Housing affordability remains strained in New Zealand, despite weaker property prices and rising incomes.
CoreLogic NZ’s latest Housing Affordability Report found that while some metrics have improved, such as the time needed to save a deposit, affordability remains worse than long-term averages, with the median property value still 7.7 times the gross annual median household income.
CoreLogic NZ Chief Property Economist, Kelvin Davidson, said the value-to-income ratio had fallen from 7.9 in the first quarter of 2024 to its lowest level since early 2020, but remains above the long-term average of 6.8, established since 2004.
“The improvement in housing affordability, based on the value-to-income ratio of course, is broadly back to pre-COVID levels and reflects the sharp falls in property values that we’ve seen over the past two and a half years as well as the steady growth in incomes over the same period,” he said.
The time required to save a deposit has also improved from 13.6 years in Q4 2021 to 10.2 years now, although this is still above the average of 9.1 years.
However, Mr Davidson said that the real challenges arise when it comes to servicing debt, with mortgage payments as a percentage of median household income remaining at 54 per cent, close to the peak of 56-57 per cent, and well above the average of 43 per cent.
“For nearly three years, the share of income needed for mortgage payments has remained in the 53 per cent to 57 per cent range, highlighting the prolonged period of elevated repayment burdens on households,” he said.
Mr Davidson said many households who have recently purchased a property are paying more than half their income to service a new mortgage, and that rising living costs and dwindling savings are likely to increase the level of financial stress.
The rental market also remains challenging, with rents taking up 28 per cent of gross household income across New Zealand, now well above the long-term average of 26 per cent and remaining near record highs.
Tauranga remains the least affordable main centre with a value-to-income ratio of 9 in Q2 2024, despite improving from its peak of 12.3 in late 2021 and early 2022.
Auckland is the second most expensive main centre, with an improved value-to-income ratio of 8.2 and years-to-save figure of 11, down significantly from their respective peaks of 11.6 and 15.5 recorded in late 2021.
Looking ahead, Mr Davidson said that even with the prospect of a near-term interest rate cut, any improvement in affordability is likely to be slight.
“Even if mortgage rates fall more significantly over the next 6-12 months, this could be offset to some extent by an increase in house prices, while at the same time the labour market is loosening and wages are slowing,” he said.
Mr Davidson said that any sustained improvement in housing affordability over the long term would require more significant changes, such as an increase in the supply of dwellings, supported by government initiatives aimed at expanding land availability and infrastructure.
