Housing affordability worsens, as price tags rise faster than wages, says Massey

New Zealand housing is becoming less affordable as rising wages are not enough to offset climbing house prices and interest rates, says Massey University's latest quarterly Home Affordability Report. (See report attached)

The national affordability index fell 11.4 percent in the year ended August 31, the report says. It found the average weekly wage increase of $28.06 was outpaced by a $30,000 rise in median house prices and the average mortgage rate increasing to 5.86 percent from 5.52 percent.

The Reserve Bank in October last year introduced restrictions on high-debt mortgage lending in an attempt to cool the housing market, which is being driven by a shortage of housing in Auckland, the country's largest city, and earthquake devastated Christchurch, the second largest. Since then, central bank governor Graeme Wheeler has raised the benchmark interest rate by 100 basis points to 3.5 percent since March in a bid to cool inflationary pressures. Interest rates are currently on hold as Wheeler assesses the impact of the hikes, but are expected to continue rising next year.

"Indications are affordability will remain difficult for the remainder of 2014 and into 2015," the report said. "The average interest rate is likely to continue to increase as borrowers roll over their mortgages."

Today's report comes after the Real Estate Institute of New Zealand yesterday reported the number of houses sold fell for the 11th consecutive month in September, while the median price rose 5 percent in September to $420,000 from the year earlier month.

Across the regions, nine out of 12 became less affordable on an annual basis, led by Auckland, which remained the least affordable region, with its a deterioration in annual affordability of 14.4 percent, to an index reading of 138.6, with Central Otago/Lakes the next most unaffordable region, at 119.3. Next most unaffordable was Canterbury, where annual affordability deteriorated by 11.7 percent for a reading of 98.8. Southland deteriorated 9.4 percent, but remained the country's most affordable region with a reading of 51.4.

Wellington, Waikato, Otago, Hawkes Bay and Nelson/Marlborough all became less affordable in the year, Massey said.

Manawatu/Wanganui improved in affordability by 2.7 percent for an index reading of 58.2. Taranaki improved 1.2 percent to 61.2 and Northland improved,0.2 percent to 79.5.

On a quarterly basis, national affordability deteriorated 2 percent.


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