Rob Stock: Lessons from home affordability report
OPINION: A report by a landlords' lobbying group has proved houses haven't become more "unaffordable" to the young.
Phew, that's a relief, because I was under the impression that in our big cities they were severely unaffordable.
I had been seeing signs of severe unaffordability everywhere; falling home ownership, increasing years to save a deposit, parents guaranteeing mortgages, youngsters needing gifted deposits, and the skyrocketing ratio of house prices to household incomes.
But then the Property Investors' Federation (PIF) Housing Affordability Report assured me: "Commentators who state that it has never been less affordable to get into your first home are wrong and may inadvertently be doing a great disservice to first home buyers."
I was suspicious about the report, which compared the "affordability" of mortgage payments in 1985, 1995, 2005 and 2015.
I wouldn't expect a landlord lobby group to release a report that concluded houses were severely unaffordable.
Buying a house when I came to Auckland in the early 2000s was easier than it would have been today for someone in the same position as I was then.
Interest rates were higher, but deposits were far smaller. People expected to pay the loans off over 25, not 30 years.
The PIF report suggested homes were more "affordable" back then.
I have a number of issues with the report.
It uses a national house price figure, when most young people are in the cities, where the jobs are. The report would've been more instructive had it separated out Wellington, Christchurch, and Auckland.
In 2015, $460,000 may have bought the median house in New Zealand, but it didn't buy much in Auckland!
Also, the report's authors didn't appear to consider the size of mortgage mattered. It does. It matters a lot.
The report has 2015 buyers needing a $370,000 mortgage on an income of $61,200, compared to 1987 buyers who needed a $64,000 loan on an income of $23,500.
Again, a mortgage of $370,000 would have bought much in Auckland in 2015.
The report found the proportion of household income needed to cover a mortgage on that median house with a deposit of 20 per cent was actually lower now than in 1985, and 2005.
But hang on. Over 30 years interest rates move around. 1985 buyers faced floating mortgage rates of nearly 20 per cent, but that was an aberration.
As rates fell to normal levels, the value of their homes rose, and their payments came down.
People spending roughly the same proportion of their incomes on mortgage repayments now are facing rising rates.
Affordability of homes is a wider issue than the affordability of mortgage payments in one year of a 25 or 30 year home loan.
Also, working lives are less secure. The young must pay more for their educations, and probably their retirements.
Home affordability must be judged with those things in mind.
I do agree with the PIF that gloom and discouragement are the enemies of the young, and that buying homes was never easy.
Owning a home is the bedrock of wealth and stability. Giving up on the home ownership dream would have long-term impacts on young lives.
- Save, invest and keep striving
- Be ready when opportunity presents
- Take care not to over-extend
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