Auckland Council commits to helping halve the 'median house price to median household income' ratio in 15 years

Auckland Council commits to helping halve the 'median house price to median household income' ratio in 15 years

It is official: the Auckland Council wants to see the city’s median house price to median household income ratio halved to 5:1 by 2030.

The council’s endorsing its chief economist, Chris Parker’s, recommendation to adopt this target, introduced in his ‘Housing supply, choice and affordability; Trends, economic drivers, and possible policy interventions’ report released at the end of September.

Its Auckland Development Committee yesterday agreed in principle to include the target in the forthcoming refresh of the Auckland Plan, noting it would need Government support to achieve the goal.

With the median house price in Auckland currently sitting at $771,000, and the median household income at around $80,000, house prices exceed incomes by nearly 10 times.

Parker has reviewed 34, mostly supply-side tools, local and central governments could use over the next 15 years to bring house prices down to the point they only exceed incomes five-fold.

If annual earnings before tax increase by an average of 3.4% over the next 15 years, as they have over the past 15 years, the median household income will be $132,100 by 2030.

Accordingly, the median house price will need to drop by 14% to $660,500 for this target to be reached.

Put in context, Auckland’s median house price increased by a whopping 25% over the year to September.

The Auckland Development Committee explains how the 5:1 target was reached: “Five multiples of household income was established by a combination of bottom-up analysis from a literature review, and an overall intuitive judgement.

“The judgement was that Auckland could, over the space of 15 years, potentially close in on other world cities (in the USA in particular) that have kept house prices close to three multiples of household income. Indeed, New Zealand sustained a price to income ratio of 3:1 for many decades before 1990.

“Fifteen years was chosen rather than 10, because it may take some two to five years for some policy changes to be made, especially relating to construction regulation and infrastructure provision.”

Parker says including the target in the Auckland Plan is a positive step forward.

“It will help shape and focus our thinking moving forward. It will provide us with a tangible, achievable goal to frame up the decisions the council needs to make to create the world's most liveable city including affordable housing," he says.  

See this story for more on what Parker says local and central governments need to do to improve housing affordability in Auckland.  

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46 Comments

That's nice, want to rape us more in rates but also make us poorer if we own a house. If wages increase by 3.4% whats the bet council rates will increase 5% plus?

Someone is smoking something.. May be Len is enjoying his cigar!

They have probably been hanging out with the mayor of Toronto ;)

I wouldn't hold my breath on this. In any event the safest thing for first time buyers is get the hell out of Auckland and bring there families up in an affordable, more sane, lower pressure environment with better free education and you don't spend 2-3 hours a day sitting in a car bus or train. (and you don't risk loosing all your equity on the crazy price that you paid for some hovel on a postage stamp section; if you were lucky)

Indeed.

Sell your this:
http://www.realestate.co.nz/2630000

And buy this:
http://www.realestate.co.nz/2663259

It's a no brainer really.

nice - yes - no-brainer

First one - Highland Park - would need an additional $50k spent on it - bring it up to scratch

50k seems light to me.

No current
- Double Glazing
- Central Heating (Don't try to convince me Auckland is sub tropical)

Insulation in walls probably poor or non existent.

Decor needs updating etc

Like the ad's too, 700k auck house, for 'fbh looking to hop onto the property ladder, or for someone downsizing'. Best part of a mill to 'hop' on the property ladder. Madness.

PN house in prime location, and might be sold to a professor at massey, or older couple who have done well with there money over long periods of time, or now days, to some auckland punks who were lucky enough to own an auck house before 2011

Yes, I saw that mention of it being suitable for a FHB - which makes me shudder to think some young person/couple might take on half a million or more in debt to get there.

blah blah blah. If we 'admit' that Auckland is a crap hole and where ever you live is so much better would it make you feel better?

Auckland isn't a 'crap hole', - if you are rich. We lived there for over 10 years till about 18 months ago, and initially it was great, but unfortunately it has gone crazy and the quality of life for many has steadily gotten very much worse. I would not be surprised if many if not a majority would rather have the older version of Auckland that was more laid back and most people could get ahead and also had the time and money to enjoy it's many blessings.

