Rapidly rising house prices in south Auckland wipe out benefits of lower interest rates for first home buyers

Rapidly rising house prices in south Auckland wipe out benefits of lower interest rates for first home buyers

A big jump in the lower quartile selling price of homes in south Auckland over the last two months more than wiped out the benefits of falling mortgage interest rates for first home buyer households, according to the interest.co.nz Home Loan Affordability Report for July.

The report shows that the REINZ's lower quartile selling price of homes in the Auckland region has dropped from $616,500 in May to $602,000 in July, and that combined with recent falls in interest rates has improved affordability for first home buyers in most parts of the region.

Between May and July the average bank interest rate on two year fixed rate mortgages dropped from 5.61% to 5.17% and that combined with the drop in the lower quartile selling price would have reduced the mortgage payments on a lower quartile priced home in the Auckland region from $821.83 a week in May to $767.89 in July, a saving of $53.94 a week for typical first home buyers.

However not all parts of Auckland benefited from the lower interest rates.

Although lower quartile selling prices in central Auckland, the North Shore and west Auckland were all lower in July, they kept rising strongly in south Auckland to hit an all time high of $580,100 in July, up from $541,400 in May, and that more than wiped out the benefit of lower mortgage interest rates, pushing weekly mortgage payments on a lower quartile priced home from $714.38 a week in May to $737.86 a week in July.

Around the rest of the region, the weekly mortgage payments on a property purchased at July's lower quartile price would have been $739.50 in central Auckland (within the boundaries of the former Auckland City Council), $918.62 on the North Shore and $756.10 in west Auckland.

Mortgage payments are considered affordable when they take up no more than 40% of a couple's take home pay (when both are working), and even with the latest falls in prices and interest rates, lower quartile priced homes throughout the Auckland region remain significantly unaffordable for typical first homes buyers, with mortgage payments taking up between 46.49% of their take home pay in central Auckland, to 56.09% on the North Shore and 50.32% on a region-wide basis.

That suggests lower quartile dwelling prices in Auckland would need to fall by around 20% before they got back to the upper limit of the affordability range for first home buyers.

Around the country housing remains affordable for first home buyers in all regions apart from Auckland, the Report found.

The table below shows what the weekly mortgage payments on a lower quartile priced home in each region of the country would be, and how much they have changed over the last two years.

The most expensive region outside of Auckland is Central Otago Lakes at $476.32 a week and the cheapest is Southland at $166.88 a week.

That means the mortgage payments on a lower quartile priced house ranged from 11.64% of a first home buying couple's take home pay in Southland to 33.89% in Central Otago Lakes.

In Wellington the mortgage payments on a lower quartile priced house would take up 23.52% of a a typical first home buying couple's net pay and in Canterbury the mortgage payments would take up 27.7% of their pay.

So lower quartile priced housing remains affordable for typical first home buyers in all parts of the country except Auckland, where high prices are putting it of reach for first home buyers with average incomes.

Weekly household Mortgage Payments on a Lower Quartile Priced Home
  July 2013 July 2014 May 2015 July 2015
Northland $283.45 $301.35 $309.19 $303.24
Auckland $576.62 $690.95 $821.83 $767.89
Waikato/BoP $282.02 $307.02 $319.63 $315.72
Hawkes Bay $230.41 $243.04 $249.81 $245.77
Manawatu/Whanganui $208.69 $208.48 $186.68 $195.41
Taranaki $274.99 $326.32 $275.28 $259.07
Wellington $382.99 $400.63 $406.05 $367.56
Nelson/Marlborough $359.33 $375.96 $362.84 $354.25
Canterbury/Westland $367.75 $446.28 $429.08 $419.13
Central Otago Lakes $435.39 $459.46 $496.19 $476.32
Otago $234.12 $242.67 $226.97 $219.00
Southland $170.13 $168.28 $159.56 $166.88
--------- ---------- --------- --------- ---------
All NZ $330.73 $366.00 $376.15 $357.82

Home Loan Affordability Report methodology:

The Home Loan Affordability Reports calculate the mortgage repayments on the REINZ's lower quartile selling price in each region, and calculate how much of a typical first home buying couple's income that would consume.

The mortgage payments are based on a 25 year mortgage at the average of the major banks' average interest rates for a two year fixed rate loan, while typical first home buyers' after tax incomes in each region are based on the regional median income of a couple aged 25-29, which is taken from Statistics NZ's Linked Employer-Employee Data Survey.

The deposits needed to buy a lower quartile-priced house in each region are calculated as the lesser of 20% of the purchase price, or the amount that would be accumulated if the couple saved 20% of their net income for four years, and earned interest at the average 90 day bank deposit rate.

