Getting harder to buy a first home in Auckland as rising property prices offset falling interest rates and incomes stay largely flat

Getting harder to buy a first home in Auckland as rising property prices offset falling interest rates and incomes stay largely flat

There was good and bad news for first home buyers in November with housing affordability worsening in some regions and improving in others, according to Interest.co.nz's Home Loan Affordability Report.

Of the 12 regions monitored by the report, affordability for first home buyers improved in six regions and worsened in the other six.

Those regions where affordability improved were Northland, Manawatu/Wanganui, Wellington, Nelson/Marlborough, Otago and Southland, while affordability worsened in Auckland, Waikato/Bay of Plenty, Hawke's Bay, Taranaki and Canterbury/Westland.

The report tracks how much of their weekly after-tax pay a typical working couple aged 24-29 would have to set aside to meet the mortgage payments on homes purchased at the REINZ's lower quartile selling price in each region.

This takes into account the monthly regional movements in house prices and household incomes, and changes in mortgage interest rates.

A feature of the market over the last year has been falling mortgage interest rates, with the average two year fixed rate offered by the major banks (the figure used in the Home Loan Affordability Report's mortgage payment calculations) dropping from 5.98% in November 2014 to 4.81% last month.

Unfortunately the benefit of falling mortgage interest rates has been offset by rising housing prices in many areas, particularly in Auckland where the lower quartile selling price has increased from $548,300 in November last year to $614,700  last month, an increase of $66,400 (12.1%) in 12 months.

That would have pushed the weekly mortgage payments on a lower quartile priced home in Auckland from $750.24 a week in November last year to $757.60 a week last month, as the benefit of lower interest rates was more than wiped out by rising property prices.

Over the same period, the median take home pay for a typical working couple in Auckland aged between 24 and 29 (the income bracket used in the Affordability Report) increased from $1509 a week to $1531 a week, a rise of just $22 (1.5%) a week.

Auckland remains the only region in the country where housing remains seriously unaffordable for first home buyers.

The report says housing is considered affordable when mortgage payments take up no more than 40% of take home pay.

In Auckland the mortgage payments on a lower quartile-priced house would take up 49.5% of a typical first home buying couple's take home pay, and that's before allowing for other property related expenses such as rates, insurance and maintenance.

Housing has only become unaffordable for first home buyers in Auckland since July 2013, when the mortgage payments on a lower quartile priced home would have taken up 38.73% of a typical first home buying couple's take home pay.

Since then the lower quartile selling price in Auckland has jumped form $444,000 to $614,700 (up 38.5%), pushing weekly mortgage payments up from $576.62 a week to $757.60 (up 31.4%).

Over the same period the median take home pay for a first home buying couple has increased from $1489 a week to $1531 a week, a rise of just 2.8%.

After Auckland the next most expensive region for first home buyers in November was Central Otago Lakes where the mortgage payments on a lower quartile-priced home would have taken up 28.2% of a typical first home buying couple's pay, which was well within the affordable limit.

In Wellington the mortgage payments on a lower quartile-priced home would take up 25.6% of a typical first home buying couple's take home pay and in Canterbury it would be 27.9% .

See the charts below to compare the affordability figures for all regions:

Interest.co.nz Home Loan Affordability Report

For Typical First Home Buyers

November 2015

 

 

REINZ Lower Quartile Selling Price Weekly Mortgage Payments Median Weekly Net Income Mortgage Payments as % of Net Income
Northland $265,700 $295.84 $1415 20.9%
Auckland $614,700 $757.60 $1531 49.5%
Waikato/BoP $305,500 $348.50 $1423 24.5%
Hawke's Bay $218,300 $233.13 $1353 17.2%
Manawatu/Whanganui $175,900 $186.19 $1437 13.0%
Taranaki $232,400 $251.79 $1437 17.5%
Wellington $345,800 $401.82 $1567 25.6%
Nelson/Marlborough $306,400 $349.69 $1424 24.6%
Canterbury/Westland $362,300 $423.65 $1517 27.9%
Central Otago/Lakes $342,700 $397.72 $1410 28.2%
Otago $214,100 $227.57 $1410 16.1%
Southland $140,400 $148.61 $1438 10.3%
All NZ $304,750 $347.51 $1497 23.2%

