Hawke's Bay Property Investors' Association

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02-07-2015

Auckland continues to drive deterioration of home affordability

The national affordability index has deteriorated by 11.3% in the past year, and by 5.4% in the past quarter. The last quarter has seen improvements in eight of the country’s twelve regions, although these improvements fail to outweigh the "Auckland effect". In the country’s largest city the quarterly deterioration in affordability was 10.2%. Only three other regions, Central Otago Lakes (3.3%), Southland (2.5%) and Northland (1.8%) suffered declines in affordability in this quarter. For the whole year, affordability in Auckland has now worsened by more than 25%.

Nationally, over the year, the fall in affordability stems from rises in house prices ($30,000 or +7.0%). This, combined with modest average interest rate rises (0.33 percentage points), more than offset the increase in average weekly wages of $18.74 (+1.7%). Auckland wages rose at less than the national average (1.0%), dwarfed by its annual rise in house prices of $124,000 (+19.8%). Only one region – Cantebury - saw a 12 month improvement in affordability, resulting from a year-on-year fall in prices coupled with a higher than average earning uplift.

Over the quarter, the national improvement from the previous period has been reversed, driven by increasing national house prices. These rose in this quarter by $30,000 (7.0% and coincidentally the same rise as for the full year)), accompanied by little change in weighted average interest rates, and wage rises averaging just 0.8%. In the same quarterly period, with no average wage rise, Auckland prices have steamed ahead, rising by $74,000 (11.0%)

Despite the overall picture, eight regions do show improvement in affordability in the past three months. Falling house prices accounted for this in six of these regions, namely in Taranaki (an improvement in affordability of 7.60%), Manawatu/Wanganui (5.90%), Wellington (3.50%), Canterbury/Westland (2.70%), Otago (2.10%), and Nelson/Marlborough (1.80%). Affordability also improved in Waikato/Bay of Plenty and Hawkes Bay (both by 1.30%), where house price rises were slightly outpaced by wage rises. The three regions, other than Auckland, that experienced the largest house price rises in the period were those that saw declining quarter-on-quarter affordability; these being Central Otago Lakes (3.3%), Southland (2.5%) and Northland (1.8%).

Changes in affordability in most regions are currently fluid, reflecting variations from quarter-to-quarter in house price movements. Auckland continues to stand apart. Last quarter we reported that the margin by which its unaffordability

exceeded the whole country had, at 49%, reached its widest in the history of the Massey Index. Today, that margin stands still higher at 56%.

The recent reduction in the OCR, when fed through into lending rates, should work in the short-term to ease the mortgage costs of home-owning. This effect on affordability may in time be countered to an extent by enabling buyers to bid higher for homes. As this balancing act plays out in many regions, Auckland remains problematic to predict. The prospects for a continuation of rampant rises, set against targeting by government to take heat out of this market, will add further complexity to the interplay of factors as diverse as reduced borrowing costs, buyer psychology and building supply.

KEY POINTS

  1. Annual deterioration in National affordability of 11.3%
  2. Canterbury only region to improve in last 12 months
  3. Quarterly deterioration in National affordability of 5.4%
  4. Eight regions show improvements in affordability in past quarter
  5. Auckland’s unaffordability relative to the whole country continues to grow

Tags: housing affordability - massey affordability

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