Kiwis need less time and income to enter the market

Housing affordability in New Zealand has been improving as property prices fall, incomes rise and interest rates stabilise, according to CoreLogic.

That said, housing remains less affordable than the long-term average.

Mortgage repayments as a percentage of gross annual average household income have fallen from a peak of 53% in the December 2022 quarter to 49% in the June 2023 quarter – but remain higher than the long-term average of 38%

Properties in New Zealand are now valued at 7.2 times the average household income, down from a peak of 8.8 in the March 2022 quarter but still well above the long-term average of 6.1.

Meanwhile, the time to save a deposit has fallen from a record-high 11.7 years in the March 2022 quarter to 9.6 years in the June 2023 quarter, compared to the long-term average of 8.1 years.

Affordability challenges set to linger

CoreLogic Chief Property Economist Kelvin Davidson said housing was unlikely to become much more affordable soon.

“Although lower mortgage rates seem likely over a one- to two-year horizon, we’re not expecting any relief via rate cuts in the immediate to short-term. Given the uneasy prospect that property values may start rising, albeit gradually, once again as we’re already starting to see in a couple of regions, this will only add to the strain on new home buyers, at least until interest rates start to come back down.”

Mr Davidson said the challenge for housing affordability was that the recent improvements had started from a low base, so although the problem had declined, it still remained.

This would be likely to cap the rate of price growth over the medium term, he said, as would potential limits on debt-to-income ratios for mortgage lending that might be imposed by the Reserve Bank early next year.

“But any growth in house prices, even if modest, will put upwards pressure on many of these measures which will see housing affordability remain a critical issue for New Zealand in the coming years – even if incomes continue to rise and mortgage rates slowly fall in the longer term,” he said.

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