Nice intention... but this so not gonna happen. A bit naive from the council

Wow why they have not shown such commitment earlier and helped slow down the rising prices?
The horse has already bolted.

'Five multiples of household income was established by a combination of bottom-up analysis from a literature review, and an overall intuitive judgement.'

Notice they substituted the 'top-down' analysis with 'overall intuitive judgement,' or as others might say, 'we threw a dart at a board.'

This 5x multiple is a sop and a belated slight 'doffing of the cap' in admittance that the medium multiple is a valid measure of housing affordability.

And of course 2030 is far enough out that none of them will be around to be answerable.

After all do we really think that this council, based on their Auckland Plan, that shows the council have vastly under estimated the ability of their present policy to handle growth, will ever, by their own hand ie Great Leadership and Management, get the medium house price to drop by 14% to $660,500 for this target of 5x to be reached?

Unless of course they are expecting every dwelling built between now and then to be a one bedroom shoe box.

Exactly :-).

Sounds to me like it's a bit of PR to try and halt the exodus of born and bred Aucklanders from the city.

Except:- those being born and bred now will know no better by 2030

Yes, medium multiple is a measure of housing affordability, but there are other influences in housing affordability like interest rates, desirability, inequality, etc. Targeting a particular medium multiple just because we used to be able to achieve it when interest rates were 20% and skilled employees got paid marginally more than unskilled seems like a silly goal.

There are jurisdictions now achieving low medium multiples with lower interest rates.

What medium multiples that are higher rather than lower show is there is some structural imbalance in the system ie some thing that if fixed would make housing more affordable on a like for like basis,

But what is their main solution to fixing the problem? It's to change the definition as in "this is not a problem but an opportunity.' And a medium multiple of 5 maybe by 2030 is better than the present 9x

I love how these apologists for a failed system like to re write definitions.

It use to be single income, now its household income (Mum, Dad, and now the workings kids).
Use to be 30% of income for housing costs, now its 40%.
Use to be housing costs included principle and interest, now its interest only.
Use to be 3x medium multiple, now they want us to believe 5x is the new norm (by 2030 of course).

And let's not forget the mercer index for worlds most livable city which is used to set remuneration levels for high paid executives that are on temporary assignment. Where is the index that asks the locals how 'livable' their city is?

More Auckland Council hot air hiding their failure.

In December 2012 AC set out an "Action" Plan (yep, they really did call it that) to fix Auckland's housing problem. They did their numbers and decided how many houses needed to be built over 30 years to eradicate the current shortage and meet the expected population growth. That document was the basis of the Special Housing Accord so all the targets of the Action Plan became the targets of the SHA. Len Brown and Nick Smith declared the bulldozers were raring to go.

If those numbers had been right and dwelling construction had gone at that pace, by 2042 demand and supply for residential housing would have been in balance. All other things being equal MM would have dropped to the 3.0 - 4.0 range of its own accord.

So, for all the noise and the reams of paper, all this policy "change" represents is setting an interim target within the existing strategy. Whoop-de-do.

But while we swoon at the bold vision and steely resolution being displayed by AC we forget that the existing plan is already in tatters. There is no hope of the SHA targets being met.

As long as Auckland Council make it impossible for developers to play landowners off against each other and so get land prices down to economic levels, and as long as AC refuse to build the infrastructure that Auckland residents want and need the MM will stay stubbornly high.

If annual earnings before tax increase by an average of 3.4% over the next 15 years, as they have over the past 15 years, the median household income will be $132,100 by 2030.

Accordingly, the median house price will need to drop by 14% to $660,500 for this target to be reached.

They must be joking. Their target has been set to:

a. grow (real) wages by 40% over a 15 year period and,
b. reduce (real) house prices by 14% over that same period.

My guess is that it will be the other way around.

I know right. It's preposterous and laughable that in the space of the next FIFTEEN years that the median house price could possibly drop to what it was nine months ago.

Houses only ever go up in price, forever, because Auckland is special!

If Auckland Council and/or the Government can convince investors they will achieve this - prices would quickly start to move towards this outcome. Future expectations are everything. Unfortunately the Council can't convince anyone and the Government doesn't want to.

