Brian Edwards Media

Auckland houses unaffordable – really?

Guest Blogger –  Stuart Christie

The NZ  Herald has once again relayed the harrowing story of families denied their opportunity to live in Auckland because houses have become unaffordable. It gave  examples of record prices paid. I’ve spent some years in real estate, and I wonder what is going on.

It’s all nonsense, of course, because the people who bought those houses could afford them and presumably  are very pleased with their purchases. I dare say that other bidders at those auctions could afford those houses as well, but were just beaten out by the last bid. That’s not new, that’s always been the case as long as auctions have been around.  Now, maybe if a property is  ‘passed in’ at auction it could be unaffordable.

Isn’t it true that most of these buyers are simply trying to buy houses they can’t afford? Unless your second name is Dotcom then it is likely there are thousands of houses you can’t afford in Auckland. That’s a fact of life. Sure, there have been a few  rapid price rises in some areas, but first or second home buyers have generally never been able to afford a first home in central Auckland or most of the inner suburbs.

Today the Auckland-wide median sale price for a house is in the high $500,000’s and that’s a big hurdle, but it also means that half the sales are less than $500,000. In fact a quick scan of suburban medians ( Crockers Research) shows that five suburbs had May 2012 median sales prices under $400,000 (including Papatoetoe, Henderson, Papakura and Glenfield) and at least another seven suburbs have medians between $400,000 and $500,000. Looking at sales numbers it is easy to see that just under 25% of the sales in May in Auckland were in the $300,000’s.

 There are more rungs on the property ladder than the top ones.  Auckland houses unaffordable? Rubbish!

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41 Comments:

  1. I bought my first home in 1972 for $12,500, which was five times my annual income. Although my wife was working at the time, it wasn’t acceptable to take it her income into consideration because it was deemed to be temporary – in those days when young women were about to become mums, their ability to earn an income ceased for a few years and lending institutions insisted in taking only the male partner’s income into account. Fast-forward 40 years: the equivalent of my $2,500 salary might be about $40,000. I don’t know anything about the Auckland property market but reports suggest 5x $40,000 wouldn’t get anyone into a new home. Combined incomes and the assurance of paid maternity leave, however, could possibly mean it isn’t any more difficult today than it was back then. I do agree with the writer’s point that some young folk don’t seem to be prepared to start on the bottom rung of the ladder anymore.

  2. In 1987 I bought a house which was then worth four time my annual income. That house is now valued at 10 times my annual income. I no longer live in Auckland but am inclined to believe that it is increasingly difficult for first time house buyers.

    As for an estate agent telling me that house prices are not unaffordable… well forgive me, I would not believe an estate agent if he or she told me the colour of my front door was white – which it is.

  3. “Today the Auckland-wide median sale price for a house is in the high $500,000’s and that’s a big hurdle, but it also means that half the sales are less than $500,000.”

    This is just wrong. It means half the sales are less than the high 500,000s.

    Brian, if you’re going to provide a real estate agent with a platform to argue that the product he profession sells on commission isn’t really overvalued, the very least you can do is make sure he gets his numbers straight.

    BE: You’re right, he should have said “the high 500,000s”. But what’s with this “the very least you can do is make sure he gets his numbers straight”? What did your last servant die of? That’s your job and you’ve just done it. And for the record, to those grizzling about our putting up this guest post, at least he got off his arse and wrote something. Our offer to publish guest posts has been taken up by only 3 people, including Alan Wilkinson who submitted two. The offer’s still open. Look forward to your post and Conor Joe’s!

  4. Lew, i think the author might not appreciate the difference between mean and median too!

    BE: No, I think he understood it very well – the middle number in a series of numbers. To obtain this figure in real estate, you have to take the sale price for every house sold in the survey period and find the one in the middle. This will probably be a different figure to the mean or average price which you get by adding all the prices together and dividing by the number of houses sold.

  5. When I was looking for houses as a new buyer (in Auckland) I used the rough guide of the bank will lend me 3 times my yearly income. So to buy a house that is $330,000 I’d need an income of $100,000 (and $30,000 deposit).

    Given the median (salary/wage) income is somewhere near $42,000 (and that factors in all the baby boomers raking in the big bucks). For the under 35s it’s probably quite a bit less then that. So, for a couple, they are likely to be short about $20,000 per year to get into a $330,000 house.

    The real problem is that baby boomers can out compete new home buyers because they can use the inflated value of their own homes and use the rent to pay off the mortgate. A capital gains tax would bring back some balance.

    I bet the people who find Auckland house prices affordable aren’t those who are in the market for the first time.

  6. Really? From Woodward and Bernstein to this crapola?

  7. 7

    @ CnrJoe. About to be evicted from your bedsit?

