An international survey that classed housing in New Zealand's main centres as "severely unaffordable" has been criticised by a property investor group as being "too simplistic".
The 10th annual Demographia International Housing Affordability Survey classified Auckland, Christchurch, Tauranga-Western Bay of Plenty, Wellington and Dunedin as "severely unaffordable".
The survey uses a median multiple to determine the affordability rating of houses that 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, or nearly twice the affordable price level, Demographia said.
But New Zealand Property Investors Federation executive officer Andrew King said the survey was too simplistic.
A more accurate measure of housing affordability could be derived by comparing the average annual cost of owning a home with the national median income, he said.
King said that a commonly accepted guideline for housing affordability was a housing cost that did not exceed 30 per cent of a household's gross income.
Using the national median house price of $425,000, less a 20 per cent deposit and assuming a mortgage interest rate of 5.75 per cent, King has calculated that the average cost of owning a house is $30,390 a year, including $4700 a year for insurance, rates, maintenance and other expenses.
The figure of $30,390 represented 43 per cent of the national medium household income of $70,616 - still high, but not as unaffordable as the Demographia survey would suggest, King said.
New Zealand houses could seem to be less affordable than those in other countries because prices here included a larger land component.
"We do like bigger houses on bigger sections, so the types of houses we desire are more expensive," King said.
High building costs, such as reserve contributions and water connection charges, also made New Zealand property more expensive, he said.
"In Auckland, these costs can add up to $40,000 to $55,000 before you even start building," King said.
Westpac chief economist Dominick Stephens said he had "some sympathy" with the federation's criticisms of the survey.
"What the Demographia survey tells us is that we are paying a great deal to own our houses. What it doesn't say is why," he said.
The high prices of New Zealand houses had a lot to do with the tax regime being favourable to home ownership and property investment compared with other forms of saving or investment, he said.
"However, you can't really call houses unaffordable when clearly they sell every day," Stephens said.
The level of interest rates was another important factor in housing affordability that was not included in the survey, he said.
When interest rates were low, paying off a mortgage became easier, Stephens said, but he was concerned that when interest rates rose people might find that their large mortgages became unaffordable.
Interest rate rises would tip the rent-buy decision in favour of renting, possibly leading to downward pressure on house prices, he said.
The Property Council, which represents commercial property owners and investors, said the survey highlighted an issue that called for urgent attention from central and local government.
The "blanket heritage protections" in Auckland's unitary plan needed to be amended to encourage development, it said.
"Until development is actively encouraged in New Zealand, housing unaffordability will become an intergenerational calamity," council chief executive Connal Townsend said.
"If the plan does not adequately permit and encourage development, housing supply will not increase to the desired extent."
Christchurch-based Demographia author Hugh Pavletich could not be reached for comment.
- Fairfax Media