The July 2015 home loan affordability report for typical buyers (30-34 yrs) is here and this gives links to all regional reports.

The July 2015 first home buyer affordability report (25-29 yrs) is here and this gives links to all regional reports.

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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If I were a large employer I would seriously be considering relocating to Hamilton at the moment. Lower costs and a rapidly increasing supply of young talent to employ.

Good luck finding a CEO that wants to move there, sometimes cost and common sense don't come into it.
AlA fonterra head office in Auckland why?

I know at least one who, if the right opportunity arose, would do it in a heartbeat

Why indeed.
One would think a dairy man would just relish being in the heart of the Waikato or the Naki and anyway isn't that Fonterra CEO from Holland, a country sized version of the Mighty Tron.
Sounds like these CEO's and flash exec types may actually believe their own bullshit. Do they really believe that they're so friggen special that there's only a handful of places they'd be willing to grace with their presence.
The ones I've known were woolly thinking and self absorbed, cant understand how they managed to collar the top jobs and outrageous pay packets.

Lots of better places to live than Auckland. For lots of activities you can make a whole lot more money out of Auckland as well.

Air New Zealand is withdrawing from Hamilton in April 2016. This will make it less attractive for those who need ready access to international and domestic travel.

If Hamilton continues growing they just might have to rethink eh?

Student job search could be the cheapest best place for finding employees with the recent polucy change allowing international students to work. Go the student cities..

Totally agree. Not just Hamilton either. If you look at most of the really large and successful manufacturing companies around the world, they start and remain in smaller centres. The obvious advantages are lower property related costs and labour costs. There are many other advantages such as a more loyal and motivated workforce as they do not have so many other options. This builds deep institutional and community knowledge and wisdom and ultimately satisfaction. Staff are financially far better off, not just from the lower cost of housing but also transport, educational value per dollar and generally I find that the financial pressures within a large city express themselves by attacking the pocket and well-being of the individual. Without these time and financial pressures, family life is better. I noticed that in a company that I was involved with in Auckland that there were a lot of broken marriages so to support the first family (particularly in this environment) the chaps had to work very high hours. This of course undermined the subsequent relationships which often failed and the whole situation got worse.
The only enterprises that seem to thrive in huge cities are the banks, property investment and similar organisations that I would suggest are of dubious real long term value to the economy. If you look at the contribution of Auckland to NZ in terms of exports minus imports it is a very significant drain on our economy.
Apart from anything else I suspect that beyond a certain size the economics of large cities do not work. Costs and complexity seem to expand exponentially.

I agree! I think the cost of labour will have to start mirroring the cost of living. You could potentially earn significantly less money in Hamilton and be better off. And I'd far rather live in the Tron than South, West or far North Auckland.

Auckland is a rapidly aging city at the moment - go Hamilton!

I'm no great fan (at all) of just hauling more and more people in to give the illusion of growth, but Hamilton growing makes perfect sense, there is land all around it to expand onto

.....oh sure, brilliant thinking .... Prime top class soil, to be covered in a growing expanse of farmlets ride on mowers and now the Auck landlords turning their eye. There should be some sort of selective agricultural spray we can target them with.. . napalm based sounds good.

Couldn't agree more, but its happening no matter how much I see this constant growth rubbish as just that. Oh and that soil is not as top class as you might think, it is very grey clay, unlike the Bombay Hills which I believe the same stupid thinking will see them covered in houses before long

Slightly off topic, renting versus owning and damp mouldy houses. Conversation at dinner between better half and me. One an ex-state house kid in the 50's from the Hutt Valley, the other an ex railway house kid in the 40s and 50s from all over NZ. Remembering moving into a brand new state house in 1951 and it was freezing cold, frost on the inside of the windows, rattling windows in the wind, however not a mouldy room anywhere. Mothers used to clean and air the houses and we had an open fire, little good it did sometimes, Railway kid said the same. My parents realised they would never own a house of their own so treated the state house as their own, carpeting it, wallpapering without recompense from the govt, painting the kitchen when needed etc etc. all the neighbours in the street did the same, and the gardens were all kept beautifully. Same in the railway settlements. That generation didn't have a problem with renting. I realise now that most of those same state houses are awfully damp now and rotting, they should all be pulled down. However maybe people could be taught to respect their houses a little more. Or am I dreaming. Times have changed a lot I guess.

