Affordability deteriorates again

It says if the trend for unaffordability in Auckland continues, it could reach historic lows.

Report author Professor Paul Gallimore said affordability was deteriorating around the country.

“In some regions the annual worsening in the affordability index has been kept at single figures, but the majority of regions are into double figures,” he said.

The decrease in affordability had been driven in roughly equal parts by rising house prices and increasing interest rates.

A 0.46 per cent increase in interest rates, coupled with an over $30,000 rise in the national median house price, far outstripped the $19.35 increase in the average weekly wage.

“What this means is that a progressively higher slice of people’s income is needed to fund home buying.  This tends to bite harder at first-home buyers, and is especially the case in Auckland,” Gallimore said.

Auckland topped  the list of least affordable regions, followed closely by the Central Otago/Lakes region.

Both areas experienced steep house price rises during the report’s most recent quarter, which ran from September to November 2014. Auckland is 40% above the national median, while Central Otago/Lakes is 39% more unaffordable than the national average. Southland is most affordable, 54% above the national average.

“If you look at only at the last quarter, hikes in prices have really dominated, with around 85% of the change in the national index over that period due to this factor,” Gallimore said.

Gallimore expected housing affordability to continue to deteriorate into 2015 and, in Auckland, could reach levels not seen since before the global financial crisis.

“While Auckland’s affordability score still remains below the peaks seen in 2007/2008, its current trajectory suggests it may soon return to or exceed those levels,” he said. “Even without further price rises – which no one is predicting – a one percentage point rise in interest rates, without substantial wage increases, would put it on par with 2007/2008 levels. A rise in house prices of 10%, with wages rising at the same pace as last year and no interest rate increases, would also push it close to those peaks. But if this situation was combined with a modest half-point rise in borrowing rates, the index would be propelled into what, for Auckland’s recent record of affordability, would be uncharted territory.”

Wanganui/Manawatu had the biggest decrease in affordability over the year, down 18.8%. Taranaki's increase of 7.1% was the smallest.