Median Multiples

House price-to-income multiple

This page is an addition to the comprehensive housing affordability analysis we already cover at interest.co.nz.

The house-price-to-income multiple is a simplified, yet internationally recognised measure of housing affordability. It is covered in Agenda 21, Chapter 7 of the United Nations Framework and it is defined as the ratio between median house price and median annual household income, otherwise known as the median multiple. The World Bank also says this ratio is "possibly the most important summary measure of housing market performance, indicating not only the degree to which housing is affordable by the population, but also the presence of market distortions".

Based on this official work, it seems to have become accepted that a median multiple of 3.0 times or less is a very good marker for housing affordability. Much of the work in support of the 3x standard is based on US research on the US housing market.

        Median multiple
  Population House price Income Jan-21 Dec-20 Nov-20 Jan-20 Jan-19
New Zealand         5,101,000 730,000 $95,540 7.64 7.81 7.83 6.56 6.05
                 
Whangarei              89,700 650,000 $93,726 6.94 7.06 6.32 5.52 5.90
                 
Auckland metro         1,657,000 1,000,000 $100,000 10.00 10.27 10.34 8.91 8.46
 - North Shore             225,800 1,255,000 $106,008 11.84 11.63 11.64 10.64 9.12
 - Waitakere            204,500 942,000 $98,172 9.60 9.70 9.27 8.66 8.03
 - Central             444,100 1,105,000 $103,396 10.69 12.31 12.14 9.18 8.86
 - Manukau             368,500 935,000 $93,209 10.03 9.41 9.92 8.97 8.79
                 
Hamilton             165,400 695,000 $92,617 7.50 7.90 7.50 6.69 6.59
                 
Tauranga             131,500 854,000 $90,459 9.44 9.14 9.27 8.04 7.75
                 
Rotorua              71,700 600,000 $92,347 6.50 5.86 6.16 5.43 4.91
                 
Gisborne              48,500 470,000 $83,444 5.63 7.08 6.38 4.91 4.21
                 
Napier              79,900 770,000 $86,889 8.86 8.14 7.80 6.98 6.27
                 
Hastings              62,000 557,000 $86,620 6.43 7.89 8.17 6.33 5.13
                 
New Plymouth              80,700 600,000 $87,207 6.88 6.82 6.68 5.29 5.30
                 
Whanganui              44,500 485,000 $83,123 5.83 4.94 5.34 4.24 3.61
                 
Palmerston North              87,300 650,000 $92,563 7.02 6.70 6.61 5.78 4.61
                 
Wellington metro            487,700 792,000 $103,005 7.69 7.87 7.70 6.16 5.74
 - Kapiti Coast             52,700 860,000 $90,129 9.54 9.18 8.69 6.70 6.46
 - Porirua              56,100 730,000 $98,627 7.40 8.64 8.15 8.38 6.56
 - Upper Hutt              43,200 $549,150 $100,172 5.48 5.47 5.45 5.31 5.13
 - Lower Hutt             104,700 800,000 $101,202 7.90 7.67 7.63 6.07 5.21
 - Wairarapa             40,800 550,000 $73,413 7.49 7.92 7.11 6.14 4.15
 - Wellington City            212,700 885,000 $114,593 7.72 8.32 8.59 6.77 6.47
                 
Nelson              51,400 712,500 $87,823 8.11 7.70 7.66 6.97 6.76
                 
Christchurch             381,500 520,000 $93,681 5.55 5.88 5.84 5.14 4.91
                 
Timaru              47,100 426,000 $87,523 4.87 4.41 4.60 3.86 4.18
                 
Dunedin             128,800 618,000 $82,650 7.48 7.14 7.19 6.79 5.22
                 
Queenstown-Lakes              37,100 975,000 $74,654 13.06 14.30 14.58 14.40 13.28
                 
Invercargill              54,800 385,000 $86,599 4.45 4.36 4.64 4.09 3.37

Median house price:
Median house prices are as reported by the Real Estate Institute of New Zealand. Although the REINZ series is more volatile than the QV equivalent, there is a highly positive correlation between the two series. The REINZ series is more current and offers an earlier indication of market trends. Unfortunately, the new RBNZ-REINZ stratified house price index series does not have enough detail to be used in this analysis.