Auckland CentralAuckland North ShoreAuckland SouthAuckland WestWellington CityHutt ValleyPoriruaKapiti CoastWhangareiNew ZealandHamiltonTaurangaRotoruaNapierHastingsGisborneNew PlymouthPalmerston NorthWanganuiNelsonChristchurchTimaruWairarapaQueenstownDunedinInvercargill

*Home Loan Affordability Report methodology:

The interest.co.nz Home Loan Affordability Report calculates the mortgage payments on homes if they were  purchased at the REINZ's lower quartile selling price in each region, and then calculates how much of a typical first home buying couple's income the mortgage payments would consume.

The mortgage payments are based on a 25 year mortgage at the average of the major banks' 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 incomes for couples where both are aged 25-29, which are 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.

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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28 Comments

So the only unaffordable place in NZ is Auckland. Everywhere else is within the norms of mortgage payments being less than 30% of your net pay. However what would the figures look like if the mortgage was over 20 years as its easy to make the numbers look better by changing the term of the loan. 20 years is based on assuming you have time to save for your retirement after paying off your loan, and as we live longer and will need more in retirement we shouldn't be extending the term of our mortgages but reducing it, as we will need to have more time to save more as we live longer.

Why would young people choose to live in Auckland these days? The best and brightest would be better off in Wellington or Christchurch if they want to stay in NZ or going to Sydney/Melbourne and be better off due to higher salaries on an absolute level (even if relatively the same for housing costs).

Remember these figures are for a two-income household. Good luck having kids in Auckland.

The grass is certainly much greener elsewhere. Though parents tend to get a bit upset when you explain the pointlessness of moving back.

I suggest that young couples project themselves forward in time to when they are 40 and still renting. Total up what they would have spent in rent and consider how much further ahead that they would have been just about any where other than Auckland.

A lot of highly skilled young people have little choice but to live in Auckland if they want to use their skills.

What is the point in being highly skilled if the net effect is that you are worse off. Not just in the aspects of housing and financial, but also lifestyle (not spending a third of your day commuting), good and affordable education for your kids and generally a whole lot less pressure and stress. Besides which I am sure you are underestimating the opportunities outside Auckland.

There are way fewer opportunities as only Auckland and Wellington scale for more than a few ppl.

I love what I do (software development). It's an industry that doesn't exist outside of the main centers. My job satisfaction outweighs the commute. That said - we managed to get into the market last year at around 20% of our combined income.
I'd recommend any young people coming into software now to quit NZ and go to Australia or Europe - this country isn't good enough for you. There's a huge generational wealth transfer going on, it's better not to participate.

Of course, with the good people gone, companies then squeal that there is a "shortage" of developers.

Which John Key uses as an excuse to continue flooding the place with whoever isn't good enough to get into Australia or Europe.

It is a good enough country is just not enough employers offer a fair deal. Quality of life for salary slaves is far from ideal in Europe for most. The world is awash with software developers..employers can pick talent cheaply.

Funny thing but getting good developers who have flair as well as skill is pretty hard to do.

The world is not awash with talented developers and they do not come cheap. The good people earn a fortune here in Europe compared to Auckland.

Actually they often do come cheap IMHO, just no one or too few see the value of paying for really good ones. Plus of course too few employers have the capability to spot them.

Agree, but also the huge risk of a substantial loss which meana the transfer is not only done initially but the debt will be expected to remain.

It seems that some of the older generation / right wingers only think of the money, but are now getting upset when the younger generations who have seen how they have acted also now act in the same way, forced to by the older ones in the first place.

Actually all ages....