Those houses were new then, now they are old and even if you did exactly what those original tenants did (presuming someone is home through the day to do it) there would still be mould. It will only have taken one tenant who wouldn't or couldn't be as diligent and mould spores would be there. They will now be in the woodwork of the framing and take next to nothing to grow.
Hey I see mould in brand new, double glazed flash houses, only a little and only in specific spots but its there.
There is a huge stock of houses from 40-50 years back, a lot of it hardiplank with weetbix board flooring (the perfect home for mould spores) that need demolishing now, or serious upgrading, but what is happening to them? The vulture class, oops I mean investors, are snapping them up and renting them out to the hapless who cannot afford much else. I see houses now with holes in the roof, black mould on outside walls, grass growing up the sides of them, they are occupied but I am 100% certain they are rented.
I wouldn't mind if these investors bought these houses, either demolished and rebuilt, most of those sections could take 2 houses, or renovated and resold, but no, they just rent them out, crumbling, to people cannot afford to do much else.
I want some very serious action taken against this culture, but then you knew that, didn't you?

every house (say 12 or more) ive ever lived in is freezing in winter and had bad condensation. Thats what heaters, electric blankets are for. Anything older than 1990s will be the same even with insulation

Good comments Gin. Another factor is the early State houses had security of tenure for renters and were aimed at the ordinary worker. They were affordable housing not social housing. So much like in Europe it would make sense for the tenants to treat the house like a home and do the maintenance and upgrades to give the State houses that personal homely feeling.

Britain and well the whole Northern Hemisphere temperate climate area have made huge advances on building warm, dry and comfortable homes in the last 60 to 70 years.

NZ houses in comparison are an embarrassment.

Thanks Brendon. Security of tenure, not sure that it was for ever though as I recall when my mother died in 1979 my father was quickly given notice at 60 years of age that the three bedroom state house was too big for him and that he had to leave which was fair enough. My brother and I were in our 30s by then and had left home a decade before. He didn't go to another state house as my partner and I helped him with finance into a small one bedroom home and he paid the remaining money from his super lump sum from his retirement. Lucky.

Why bother commenting on Queenstown and Central Otago, they are irrelevant.

Incomes are low because of lots of minimum wage jobs done by foreign visitors on working holidays, and lots of retirees or other non workers.

House prices are high because there are a huge number of holiday homes.

Auckland is the only region with a housing problem.

A lot of Queenstown RE is up for sale and a lot is overseas owners last time that happened was the GFC it makes me wonder if they are trying to get out before a big downturn
As for Auckland that is different as its fed by overseas money, investors. And immigration and until those change it will go up.
If it was fed by local wages or yields prices would not be so high

There has been an explosion in available sections in Wanaka at affordable prices. We have noted that younger couples, who have previously not been able to afford homes, have now finally got their first home, (more often than not - brand new) Why would you want to exist in an unaffordable hovel in Auckland and all the crap that goes with living there, when you could live in an affordable brand new home in one of the most beautiful places in the world. Great schools etc etc. Why wouldn't companies shift their operation's there, save costs and retain a happier workforce at a lower cost?
What we have seen in Wanaka was simply achieved, without the sky falling and is an example of what could be achieved in Auckland if the authorities really wanted it to happen

The way state houses are lived in today is the cause of most if not all of the problems. Have tenants that air out the homes, open curtains to let the light in, pay their power bills and run heat pumps or fires and love the houses. Others live in dark hovels, never open curtains, complain the house doesn't become spontaneously warm for free whilst refusing to use the fire, heatpump or open curtains. Had one the other day that had the head of the bed pushed against full height north facing window with thermal curtains jammed closed complaining - can't help some people.

One must be highly misinformed or highly obsessed with ownership to take on a mortgage on an overpriced asset when the deflation ahead is clearly visible.

the low interest rates, if they are equally available to owner-occupier (OO) and to the investor, will tend to favour the investor, as the purchase w/ debt (linked to the low interest rates) is a cost which needs servicing. the investor gains income, while the OO merely defers rent.

South Auckland would be the ideal area for the first home buyer but for the blasted investors, I would love to see investors other than those renovating or rebuilding and re-selling banned from owing stand along houses. The stock of these properties is deteriorating rapidly because it is becoming no longer majority home owner/occupier property.

We in Hamilton can't wait for the expected increase in population provided that the crime rate won;t increase along with the population.

..too many people + not enough work = crime. Be careful what you wish for.

That's kind of a myth and it implies that the only reason people are not criminals is because they have a job or stable income?

In many European countries where unemployment has increased since 2008, "surprisingly" crimes have decreased, what makes people think that if you're not a criminal you won't become a criminal despite having worse economic conditions.

There are many factors involved: attachment to society, family and friends support, education, type of migration and integration, etc.

But many fail to understand that the reason population increases in NZ is because workers are needed. The moment jobs are not offered is the moment migrants stop coming and many start leaving.