Median household income:
The household income for a standard household is made from one full time male median income, 50% of one female median income, both in the 30-34 age range, plus the Working For Families income support they are entitled to receive under that program. This standardised household is assumed to have one 5 year old child. Incomes are before tax and retrieved from the Statistics NZ / IRD LEEDS income series. LEEDS data are subject to revision. Work continues to more exactly match median incomes to local authority boundaries.

Reconciliation to Demographia reports:
The data on this page, and in the separately published international Demographia series use the same methodology. However, the reported results are different because:
- our results are tracked monthly, whereas Demographia focus solely on the September quarter each year,
- our median household income is based on a standardised house-buying household (see above) whereas Demographia uses a whole-of-population median which results in a lower overall income,
- we use income from the very detailed IRD-based LEEDS series which is for primary wage and salary income, plus W-F-F benefits paid, whereas Demographia use income data based on the last census (2005) for all age-groups and have applied factor increases to account for the later time period. The census income data includes income elements from all sources (wages, salaries, interest, dividends, benefits, self-employment, partnerships, foreign, etc).

Disclaimer

IMPORTANT – PLEASE READ

No reader should rely on the contents of this report for making a specific investment or purchase decision. The information in this report is supplied strictly on the basis that only overall market trends are being reported on, and that all data, conclusions and opinions expressed are provisional and subject to revision. If you are making a specific investment or purchase decision, you are strongly advised to seek independent advice from a qualified professional you trust. The conditions and disclaimers set out at https://www.interest.co.nz/terms-conditions are applicable to this report as well.

This report is made available on these terms only, and neither JDJL Limited nor www.interest.co.nz will accept any responsibility for any actions taken on the basis of information in this report, nor for any error in or omission from this report.

Contact:

For sources, definitions, and methodology, please contact:

David Chaston
Publisher,
www.interest.co.nz
JDJL Limited
206 Jervois Road, level 1, Herne Bay
PO Box 47-756, Ponsonby
Auckland, New Zealand

Phone: +64 (0)9 360-9670
Mobile: +64 (0)21 997 311
Fax:       +64 (0)9 360-9319
Email:   david.chaston@interest.co.nz

 

Related Commentary:

demographia.com

House price to income multiple

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8 Comments

It is all Irish I tell ya,
http://www.independent.ie/business/personal-finance/property-mortgages/p...
Too old for a mortgage at 40. Too worried about negative equity and its consequences.. 
Bin there done that.
http://www.independent.ie/business/personal-finance/property-mortgages/i...
Too worried about where property is going. Even an adviser rents as Houses over cooked.
Median Multiples...Nah worries mate.
.NZ is different.
We can work past our Prime.

David & team - ever consider converting this page into one of your charts?  Where you can select NZ as a whole or each city, and graph the multiples over time?  Would be very neat.

Here's a couple of additional lines I reckon would make the table more complete and informative, respectively:
- 'Rest of NZ / Small town NZ' - pop. 1,336,000 with a Jan-17 MM of 3.02*
- 'NZ total ex-Auckland' - Jan-17 MM of 4.18*

*my approx calcs, calculated based on the NZ total data and the data for the towns and cities you listed.

Neither of these are far off the housing affordability benchmark MM of 3.0x or less, a rather different housing affordability story for NZ Inc (ex-Auck) than when the Auckland-inclusive stat is used.

The single NZ total MM you (and other media) currently provide is so significantly influenced by the large population MM 'outlier' of Auckland metro that it doesn't give a useful picture for housing affordability - on average - across the rest of NZ. Sure Queenstown is also an outlier on the MM front but its small population means its impact on the NZ total MM is negligible.

Oh my Gosh , those public servants are the best paid in the land down in Wellington !

All the while, not a word on the servicing costs of the loans. It is so blatantly obvious that when interest rates go down, house prices rise faster than incomes, which makes for a higher house to income multiple. But nope let's keep mixing financial position with cashflow and totally ignore expenses (servicing costs)

It so obvious that it can almost be considered the actual objective of monetary policy.

.

Come on team of 5 million, let's crack the 10x median income mark. We can do this.