A lot of Aucklanders are not highly skilled, so this would not apply to them. It is hard to find a single source of accurately comparable data but by dredging the web I found that the percenatage of people with tertiary qualifications roughly break down as follows
Wellington 37%
Dunedin 35%
Christchurch 34%
Auckland 20%
NZ Average 22%
The Auckland figure looks a bit low to me, but this does illustrate that there a other cities with high skill opportunities.
In any event those who have attained high skill levels will rise up and prosper wherever they live and regardless what level they start at. The cream rises. For example if you have, say a transport engineering qualification and you move to Southland and cannot immediately find a suitable position. If you got a job as a truck driver for Fonterra, you would probably make pretty good money in the first instance and you can be sure that if you contribute well and demonstrate your higher skills, you will pretty quickly be promoted to a more appropriate level. Also it is almost always better to be a big fish in a small pond than a small fish in a big pond.

Yes Chris M. Lots of low pay low skill folk in Auckland. But many common taters on interest.co havent worked it out. My view is that if you want good income prospects, interesting jobs etc head south. Better still if you can do self employment or own the business or are entreprenurial.
Auckand for you if you want to be a corporate cog at whatever level.

No jobs elsewhere, except OZ. So my advice to any youngster is go to the money as its your only option.

haha This simple thinking is for the mugs living in Auckland, makes them feel justified, in Stevies case to stay in Wellington. Have three professional jobs advertised in the 150-200k range in Christchurch and two in Queenstown presently for our firm. All good opportunities for people and especially attractive when compared in relative terms. Will not miss a beat professionally if they want to move to an major city in the future.

The real smart will fill these roles

Uh no, a) there are few (actually none) IT jobs in my sphere/level outside of the first 2 locations plus b) if something was to happen to that job in the middle of nowhere I/we would have to move back almost certainly or take a job paying far less, a big financial loss either way (and and little cultural/concerts type stuff either). This is actual hard won experience / outcomes of myself and quite a few of my peers. In terms of "professional" development I am over taking career "advancing" roles in sh*te holes. The only careers that got advanced were the users who got me to go to such mentioned cesspits. I am not surprised you have to offer such 'decent" wages because no one wants to live there, enjoy.

PS you you also have a professional and highly educated partner you then face the problem of getting her a job that is an intellectual challenge let alone paying a decent wage in the same place, fat chance.

Steven is so easy to wind up. I should suggest life is not just based on his experiences and the line of work he has specialised in. However seriously there are limitations in regional economies to other cities.

Just like Auckland also is very limited job opportunity wise compared to true international cities generally.

However smart people don't just assume thou and although the opportunities may be less there are some true diamonds in the rough..which many people I have met do exploit. I know a number of software developers based in the south island working for companies in London and NYC for the past 15 years, earning international rates living in low cost towns/cities as an example. They just flick over to Aussie for their entertainment..I run an international consultancy via my laptop and phone..the point is there are possibilities worth at least looking at..don't believe the herd..check it out for yourself.

ps I have always been amazing at how little you have to pay for top talent - 200k in NZ for a top software developer is cheap, just like recruiting at the top tier equivalent in Europe is around 300K (euros). From my experience I know which pay packet goes further and that is the 200k in SI NZ by a long way..its all relative.

Return for talent has been squeezed for the past twenty years including professionals..When I was thirty.. anyone I knew across a number of areas of professional work... who had any real talent...could work part time and make 500k ..not so easy today.

Didn't know there was some kind of ownership goal to succeed as human beings.
What about the things young people with mortgages are missing out?

Young people by nature are stupid.. Spend their money on rubbish and whinge on about how poor they are.
Been going on for generations, it won't change.

What's changed only in the last generation, is the unaffordable housing. Going from 3 X one persons income, to 10 X a couples income in Auckland. A total housing policy failure in NZ since the 90's.

I was surprised that my niece in Auckland received no tenders on her property which has wonderful harbour views and it also has resource consent to be subdivided into three sections. I would have thought she would have got at least one tender. What is this saying? Is it just the wrong time of the year to sell a property or is it a sign of a market that is running out of steam. Next month's REINZ figures will be watched with interest.

It's possible that the supply of greater fools is running low.

Median income seems like a strange measure to me. Why not use the lower quartile like with house prices used?

We use median incomes for the 25-29 year age group, a benchmark group who buy first quartile priced houses.