HOME AFFORDABILITY REPORT QUARTERLY SURVEY JUNE 2014 I VOLUME 24 I NUMBER 2 AFFORDABILITY WORSENS The all districts national affordability index deteriorated by 7.6% during the twelve months ending May 2014. There was no real surprise in this result because the average annual wage increase of $34.53 was not enough to offset a $38,000 increase in the national median house price and an increase in the average mortgage interest rate from 5.57% to 5.64%. This deterioration in affordability is likely to continue as recent interest rate increases are incorporated into the debt servicing costs for home mortgages. On a regional basis annual changes in affordability showed five regions with improved affordability. These were Southland [14.4%], Taranaki [8.4%], Manawatu/Wanganui [6.2%], Nelson [2.2%] and Otago [0.8%]. A deterioration in annual affordability was evident in seven regions; Central Otago/Lakes [12.2%], Canterbury [10.6%], Auckland [9.1%], Waikato [4.8%], Northland [3.5%], Wellington [3.4%] and Hawkes Bay [0.7%]. On a quarterly basis the all districts national affordability index deteriorated by 4.5% compared with 2.8% improvement in the previous quarter. Auckland at 138.0% of the all districts national index [100%] was the least affordable region followed by Central Otago/ Lakes [133.9%] and Canterbury [100.6%]. Southland retained its place as the most affordable region with an index of 42.5% of the national average. Manawatu/Wanganui [55.2%] was in second place followed by Taranaki [56.7%] third. There appears to be an ongoing trend where the affordability gap is widening between the larger urban centres and the provincial urban centres. This is mainly a function of differential house prices between regions. Further details on affordability and the methodology used in this survey are reported on the following pages. KEY POINTS • Annual deterioration in National affordability of 7.6% • Quarterly deterioration is National affordability of 4.5% • Affordability projected to continue to deteriorate during 2014 • Affordability gap between urban and rural regions is widening REGIONAL AFFORDABILITY AS A PERCENTAGE OF NATIONAL AVERAGE Region 86.9% 138.0% 84.9% 56.7% 55.2% 90.5% 100.6% 133.9% 42.5% 59.2% 69.8% 87.4% PERCENTAGE CHANGE IN HOME AFFORDABILITY IN THE LAST 12 MONTHS HOME AFFORDABILITY INDEX Feb 2014 May 2014 improvement Northland 19.9 19.2 - 3.5% Auckland 28.5 30.6 - 9.1% Waikato/Bay of Plenty 19.5 18.8 - 4.8% Hawke’s Bay 16.4 15.4 - 0.7% Taranaki 14.5 12.5 8.4% - Manawatu/Wanganui 12.2 12.2 6.2% - Wellington 19.4 19.3 - Nelson/Marlborough 20.9 20.0 2.2% Canterbury/Westland 21.2 22.3 - Otago 13.9 13.1 0.8% Central Otago Lakes 26.5 29.7 - Southland 10.9 9.4 14.4% New Zealand 21.2 22.1 - NATIONAL HOME AFFORDABILITY INDEX (A LOW INDEX EQUALS IMPROVED AFFORDABILITY) 45 40 35 30 25 NZ 20 AKL 15 STHLD 10 5 0 decline May-96 May-98 May-00 May-02 May-04 May-06 May-08 May-10 May-12 May-14 3.4% 10.6% 12.2% 7.6% 38 34 30 26 38 38 34 34 30 30 26 26 22 22 22 18 18 18 14 14 10 10 May-13 Aug-13 Nov-13 Feb-14 May-14 14 May-13 Northland Northland May 13 - May 14 Aug-13 Nov-13 Feb-14 May-14 Auckland Auckland May 13 - May 14 38 38 34 34 34 30 30 30 26 26 26 22 22 22 18 18 14 14 10 10 May-13 Aug-13 Nov-13 Feb-14 May-14 May-13 Hawkes Bay May 13 - May 14 Aug-13 Nov-13 Feb-14 May-14 10 May-13 Taranaki May 13 - May 14 34 30 30 26 26 22 22 22 18 18 18 14 14 14 10 May-13 10 Aug-13 Nov-13 Feb-14 May-14 May-13 Wellington Wellington May 13 - May 14 38 38 34 34 30 30 26 26 22 22 Nov-13 Feb-14 May-14 Aug-13 Nov-13 Feb-14 Otago Otago May 13 - May 14 May-14 Feb-14 May-14 10 May-13 10 Aug-13 Nov-13 Feb-14 May-14 38 34 30 26 22 18 14 May-13 Nov-13 Canterbury/Westland Canterbury / Westland May 13 - May 14 18 14 10 Aug-13 Nelson Nelson May 13 - May 14 18 Aug-13 38 34 26 May-14 Manawatu / Wanganui Manawatu/Wanganui May 13 - May 14 38 30 Feb-14 14 Taranaki 34 Nov-13 18 Hawkes Bay 38 Aug-13 Waikato/Bay Plenty Waikato/Bay ofofPlenty May 13 - May 14 38 10 May-13 14 May-13 Aug-13 Nov-13 Feb-14 May-14 10 May-13 Central Otago Lakes Central Otago Lakes May 13 - May 14 Aug-13 Nov-13 Feb-14 May-14 Southland Southland May 13 - May 14 38 34 30 REGIONAL AFFORDABILITY