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Housing unaffordability issues spread beyond first home buyers in Auckland and Queenstown - AMP360 Home Loan Affordability Report

Property
Housing unaffordability issues spread beyond first home buyers in Auckland and Queenstown - AMP360 Home Loan Affordability Report

Surging house prices in Auckland and Queenstown last month pushed home ownership even further beyond the reach of first home buyers in the two districts, according to the AMP360 Home Loan Affordability Report for March.

However the high houses prices in both places aren't just affecting first home buyers. They could also be preventing some existing home owners from moving up the property ladder, the report has found.

But housing remained affordable for first home buyers everywhere else in the country. And in Wellington, Otago and Hawkes Bay, affordability improved slightly in March compared with February.

The AMP360 Home Loan Affordability Report tracks the lower quartile selling prices of homes in each region of the country, along with the median after-tax income of typical first homes buyers (a working couple, both aged 25-29).

It then estimates what their mortgage repayments would be on a lower quartile priced property, with repayments totaling less than 40% of their net income considered affordable, and repayments of more than 40% of their net income considered unaffordable.

Last month a leap in Auckland's lower quartile house price to $587,200 from $554,600 in February, would have pushed the mortgage payments to $778.77 a week, or 50.6% of the couple's net income.

That would put a lower quartile-priced home in Auckland squarely into unaffordable territory for the first home buyers, especially once other home ownership expenses such as rates, insurance and maintenance are allowed for.

The report also shows that Auckland homes have only become unaffordable for first home buyers over the last two years.

The following table charts the changes to the key drivers of housing affordability in Auckland since March 2010.

  Weekly Income $ Deposit Saved $ LQ House Price $ Interest rate % Weekly pymt $ Index %
Mar-15 1,539.65 67,631 587,200 5.59 778.77 50.6
Mar-14 1,519.13 66,146 512,600 6.13 707.42 46.6
Mar-13 1,484.34 64,726 455,600 5.46 583.34 39.3
Mar-10 1,358.77 61,357 368,100 7.13 537.63 39.6

In March 2013, when the lower quartile house price was $455,600, mortgage payments would have been $583.34 a week, just within the affordable limit at 39.3% of net income at the time.

It also suggests a typical first home buying couple would struggle to save a 20% deposit to buy a lower quartile-priced home in Auckland.

Assuming they had been able to save 20% of their net income into an interest earning account, they would have saved $67,631 after four years, which is only 11.5% of the price of a lower quartile home in Auckland.

After Auckland, the most expensive region is Central Otago where the mortgage payments on a lower quartile priced home would take up 35.6% of a first home buying couple's after tax income. In Queenstown housing was almost as unaffordable as in Auckland, with the mortgage payments on a lower quartile priced home gobbling up 49.6% of a first home buying couple's net income.

That's followed by Canterbury 29%, Wellington 25.8%, Nelson/Marlborough 25.7%, Northland 22.5%, Waikato/Bay of Plenty 22%, Taranaki 21%, Otago 16.1%, Hawkes Bay 16%, Manawatu 14.3% and Southland 10%, all well under the 40% affordability limit.

Times tougher for upwardly mobiles too

The report also highlights the difficulties that might be faced by couples with young families, who may want to move up the housing ladder from their first home (at the lower quartile price) to a median-priced home, perhaps moving from an apartment or home unit to a house on its own section.

The model for the couple with a young family is based on the median income for a couple aged 30-34, with one child, where the male works full time and the female works part time, earning 50% of a full time wage.

It is assumed they would have a 20% deposit for a median-priced house, either because they have saved the money or accumulated sufficient equity in their first home.

Unfortunately the figures show that house prices in Auckland and Queenstown would be too high for them to be able to afford to step up into a median-priced home.

In both Auckland and Queenstown, the mortgage payments on a median priced home would eat up 62.1% of their take home pay, making such a move severely unaffordable.

However such a move should be affordable for a young family in all other parts of the country, where their mortgage payments would be under 40% of their net income.

