HOME AFFORDABILITY REPORT QUARTERLY SURVEY JUNE 2015, VOLUME 25, NUMBER 2 AUCKLAND CONTINUES TO DRIVE DETERIORATION IN 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. KEY POINTS • Annual deterioration in National affordability of 11.3% • Canterbury only region to improve in last 12 months • Quarterly deterioration in National affordability of 5.4% • Eight regions show improvements in affordability in past quarter • Auckland’s unaffordability relative to the whole country continues to grow 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. REGIONAL AFFORDABILITY AS A PERCENTAGE OF NATIONAL AVERAGE 81% 156% 82% 60% 68% 52% 80% 88% 89% 131% 46% 63% PERCENTAGE CHANGE IN HOME AFFORDABILITY IN THE LAST 12 MONTHS HOME AFFORDABILITY INDEX Region Feb 2015 May 2015 improvement decline Northland 19.6 19.9 - 3.4% Auckland 34.9 38.5 - 25.6% Waikato/Bay of Plenty 20.6 20.3 - 7.7% Hawke’s Bay 16.9 16.7 - 7.9% Taranaki 16.1 14.9 - 18.5% Manawatu/Wanganui 13.7 12.9 - 5.5% Wellington 20.5 19.7 - 1.8% Nelson/Marlborough 22.2 21.8 - 8.5% Canterbury/Westland 22.7 22.1 1.2% Otago 15.8 15.5 - 17.6% Central Otago Lakes 31.3 32.3 - 8.6% Southland 11.1 11.4 - 21.2% New Zealand 23.4 24.7 - 11.3% - NATIONAL HOME AFFORDABILITY INDEX (A LOW INDEX EQUALS IMPROVED AFFORDABILITY) 38 38 38 34 34 30 30 30 26 26 26 22 22 22 18 18 18 14 14 14 34 10 10 May-14 Aug-14 Nov-14 Feb-15 Northland Northland May 14 - May 15 May-15 Aug-14 Nov-14 Feb-15 May-15 10 May-14 Auckland Auckland 34 34 34 30 30 30 26 26 26 22 22 22 18 18 18 14 14 14 10 10 Aug-14 Nov-14 Feb-15 May-15 May-14 Aug-14 Nov-14 Feb-15 May-15 10 May-14 Taranaki Hawkes Bay Hawkes Bay May 14 - May 15 22 22 18 18 18 14 14 Nov-14 Feb-15 May-15 10 22 10 May-14 Wellington Wellington Aug-14 Nov-14 Feb-15 May-15 38 34 34 34 30 30 30 26 26 26 22 22 22 18 18 18 14 14 10 10 Feb-15 Otago Otago May 14 - May 15 May-15 Nov-14 Feb-15 May-15 May 14 - May 15 38 Nov-14 Aug-14 Canterbury / Westland Canterbury/Westland 38 Aug-14 May-14 Nelson Nelson May 14 - May 15 May 14 - May 15 May-14 May-15 26 26 Aug-14 Feb-15 30 26 10 May-14 Nov-14 34 30 14 Aug-14 38 34 30 May-15 Manawatu/Wanganui May 14 - May 15 38 34 Feb-15 Manawatu / Wanganui Taranaki May 14 - May 15 38 Nov-14 38 38 May-14 Aug-14 Waikato/Bay Plenty Waikato/Bay ofofPlenty May 14 - May 15 May 14 - May 15 38 May-14 14 10 May-14 Aug-14 Nov-14 Feb-15 May-15 May-14 Otago Lakes CentralCentral Otago Lakes May 14 - May 15 Aug-14 Nov-14 Feb-15 May-15 Southland Southland May 14 - May 15 38 REGIONAL AFFORDABILITY INDEX 34 30 26 22 18 New Zealand May 14 - May 15 14 10 May-14 Aug-14 Nov-14 New Zealand Feb-15 May-15 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. Prepared by Paul Gallimore & Fong Mee Chin School of Economics and Finance Massey University ENQUIRIES MAY BE ADDRESSED TO: Sidah Russell Communications and Marketing Massey University Phone: (09) 213 6448 Email: S.Russell@massey.ac.nz Website www.masseynews.massey.ac.nz 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. 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 which operates out of Massey University’s Albany campus. 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 Massey Business School. Professor Paul Gallimore 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.