Housing affordability getting worse
Housing is unaffordable in all eight of New Zealand's major markets, an international survey shows.
High median house prices have been upwardly skewed by recently imposed mortgage lending restrictions and low mortgage interest rates, an economist says.
The 10th annual Demographia International Housing Affordability Survey classified Auckland, Christchurch, Tauranga-Western Bay of Plenty, Wellington and Dunedin as "severely unaffordable".
Palmerston North, Napier-Hastings and Hamilton-Waikato were "seriously unaffordable", the survey said.
The survey uses a median multiple to determine the affordability rating of houses in 360 metropolitan markets in nine countries. The median multiple is calculated by dividing a region's median house price by the median income.
Regions with house prices more than three times the median regional income are deemed unaffordable.
Overall, New Zealand had a median multiple of 5.5, up from 5.3 last year.
Auckland was New Zealand's least affordable market, with a median multiple of 8, up from 6.7 last year.
Christchurch survey author Hugh Pavletich said that year after year there was debate by economists over the accuracy of the income figures used in the survey.
"In the meantime they're missing the main point," he said.
"All the quibbling over income figures by economists and others is not going to make New Zealand housing affordable."
The input income figures used in the survey were sourced from 2013 census data, while the house price figures came from the Real Estate Institute of New Zealand, he said.
Pavletich said there were probably towns in New Zealand not included in the survey that had more affordable housing.
Housing in major cities was unaffordable, he said.
ANZ senior economist Mark Smith said New Zealand house prices were "undeniably" high in relation to income.
However, loan-to-value ratio (LVR) restrictions and low mortgage interest rates had upwardly skewed median house prices in New Zealand, he said.
The bottom end of the housing market had "slowed sharply" since the Reserve Bank imposed LVR restrictions on lending last October, he said.
Floating mortgage interest rates, which were closely linked to the Reserve Bank's official cash rate, were relatively low compared with historical levels.
However, it was no secret the Reserve Bank was likely to start increasing the official cash rate from 2.5 per cent in March, he said.
When interest rates went up, house prices were likely to fall, he said. "That's what the bank would hope to see."
How long it would take before New Zealand's over-heated housing market started to cool was the big question.
The Reserve Bank wanted to see house prices drop gradually as it was not in the economy's best interests for prices to crash, Smith said.
Pavletich said that to fix the affordability problem, New Zealand needed to open up land supply and finance infrastructure appropriately so more affordable houses could be built on the fringes of the major markets.
New Zealand was, in political terms, the world leader in progressing these issues, he said.
The Government had taken appropriate steps to set up accords with major councils around the country to deal with housing issues.
The affordability of New Zealand housing depended on the effectiveness of the accords, Pavletich said.
"It simply can't happen soon enough," he said.