  8. Back in 1969 when I bought my first house, we were given a 3% loan by a government department, the State Advances Corporation. Another, second mortgage was also easily available and affordable as the house was about 3 or 4 times my annual income. The house was a 3 bedroom with a few extra luxuries such as sapele doors (remember them?) and tile roof – maybe 100 sq. mtrs.
    These days second mortgages don’t seem to exist, and certainly no mortgages are at 3%! and Auckland prices are apparently the equivalent of maybe 10 times what a young, new worker, might earn.
    House prices are affordable now —- what a joke! Maybe it is for those of us with money, but for newbies, no way!

  9. The NZ Herald article I read specified what is deemed to be unaffordable.”Housing should not cost more than three times annual income to be ranked affordable”.I dont think they were trying to dupe us into a unsustainable arguement,just stating a point of veiw.The average salary which would allow this level of affordability ($300k)would be 100 K . Other factors could be introduced into an affordability consideration. .

  10. What an objectionable post.

    With Generation Y grappling with lower incomes, student loans, more user pays and an inflated property market bubble dominated by greedy baby boomer rentiers and speculators a self-serving lecture from a baby boomer that they need to lower their expectations because he has no intention of lowering his is just what they need. Let’s crack the code shall we? Because the real message here is – “Suck it up kids and move to the shabby side of town, having an expectation of a standard of living equivalent to mine and the rest of your parents generation is completely unrealistic as long as property speculating rentiers of the baby boomer generation have anything to do with things.”

    this piece of hypocritical tripe should be framed and hung on every wall of every flat and apartment and far flung green field home inhabited by Gen Y’ers as a hymn to the selfish, self-righteous, unreflective, inter-generational theft from the greatest group of parasites this planet has ever known.

  11. Oh, Brian, I just love your acerbic responses. I have this vision of your sitting at the computer with steam coming out of your ears!

  12. I’m not saying I agree with ‘Sanctuary’, but the post does smack of smugness, grandstanding and implicit self-aggrandisement.

    There is some truth that the baby boomers have made it harder for first-home buyers, by leveraging off their homes to buy investment properties; though, I would place more stock on the influx of immigrants (mainly, Chinese) in exacerbating the situation.

    As for the writer’s somewhat liberal — and fanciful — definition of “affordable Auckland housing”: this does not mean living out west or in the bowels of South Auckland; or in a high-density, high-rise, purpose-built apartment building (a la Hobson St.); or in cheap-and-nasty clapboard terraced-style housing (a la Burton St., Grafton); or in a sausage block of brick-and-tile units. Dude.

  13. Sanctuary, that really is a load of twaddle. While the macro-economic forces at work may have dealt one generation a good deal compared to another, that does not make it a plot. None of us older folk planned it that way, it just happened. And if me and my friends are anything to go by then the vast majority of older folk spend much of their time scheming about how best to support their kids and to ensure that what they have got gets passed on to their offspring.

  14. sure, but affordable housing is still an issue. just look at the massive chunks of supply that have been removed recently (leaky buildings, chch) and tell me why that won’t have a major impact on affordability.

  15. This post can only be seen as a self serving, superficial and inaccurate response to the Herald article which was not much better. I suggest readers go to Bernard Hickeys blog (interest.co.nz) if they want sensible examination of the house affordability issue.

    What intrigues me is the long term generational and demographic changes – my father managed to afford an “average” home, plus buy a bach, and raise 4 children with a non-working wife on a mid-level public servants salary. Is that even conceivable today?

  16. Thanks Steve for the reference to interested.co.nz
    The housing affordability report is at
    http://www.interest.co.nz/property/house-price-income-multiples.

    Its painfully clear that house affordability is getting progressively worst at 5 times the median income nationally where a ratio of less than 3 is considered affordable. In Auckland the ratio is 6 times.

    Stuart’s post is complete bollocks! Yeah sure houses are still being bought and sold , always will but to use this as a argument that everyone can afford to buy a house is… well its not even an argument really more along the lines , global warming is not happening because we had a frost this morning.

    Take you point brian about needing more guest posters – count me in.

  17. wow Sanctuary , I just got over the poor rationale of the main post then I read yours which is even less rational and offensive. Blaming housing affordability on just one generation ( mine) is even more bollocks than the original post. You neglected to mention Gen x , were they part of the evil conspiracy as well ?

    I can empathize with a generation struggling to own their own homes , I really can , but I think we need to look at the broader influences and context for this.

  18. “BE: No, I think he understood it very well – the middle number in a series of numbers. To obtain this figure in real estate, you have to take the sale price for every house sold in the survey period and find the one in the middle. This will probably be a different figure to the mean or average price which you get by adding all the prices together and dividing by the number of houses sold.”

