House price rises creating a generation of renters

Household incomes aren't increasing by as much as house prices, creating a growing number of renters

Household incomes aren't increasing by as much as house prices, creating a growing number of renters

What happens when the average house price in our biggest city is poised to reach $1 million within a few years? You create a generation of renters.

Economist Shamubeel Eaqub calls the Auckland housing story "madness" - and his upcoming book Generation Rent captures the rising sense of hopelessness among young New Zealanders locked out of the home ownership dream.

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* Full coverage: Budget 2015

* What to do with Generation Rent

Census figures tell the story: In 2001, 50 per cent of Aucklanders were counted as people who did not own their usual residence, or renters. By 2013, that number had risen to 56.59 per cent.

"When you think about what it means to be a New Zealander, the Kiwi home ownership dream - that's broken," says Eaqub.

"That egalitarianism, everybody gets a fair go, everybody can get into home ownership - that's been broken for a long time."

The cause? Rising house prices. In the four years to April this year, they rose by an average $115,000 nationwide. But much of that growth was driven by Auckland, where the average house price has increased by more than $278,000 since April 2011 - from $531,113 to $809,200.

Canterbury has also experienced rapid price gains, up by $111,000 in the four years to April.

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But elsewhere it is a different story. Wellington prices rose by only $15,000 over the same period, while Dunedin prices rose by $25,000.

Household incomes have risen nowhere near as fast as house prices.

From June 2011 to June 2014, median household income increased by 14 percent, up from $63,322 to $72,394, according to the Household Economic Survey.

House prices in the Auckland region are up 52 per cent since 2011 and by 29 per cent across New Zealand.

The discrepancy has led to a steady decline in home ownership rates.

The number of households who own or part own their home has decreased by 75,000 since 2007, despite the total number of households increasing by 155,000 in the same period. The number of households renting has increased by 117,000 during that time.

The Government denies there is a housing crisis and Prime Minister John Key says it is the same story in cities around the world, including Sydney, London and Singapore.

But the frenzy in Auckland has placed it among the most unaffordable cities internationally. Auckland's house price to income ratio of 8.59 is higher than Brisbane and Dubai but is still considerably lower than prices in London, Singapore and New York.

It is not just Generation Y who are affected.

Figures supplied by Eaqub from his book Generation Rent show that home ownership rates have fallen across almost all age groups between the 2001 and 2013 censuses. But for those in their 30s - the "family forming" age groups - the fall is particularly stark.

In 2001, 61 per cent of late 30s New Zealanders owned their own home, compared to just 50 per cent in 2013. Similarly, 48 per cent of early-30s New Zealanders owned their own home in 2001, but only 36 per cent in 2013.

WHEN IT ALL FALLS DOWN ...

The big concern among policy makers is the impact on homeowners if the housing bubble bursts.

An analysis of the four major banks issued earlier this month suggests that a fall of 20 per cent in house values would leave about 14 per cent - or 1 in 7 households - that hold a mortgage, owing more on the property than it would be worth.

Unlike some American states, New Zealanders by and large cannot just hand back the key to the bank and leave - they are still responsible for the debt.

 - Stuff

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