Property prices can't drop 14% over 15 years unless rental prices also drop. The floor on investment housing is set by yield. The cost to build a house excluding the cost of land would also need to stop inflating at the current rate or no houses will be built at the target price point.

Prices have certainly gone up a lot faster than rental prices over the last few years, what's to stop them pulling back now? 14% drop now and houses would still have lower yields than a few years ago.

The floor on investment housing is set by yield.

I think you meant to say the yield on investment housing is set by the market/ability to pay. And ability to pay has been propped up by the government's billion+ dollar top ups. That won't last much longer as the government's ability to borrow erodes further.

Is this from The Onion?

I'll wait 15 years to buy then.

The council is preparing for the imminent price collapse. When it comes, it will seem as part of its plan.

One well believe it when they see it.

Better council does it job property instead of making statement. It takes six months to get resource consent and three months for coc.

This has got to be the ...YEAH RIGHT TUI ADVERT FOR 2015 !

How do these idiots even imagine this happening when they have constrained the supply of land to breaking point

AND

The government is hell bent on letting millions in who need housing and making us a either a colony or province of mainland China

It would need a black swan or two to make this happen. Something like Saudi getting in a shooting war with Russia and Iran over Syria, driving up the price of energy during a recession or similarly the States having a fracas with China over their seven dashed line claim to all of the China Sea causing the Kiwi/Chinese relationship to be ripped up (we would side with The US+A wouldn't we??) .

No chance of those things happening in 15 years - is there?

10
up

So it's all too little too late. The issues were known 6-7 years ago, the Council did sweet f.a. The council has for a long time been full of senior management, especially in planning, who are dim ideologues and know nothing about development economics. And the place is littered with pommie urban designers (and second rate yes men) who don't understand NZ and think Auckland should look like Coronation Street, they are indoctrinated with their Oxford Brookes Urban Design 101 mentalities.
There needs to be a major overhaul of the Council, starting with the elected members and the senior management.

UK planners' motto:

'We finish what the Luftwaffe started'

my guess is that it might be doable..... because I'm guessing their idea of making housing affordable revolves around density....and much smaller spaces.... much smaller houses.... lots more apartments...

Well I suppose if you build countless 1 and 2 bed units you could ultimately bring the median price down to 600k. But then you're still paying 600k for a 1 bed shoebox apartment unit type thing...

And some expectation about house prices dropping and wages increasing...you crack heads! honestly.

Auckland is one of the main areas where I could get good work in IT, but bugger that, I'm not eeking out 2 lifetimes of debt for that.

Serious question, are there many options outside of Auckland for that type of work?

There are, just few and far between. But I'm moving back to NZ from London for the lifestyle, not the work, so I'm not going to kill myself in Auckland.

Wellington & Christchurch

maybe if the government helps as per what the aussies are and have been discussing about rolling back neg gearing.

http://www.smh.com.au/federal-politics/political-opinion/no-longer-a-nat...

Sentiment seems to be shifting markedly in Australia.

https://www.youtube.com/watch?v=xKywX0QuJG8&feature=youtu.be

The council has the biggest influence of anyone in this goal being realised yet that is the same reason it has zero chance of happening.

I agree with your sentiment but the government actually has a greater ability to influence house prices within the Auckland commuter shed than Auckland Council. What actually makes it possible to cost-effectively grow a city is mobility. In Auckland the government provides more than half of the funding for land transport through subsidies to AC and through provision of its own State Highway network.

The government could bring down Auckland house prices tomorrow (political suicide so it won't happen) by committing to a credible programme of enhanced road building (say). AC's main job would be to stop being a road block to people using the better transport links.

Auckland Council created this mess with their fanatical adherence to the smart growth agenda.

But it fails everywhere it's tried because if you limit supply and demand increases, prices go up. It's that simple.

And up until now Auckland Council have been dragged kicking and screaming to the 'build more supply' table by the government.

And now they've come out and said 'We will fix this problem!'

Well excuse me for not jumping for joy

meanwhile the government opens the door wider to let more people in too increase demand.
there are TWO reasons for aucklands mess, supply and demand

Why not commit to installing a teleporting machine in Britomart in the next 15 years so people can commute from the regions? It's a far more achievable goal.