Peters’ plan for $200,000 houses
Acting Prime Minister Winston Peters has said his aim is for houses to cost five times the annual income of someone on the living wage — which means just over $200,000.
Peters statement came on a day when the Government was struggling to keep on message on housing affordability.
On Monday, Peters said he believed housing should be available for five times the income of a couple.
Peters was then asked on Tuesday whether he meant five times the median household income or a lower income measure, such as the living wage. He surprised journalists by opting for the latter, which is not usually used as a measure of affordability.
“That would be the long term target, yes - and that would still be a high ratio,” Peters said.
The living wage is calculated annually by researchers and has been voluntarily adopted by many businesses and some local authorities. Last week the Government committed to paying all public servants at least the living wage from September 1.
Living Wage Aotearoa says the living wage is currently $20.55. This would mean a home would cost $213,720 if it were five times the income for someone working a full 40-hour week.
The Government plans to increase the minimum wage to $20 by 2021. This would mean some homes being sold for $208,000, even in Auckland.
Peters said that this was the appropriate ratio for single-person households as well as for couples.
Housing Minister Phil Twyford was cautiously supportive.
“I haven’t considered whether that would work or not,” Twyford said, but he also noted that Peters’ goals were “well within the range of what we’re trying to achieve.”
“We’re trying to make housing more affordable, let there be no doubt about that," he said.
But Twyford said that getting house prices down to the five times the living wage would be difficult.
“I think that would be tough right now,” he said.
Twyford instead focused on the median multiple, which is the standard measure of housing affordability.
This measures the median house price against the median household income. In New Zealand, household income is calculated as being one full time male median income and 50 percent of one female median income (both in the 30-34 age range), plus any Working For Families entitlements.
Figures provided by interest.co.nz record the current median multiple in Auckland as 9.3, in Wellington city 6.83 and in Queenstown 11.26. Nationally, the median multiple is 6.33.
The International Housing Affordability Survey classifies any median multiple above 5.1 as “severely unaffordable”. Nearly every region in New Zealand falls into this category.
Housing classed as “affordable” is said to cost three times the median household income or lower. No regions in New Zealand fall into this category.
Currently the only regions of New Zealand with anything close to affordable housing are Whanganui at 3.03, Invercargill at 3.04 and Gisborne at 3.66.
For Auckland housing to be classified as affordable, the median house price would have to fall to $274, 838.
KiwiBuild homes in Auckland and Queenstown will have a price cap of $500,000 to $650,000 depending on how many rooms the property has.
Twyford says that KiwiBuild homes of median multiple of five will be well within the KiwiBuild maximum price range.
This means they will still be classified as severely unaffordable, but only half as severely unaffordable as they are currently.
Long term aspirations
While Peters refused to say whether he believed that house prices should fall, Twyford was quick to say that he wanted house prices to stay level while incomes rose.
““We want incomes to rise and we want house prices to be stable,” he said.
“The KiwiBuild policy is not designed to create an economic shock and crash house prices. We want to dramatically increase the supply of affordable modest starter homes for young families that aren’t being built for young families,” he said.
But were house prices to remain level, the living wage would have to more than double to roughly $48 an hour to bring a KiwiBuild home within the “five times” range stipulated by Peters.
Housing unaffordability has been a persistent problem in New Zealand for two decades. In January 2002 median multiple for Auckland stood at 4.19 against a figure of 3.2 nationally.
Housing unaffordability increased under the Helen Clark-led Labour Government. The median multiple for Auckland reached 5.6 by December 2008 and 4.5 percent nationally, although the GFC saw house prices slump.
But it was under the previous Government that housing unaffordability skyrocketed, nearly doubling to a median multiple of 9.2 in Auckland and 6.33 nationally.
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