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It’s official: housing is unaffordable

The Government's new measure of housing affordability shows housing is unaffordable for both first home buyers and renters in New Zealand's biggest cities, but has gotten a lot worse in Auckland since 2013. Bernard Hickey looks through MBIE's new Housing Affordability Measure (HAM) and finds yet another sign of a generational failure over the last 20 years to provide one of the basics of life at an affordable level for most New Zealanders

Trying to measure housing affordability is a lot like trying to capture mercury. It is forever slipping between your fingers and the longer you play with each measure, the more likely you are to get mercury poisoning and eventually go mad.

I've been looking at these measures for more than a decade and helped build one - Interest.co.nz's Home Loan Affordability reports.

MBIE's measures have had a long gestation and have clearly made the government politically nervous, but they are a useful and very detailed addition to a now fairly crowded landscape. The various reports mostly try to work out what proportion of income is used to service the debt on a mortgage, although MBIE's measures also look at rental affordability. Some include house price to income multiples.

The oldest and the simplest is the Massey University Home Affordability Report, which has data going back to 1998. It is published quarterly, is broken down by region and uses the bluntest measures of income and interest rates. The Demographia survey is issued annually and compares house price to income multiples for the major cities and compares them with other cities around the world. The Interest.co.nz measures use more detailed income data than Massey's survey and breaks down its measures to parts of cities as well as regions. It also compares different types of households.

All of them say pretty much the same thing. Housing rapidly became more unaffordable for first home buyers from the early 2000s as house prices and interest rates rose sharply. Affordability for first home buyers hit its worst levels in early 2008 when interest rates peaked over 10 percent, but improved a bit for most regions after that as interest rates fell. They have worsened again since 2013 in Auckland in particular as house prices took off again.

All of these measures swing around a lot depending on interest rates, so low interest rates since 2010 have made affordability appear a lot better than it is in the long run. It's one of the drawbacks of these measures - they are very interest rate dependent.

The MBIE measure also tries to estimate the cost of housing, but has taken a slightly different approach by measuring the proportion of households that have less than $663 per week left over after they've paid their mortgage costs and rents. MBIE uses this as its benchmark.

It found more than 80 percent of first home buyer households nationally would be left with less than that $663 per week threshold after paying for housing. It found just under 70 percent of renting households had less than $663 left over after paying their rent. Both represent failures.

This chart tells the story for first home buyers across the regions and nationally, including that Auckland hit its worst ever levels after 2014 and is getting worse. Canterbury and Wellington have been improving. One big caveat in these figures is they only go up to June 2015, and house prices have risen more than 30 percent in some places since then.

This chart tells the story for renters. Renting is more affordable, but is still unaffordable, and got worse from 2009 onwards. It is also less useful as a measure because it only goes up to mid-2016. Auckland rents have accelerated since then, and faster than incomes.

The short story with all these measures is they tell us housing is unaffordable for both renters and first home buyers in our biggest cities.

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