Affordability measures still above historical averages
Despite improvements since late 2021, New Zealand’s housing affordability remains tight, with recent price hikes and high interest rates further burdening Kiwi households, according to the latest CoreLogic Housing Affordability Report.
Mortgage repayments as a percentage of gross annual household income have stalled at 49% in Q4 2023, a figure that has fluctuated narrowly between 49%-52% since the beginning of 2022.
Kelvin Davidson (pictured above), CoreLogic NZ’s chief property economist, pointed out the lack of change in the share of income needed for mortgage repayments in both Q2 and Q3 2023.
“The stability in mortgage servicing in recent quarters isn't really much consolation. Housing affordability is still significantly stretched on this measure, given that the long-term average sits at 37%, illustrating the current challenges from high mortgage rates,” Davidson said.
“The increase in mortgage rates themselves means that repayments continue to eat into many households’ incomes.”
Regional mortgage repayment pressures
At a closer look, each main centre has experienced a slight decrease in repayment pressures in Q4 compared to previous peaks.
Tauranga was the most burdened city, with mortgage repayments consuming 60% of household incomes, followed by Auckland at 55%, and others like Hamilton and Christchurch at 47%.
Improving yet elevated price-to-income ratios
The house value to income ratio has improved, dropping from its early 2022 peak of 8.6 to seven times the average household income. Despite this improvement, the ratio remains above the long-term average of 5.9, indicating continued affordability issues, especially in places like Tauranga with a ratio of 8.5.
Tauranga continues to be the priciest main centre, boasting a value to income ratio of 8.5 in Q4 2023, yet other markets are experiencing even greater strain relative to their usual standards.
Homeownership, renting, and affordability issues
In Q4 2023, the time required to save for a deposit averaged 9.3 years, a decrease from the peak of 11.5 years in Q1 2022, but slightly up from 9.2 years in Q3 and significantly above the long-term average of 7.9 years.
“That’s the first rise in this measure, or worsening in time to save a deposit, since the first quarter of 2022,” Davidson said.
Tauranga requires the longest time to save for a deposit at 11.3 years, with Auckland next at 10.3 years. Hamilton, Wellington, Christchurch, and Dunedin, with times of 8.9, 8.3, 8.7, and 8 years, respectively, all fall below the national average, CoreLogic data showed.
The rental market is not exempt from affordability issues, with rents consuming 21.6% of gross household income, matching previous highs. Rental affordability has worsened in Christchurch, making it the second most expensive city for renters after Tauranga.
Outlook on affordability
Davidson suggested that the strained affordability may act as a natural check on house price growth, with potential for prices to align more closely with income growth in the coming years.
“It’s conceivable that prices may only rise roughly in line with incomes over the next few years,” the CoreLogic economist said. “That wouldn’t necessarily see affordability improve, but it might not get much worse either.”
Davidson also speculated that mortgage rates could decrease in the next two years, potentially improving affordability in terms of debt servicing, though challenges remain in the broader affordability landscape.
“This may throw that delicate balance between prices and incomes off course a little, pushing up measures such as the value to income ratio,” he said in a media release.
“However, when it comes to actually servicing debt, lower mortgage rates would obviously be beneficial for affordability. Debt to income ratio restrictions also have the potential to restrain house price growth over the medium term."
For more insights, download the CoreLogic Housing Affordability Report.
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