INDEX 26 22 18 14 10 May-13 Aug-13 Nov-13 New Zealand Feb-14 New Zealand Nov 12 - Nov 13 May-14 DATA SOURCES The average weekly earnings and mortgage interest rate figures are drawn from Statistics New Zealand and Reserve Bank data. Housing prices are released by the Real Estate Institute of New Zealand (REINZ). The combination of this data provides the opportunity to calculate a reliable and useful summary index. The lower the index the more affordable the housing. The index allows for comparisons over time and between regions of relative housing affordability in New Zealand. TERMINOLOGY Housing affordability for housing in New Zealand can be assessed by comparing the average weekly earnings with the median dwelling price and the mortgage interest rate. The earnings figure represents the money available to the family, or household unit, and the median dwelling price combined with the mortgage interest rates provide an indicator of the expense involved. MEDIAN DWELLING PRICES Median dwelling prices for various regions within New Zealand are released monthly by the REINZ. The figures are obtained from a survey of member agencies’ sales during that specific month. There may be irregularities in the data resulting from errors in the returns or processing, but when individual returns are combined with those of other agencies the distortion is likely to be small. In some months there may be very few transactions and this can result in somewhat non-representative median prices. The REINZ continues to research ways of improving the quality of the data. The research, and other continuing action by the REINZ to monitor and improve data quality, should minimise data errors. AVERAGE WEEKLY EARNINGS Average national and regional weekly earnings data is provided directly by Statistics New Zealand. AVERAGE MONTHLY INTEREST RATES The Reserve Bank publishes a range of data on mortgage interest rates. The Reserve Bank series selected for the affordability index is based on end of month floating and fixed rates for existing borrowers. Weighted by volume, loan type and term from each lending institution, the rate used is effectively the weighted average interest rate earned by lenders (and paid by borrowers) for more than 90 per cent of the residential mortgage market. This mortgage rate provides an indication of the interest which is payable on new mortgages entered into in the quarter under consideration. While there are various levels, as a percentage of the house price which a mortgage may represent, in general most new home buyers are up to the maximum percentage of approximately 80 percent. Prepared by Bob Hargreaves & Fong Mee Chin School of Economics and Finance Massey University ENQUIRIES MAY BE ADDRESSED TO: Sidah Russell Communications and Marketing Massey University Phone: (09) 4140800 Ext 9421 Email: S.Russell@massey.ac.nz Website www.masseynews.massey.ac.nz MASSEY UNIVERSITY PROPERTY FOUNDATION The Foundation is established to sponsor research and education in property related matters in New Zealand. Funding is obtained through sponsorship from corporations and firms within the property industry. The Foundation has established a Real Estate Analysis Unit to operate out of both MasseyUniversity’s Palmerston North andAlbany campuses. The Foundation works closely with the Property Studies Group at MasseyUniversity. SCHOOL OF ECONOMICS AND FINANCE MASSEY UNIVERSITY MasseyUniversity has three campuses, located in Palmerston North, Wellington and Auckland, in New Zealand. The University has an enrolment of 33,000 students with approximately 13,000 business students. There are five schools within the BusinessStudiesCollege. Professor R.V.(Bob) Hargreaves, directs the Massey University Real Estate Analysis Unit (MUREAU). IMPORTANT DISCLAIMER No person should rely on the contents of this report without first obtaining advice from a qualified professional person. This report is made available on the terms and understanding that MasseyUniversity and the authors of this report are not responsible for the results of any actions taken on the basis of information in this report, nor for any error in or omission from this report.