Housing has been deemed unaffordable so often that it is now considered a fact. The key evidence has been the ratio of house prices to incomes which currently stands at 5.4, with 3 being the proposed ideal level.
The NZ Property Investors’ Federation (NZPIF) has examined this figure and found that it is potentially misleading. The NZPIF looked into other research to examine the validity of the housing affordability crises and came up with some startling results.
It appears we don’t have a Housing Affordability Crises, but a Housing Expectation Problem and a Housing Priority Dilemma.
The ratio of house prices to incomes is a crude measure of housing affordability as it doesn’t take account of interest rates, which have been falling since the late 1980’s.
The Federation also questions why a ratio of three times the household income is a desirable house price level. Assuming that a new home buyer saves their annual income as a 20%deposit, then five times their income would be an appropriate house price level.
The current House Price to Income ratio statistic also fails to account for Government subsidies and grants.
To properly examine housing affordability in New Zealand, the NZPIF have developed an on-line calculator at www.NZPIF.org.nz/afford-a-home. The calculator is based on the scenario of an Auckland couple with two children, potentially the demographic that would find it hardest to obtain home ownership.
Users can enter their household income and the calculator will show what allowances and grants are available to them, how much they will need to save, what value home they can expect and how long it will take them to pay off the mortgage.
The calculator shows that such a family on one income of $30,000pa will take 6.5 years to save a deposit for a home and 23.5 years to pay off the mortgage. Assuming they start saving before they are 35 they will have a debt free home by retirement.