Outside of Auckland and Queenstown, the mortgage payments on a median-priced home in Canterbury would take up 37.7% of the  "young family" couple's net income, followed by Wellington 35.4%, Nelson/Marlborough 35%, Waikato/Bay of Plenty 31.3%,  Northland 31%, Taranaki 31%, Hawkes Bay 27.2%, Otago 25.1%, Manawatu/Wanganui 21.8% and Southland 18%.

That means a young couple would be able to keep moving up the property ladder in most parts of the country, even if they have a reduced income during their early child rearing years.

But in Auckland and Queenstown, such couples are likely to face more difficult choices, which could include delaying having children until later in life, having children but remaining in their first home for longer, or making arrangements to enable both partners to continue working full time during their children's early years.

"It's particularly important that people looking for mortgage finance in high-priced areas like Auckland or Queenstown get appropriate professional advice about their mortgage options, because of the large amounts of money that may be involved," AMP360 national manager Paul Gardiner said.
 
"That is especially true for first home buyers, who may have to borrow large amounts of money relative to their incomes or the property's purchase price to get the home of their dreams."

 

Auckland Central Auckland North Shore Auckland South Auckland West Wellington City Hutt Valley Porirua Kapiti Coast Whangarei New Zealand Hamilton Tauranga Rotorua Napier Hastings Gisborne New Plymouth Palmerston North Wanganui Nelson Christchurch Timaru WairarapaQueenstown Dunedin Invercargill

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16 Comments

OK, so the median family cannot afford the median house in Auckland, remind me how this is sustainable?

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the median family can't afford (~3.5x income) a one bedroom flat. Speculators on the other hand..

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MEGO.........

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Yee ha, enjoying my $1.5M house in Greenhithe, I made $10000 last week by keeping it.

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you haven't made a cent until you sell it.

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or rent it to someone else...until then it's just a magnet for expenses.

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Your shout then?

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about to put our north shore, auckland house on the market having bought 4 and a half years ago. at the time, the house price fitted our metrics re paying back a mortgage rather than rent and still managing to have a decent family life. now our suggested auction reserve for selling is over double what we paid for it - which brings it way north of a million. it was bought as a do-up and is still v much a do up - with us having done only minimal improvements but then realizing just how prohibitively expensive it would be to do a full reno. hooray for us n all but what an example of how screwed up the housing and building markets are and how screwed kiwis are housing-wise. we wouldn't sell if we weren't exiting the mkt altogether to move overseas, as buying another house would just throw us back in to the same housing shark-tank. so dumb-luck and crap political, economic and resource management lets us take the tax-free profit and run.

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You cry crocodile tears mate.? I note you will still sell for as much as you can and put all the money in your pocket.

Another example of so many people on interest.co.nz ... who pontificate about how 'unfair' the housing market is, but don't change their behaviour to reflect their 'concerns'.

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really? okay! well, i guess i just wish you all the best and hope that whatever has brought you to hurling accusations behind a name proclaiming yourself landlord to us all soon passes. good luck with everything.

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maybe people need to start moving out to the provincial zombie towns :p

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I recall before 2008 holiday homes were in high demand. Places like Mangawhai saw a massive surge in demand and I constantly heard the words "get in now because they arn't getting any cheaper". Well look what happened to those holiday hotspots. Many still havent recovered.

Perhaps Auckland will suffer the same fate? Granted there is high employment and a supposed lack of supply but on a global scale is Auckland being talked up like those holiday hotspots "get in now because they arn't getting any cheaper"?

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Auckland central won't for the same reason "Billionaire's Row" in London holds it's value despite many of the houses being empty and decaying from the neglect, yet the prices are as good as ever.

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Ernie Dingo fixes house price un-affordability at auction
https://www.youtube.com/watch?v=qAVZdpQG1n0

Where's Billy T James when you need him

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Hahaha......Ideas galore spring to mind!!!

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Wow, it seems like Auckland and Queenstown are extremely luxury regions to live in. Even couples who already own an apartment or home unit face difficult choices before buying a house on its own section. So, if you find house prices in Auckland and Queenston hardly affordable for you, central pattaya condo is a good spot to settle down for your family. Despite of how low price is, these condos are equipped with everything to let your family feel safe and assured.

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