NZ is not the Eden garden, it just has a "better" situation than other countries.. for now.

Hamilton will grow if Hamilton creates jobs. I doubt most of the people dream of living in Hamilton otherwise. Auckland is expensive, commercial properties are expensive, transport is bad..
yet companies don't relocate somewhere else. Why? because migrants LIKE Auckland, because migrants feel more accepted in Auckland and find better opportunities, good weather, less natural disaster risks, better international connections and because businesses stay where the human capital is interesting and where good workers are easier to find.

NZ needs workers??

We still have a massive unemployment problem!! We need more young low skilled like we need a hole in our head!

The arguments are entirely circular, more workers, so more work to do!

How about building a stable economy where growth is due to increases in productivity and innovation?

The country can only earn money building houses if foreigners come to fill them. When the carnival ride stops we all fall flat. If instead we were building innovative companies, the ride would never need to end...

Meltdown is coming, watch for "crash" season coming soon... (generally October).

I agree with the meltdown coming.

What concerns me is that you seem to think we have now "a massive unemployment problem". I don't agree with that. But we might have that soon..

Where is the unemployment problem?
I have worked as an unskilled and now as skilled migrant. When I was a backpacker with a working holiday visa it used to take me one or two days to get a job. In Central Otago, Nelson area or BOP they scream for workers during peak season.

And off-season in Southland I simply had to take a drug test and pass it to be offered a 40 hours a week job that I left after a few weeks because I was offered something better.

Now as a skilled worker (IT industry) I keep getting calls from recruiters in Auckland and Wellington asking whether I'd be interested in moving there because they need workers.

My girlfriend has never had any problem finding a job in hospitality and at her Cafe they constantly look for staff.

Maybe we have been lucky? Maybe we accept lower salaries than what kiwis would accept? Or is it that maybe we don't have an expensive mortgage because we rent..?

I don't know and I don't mean disrespect to anyone who has really tried and has been unlucky, but I cannot see how there are unemployed people in NZ.

What I have seen is over qualified people struggling to find jobs at their level of expertise or being offered lower positions. But that's a different issue derived from a low population/business variety country.

I'm concerned that if things get ugly we will see fingers pointing at us for "stealing jobs", but the truth is that we have NEVER had to compete against kiwi candidates.

"But many fail to understand that the reason population increases in NZ is because workers are needed. The moment jobs are not offered is the moment migrants stop coming and many start leaving:

I think you underestimate other factors at play -
The hell hole many migrants are escaping from.
The benefit system safety net (higher than wages most will dream of)
The free healthcare.
The free schooling.
The (supposed) lack of corruption.
The largely peaceful population.
The remotness.
The clen/green (fallacy)..
...and so on.

Sure a job is nice, but you don't need one here...and theres always buying and selling houses if you get bored. They wil keep pouring in here job or no job.

muntijaqi says: many fail to understand that the reason population increases in NZ is because workers are needed.

You are not listening muntijaqi
One week ago Michael Reddell an ex-RBNZ economist examined at length the failures of the skilled visa programs

A topic has been discussed more frequently here on interest.co.nz

What will happen to all the ethnic taxi-drivers when Uber and driverless cars take over

What will happen to all the ethnic take-away owners and employees when a financial collapse occurs and the hoi-poloi stop eating out and start sourcing their own food from their own gardens - do the displaced go onto welfare?

Rastus is right

So where is the productivity dividend?
Michael Reddell has another go in his article of today saying

high immigration inflows exacerbate pressures on interest rates and the exchange rate.

resulting in

We’ve had the highest real interest rates in the advanced world for several decades, and a real exchange rate that has been much higher than is consistent with our dismal productivity performance

So where is the productivity dividend?
Michael Reddell has another go in his article of today saying

high immigration inflows exacerbate pressures on interest rates and the exchange rate.

resulting in

We’ve had the highest real interest rates in the advanced world for several decades, and a real exchange rate that has been much higher than is consistent with our dismal productivity performance


So where is the productivity dividend?

Michael Reddell has another go in his article of today saying

high immigration inflows exacerbate pressures on interest rates and the exchange rate.

concluding in

We’ve had the highest interest rates in the advanced world for several decades, and an exchange rate that has been much higher than is consistent with our dismal productivity performance - DISMAL - (we are not obtaining the much touted benefit from immigration)


Telling comment from Michael Reddell's article

A surprisingly large proportion of New Zealand permanent residence approvals are not coming in under the skilled or business stream, despite the official rhetoric about a skills-focused immigration programme. Even among those who are, many are dependents, not those who have independently demonstrated value to New Zealand, and a disconcertingly large share of the “skilled” migrants don’t seem that skilled at all