ...some growth funds average 13%+ pa with very small fees and tax is miniscule compared to anything else !! in fact most of the tax taken is returned to you by the Gov contribution and your employer puts money there too ...so it is a no brainer ... check it out, and read a bit more about it ....

Yes that was quite irresponsible of TainuiBabe. One of the stupidist things I have done is not signing up for Kiwi Saver when it first came out. I waited a few years but since I have joined it has grown impressively without even noticing paying into it. I am older though so getting my hands on it doesn't seem that far away.
Conceivably the government could seize it, maybe, I dunno, but I I just don't see much point in fretting about such hypotheticals. It's like not buying a house in Auckland because of volcanoes.

Kiwisaver is great, especially the free $520pa government contribution! I've not regretted joining Kiwisaver from day one, neither have my kids as they get employer contributions as well. One does need to put some thought into the type of fund as returns vary considerably! (risk vs reward)

Highly unlikely the state would ever start seizing funds. If such a scenario were to arise the Cullen fund would be the first one plundered so there is plenty of warning.

However, placing such an enormous percentage of New Zealand's commerce and services etc over 50 plus quiescent volcanoes is extremely short sighted to say the least.

Agree - you'd be crazy not to take up an employer match and the tax credit. I personally wouldn't invest more than the minimum needed to achieve that, and put extra funds elsewhere with fewer restrictions and lower costs, but Kiwisaver is definitely a useful component.

TainuiBabe,

I find your post most impressive-to be able to cram so much nonsense into just a few lines,is truly impressive.

Correct if if I am wrong,but do you not receive a payment of $520 for every annual contribution of $1,042 and does that not represent a risk-free return of 50%? Of course,I accept that the terms of Kiwisaver are subject to change,but "a dog of an investment",I hardly think so.
The sentence beginning "History has proven....",is simply meaningless. What history are you referring to? Everyone knows that Kiwisaver does not come with a guarantee as to its value at any stage-that depends on the level of contributions,fund management fees and performance.
Why will these savings be worth nothing in a few years' time? Provide some evidence. What would cause that? Hyper-inflation or something else?
It has however.taken no time at all for your comments to be worth nothing.

The stat's appear to show peak income is in the 40's and now looking at the current generation many don't see to get much traction income wise until their late 20's..leaves a small time line for large financial commitments to be paid for...let alone retirement.

Another aspect is a households' income vs mortgage free households in leafy suburbs, where you can spend your money on buying more Remuera tractors LOL!!

So an Auckland couple need $66k after mortgage costs to live but a whanganui couple can live off $12k?

I can see alot of 45 olds, not so much "downsize" in retirement as, deciding to cash up a house and rent with the interest.

What do you get for $400 bucks a week?!
($1,000,000 equity release cash from sale @ 3% less tax at 30% = $403)
I reckon that 45 y.o would need at least $2 mio cash unless the principal was going to be tapped..or deposit rates were back at 6%, of course!
( NB: It's not that long ago - 10 years? - that deposit rates were 10%+. Now that was a good time to rent from interest.....)

What interest rate are you talking about? Term Deposits these days are a joke! Your savings will be eaten alive by yearly inflation. Buy shares!

9 months ago I fixed at 3.85%, now 3.6 for another 9 mths. Thats 3.7 over 18mths, 500pw.
Cheap long term rental in Mt Eden village. Nice enough. Easy. Single of course. Nice to have cash generally. As soon as rates do go up, then really nice to have cash. I wasn't going to be able to get a million bucks any other way. Oh, by the way you have to be able to live on the smell of a oily rag. Not for everyone. I think people can't budget. Easy w no dependents.... There's no way I wanted to miss out on capitalising on the monstrous house price increases since God knows when! Glad I did.

Hi Tim. Renting is the best option at the moment. I know what it means to go without and be frugal too. It is easy if you are single without dependants and a bit more challenging if you have children, but good on you. I personally loved the challenge of raising a child and clipping coupons while paying extra on the mortgage a few years ago. We give up alot, but in the end we end up in a good financial position.

If I was starting over again from a divorce, I would be on the scrap heap and renting for life, given that I only have another 20 years of working life before I am put out to pasture. NZ has changed. How many of you will face divorce and need to split assets over the next few years? This should concern all of us!

I don't see the sense in applying a percentage figure for affordability. If I earn $300k after tax and pay $200k to service my home loan, am I really hard up living on the remaining $100k if I'm still able to live on the smell of an oily rag? It's obviously an extreme example, but in my view you'd be better applying absolute values to cost of living and therefore take into account a) the borrower's level of income, and b) the local and borrower-specific cost of living - you could have low, medium and high 'lifestyle' costs for each location, for instance.

While simplicity is enviable, this is far from a simplistic metric.

If you are earning $300K and your mortgage is costing you $200K per annum in servicing, then yes you are hard up because you are spending 2/3 of your income just in servicing that loan. That is living beyond your means in my world. Affordability means paying no more than 1/3 of your entire income before tax. About 2 decades ago, this was based on just ONE income. Today, you need to partner up with someone to buy a house. Choose wisely!

I think you've missed the point I'm making. 2/3 is an arbitrary relative measure - it's the absolute $100k that's important. The fact that you've chosen to borrow $4.5 million is neither here nor there. Of course it's a different story when you're looking at entry level house prices and typical local incomes as is the intent of the article, but there is still a lot of the story left out when we talk about percentages.

So to summarise... the problem with the article is....nothing?

Not sure what you're summarising, but it isn't my comments. Do you really think someone would be comfortable living on $26,976 in Invercargill? Or that the cost of living ratio (ex housing) of Auckland to Palmerston North is in the order of (($110,169-tax)*60%)/(($47,072-tax)*60%)? It's far to crude a tool and just doesn't work on its own.

Analysts are predicting that Toronto and Vancouver house prices will continue to go up in 2018 and 2019"

http://business.financialpost.com/real-estate/poll-canada-home-prices-to...

Toronto price gains are forecast to cool to 2.0 per cent in 2018 and edge up to 3.0 per cent the following year.

But Vancouver, which implemented its own tax on foreign buyers last year, is seen notching price gains of 6.0 per cent next year before cooling to 4.6 per cent in 2019.

And here's what is actually happening with Toronto, rather than some made up analysts prediction.

Quote from recent Better Dwelling article: "The average price of all sales across TREB (Toronto Real Estate Board) fell to $735,021 in December, 0.7% higher than the year before. This is down a massive 20.07% from April 2017’s peak of $919,614. Try not to misread the significant decline here".

The real story is inventory continues to climb (Over 170% more inventory than last year), while sales are still dropping, down 8% compared to the same time last year.

https://betterdwelling.com/city/toronto/toronto-real-estate-listings-172...

I see both Montreal and Hobart house prices are predicted to inflate this year:

Hobart house price growth tipped to lead the nation in 2018

Montreal Housing Market 'On Fire'

Midway through last year, I asked a real estate agent if he'd noticed any signs that the new regulatory restrictions on bank lending had taken some steam out of the housing market.
He scoffed at the suggestion. The demand for housing, particularly from investors, he assured me, was so voracious that nothing would stop the upward surge in prices.
As we now know, this confident prediction was dead wrong. Investors pulled back rather abruptly in the second half of last year

http://www.afr.com/opinion/columnists/why-a-fall-in-sydney-house-prices-...