    Thanks for the instructions, however one of you cant be right as you definitely cant obtain from the Crockers data what he ascribes:
    “Looking at sales numbers it is easy to see that just under 25% of the sales in May in Auckland were in the $300,000’s”

    http://www.crockers.co.nz/media/57638/auckland%20sales%20table%20-%20may%202012.pdf

  19. 19

    There has obviously been a huge move to dual income couples and much later families since houses cost three times the average income. There has also been a big expansion of the welfare state, particularly single parent families. On top of that we now have a horrendous bureaucracy strangling subdivision, buildable land and construction. And houses have doubled in size.

    All of these contribute to creating new difficulties for many would-be purchasers.

  20. Sanctuary, stop whining and suck it up. If you can’t afford it, you can’t afford it. I’d’ve loved a 3 bed GJ in Albany or Howick as my first home (though now I wouldn’t) but I was 27 with a pregnant wife and couldn’t afford it. Somewhere in Otara, or Wanganui or Invercargill, your dream starter home awaits you.

    Gen Y’s problem is that they tend to seek champagne at beer prices. Don’t label us Boomers as parasites – we invented just about everything you lot play with, because our parents didn’t, and we gave it all for nothing, so far, in return.

    On the other hand, of course, Ray Charles could see that houses going up 10% year on year whilst wages are rising at 1% can’t be sustained for ever, so hang on for a few more years and you might get lucky. If you still have a job.

  21. Zinc Im not sure what inventions i can attribute to your generation apart from leaky buildings.

  22. No, that was Gen X, Martin – all those30/40 somethings in Council taking money from all and sundry for overseeing their building plans and progress, don’t do anything until we tell you, we know what’ll work and what won’t, we’re the experts – not you, etc etc….and who approved the construction of buildings which leaked. And who still want to keep their jobs as all-knowing oversee-ers.

    Boomers gave the stuff you’ve forgotten you had – colour TV, computers, seat belts and air bags, the internet, Ferrari F40s, dish washers, wet&forgot, the 747 and it’s older sister – Concorde, cell phones, CDs, the Rolling Stones – all that sort of stuff.

    And thanks Gen Y – you can take Bieber back now…

  23. 23

    So true, Zinc. But that was all before common sense was outlawed and replaced by rule books.

    And when you went to school to learn how to think instead of what to think.

    Of course we didn’t have half the population employed making road cones and moving them around so thinking was more useful.

  24. Zinc – who in New Zealand invented those things…

    This country was made on the back of whaling then logging (i.e. Kauri to San Francisco) and then farming…

    4 point something million people in a country bigger than the UK and you think these these house prices are sustainable??

    …and you blame the 30/40 generation!?

    Point made – that makes you the land parasite you are – well done and thanks a lot.

  25. Brian,
    can you please post your opinion on matter,
    this is your website
    I just wont to make sure you havent lost your your marbles or your site hasnt been hijacked
    by Harcourts,Glovers etc.

  26. 26

    you can't take it with you

    The bubble in housing will deflate when most people see houses not as an investment that is paid off by people who have been shut out of the market and something that always goes up in price ( a recent phenomenon), but a place to live in. Vince Cable said much the same thing. Unbelievable as it may seem at present, I predict that houses will return to the ratio of roughly 3 times the average gross income of the principle income earner of households in a given suburb, allowing for property size, location within the suburb, age and type of building materials.

    If people had to put a 30% deposit on a house and banks had strict rules that ensured you couldn’t buy a house for more than 3 times the main earner’s gross income we wouldn’t have a property bubble and people might actually be able to work less and be more productive at work and start living a bit more, but then the banks and real estate agents wouldn’t make out like bandits, would they?

  27. Pete, it was about the Boomers vs Gen Y – location has nothing to do with it.

    And for the record: “Ray Charles could see that houses going up 10% year on year whilst wages are rising at 1% can’t be sustained for ever” so no, Pete, it seems I don’t think it’s sustainable at all. Read BOTH my pieces, and Martins, for the correct perspective.

    It’s madness – why do houses appreciate anyway? Nothing else does. Unlike a van Gogh (though some are almost Picassos) where all there are is all we’ll get – if we run out of houses we can just build another; we’re not entirely short of land.

    And for your further information, no land parasite me. I’m renting because I won’t afford a house. I’ll wait in hope of a crash of some sort, and get a better deal than those on offer at present.

  28. 28

    The price escalation is due to land and building bureaucracies.

    If you think houses cost too much, just try building one cheaper. You can’t, which shows the price is nothing to do with investors.

    But as usual in NZ the chattering classes repeat each other’s nonsense without any reality checks.

  29. Stuart’s use of the median is unhelpful . The average and the standard deviation would describe the situation better.

  30. Alan Wilkinson

    We have a cheap, readily available supply of timber that we export at low prices to be pulped, chipped or turned into MDF.

    Some of the reasons why houses are not built more cheaply and efficiently include:

    1. the stranglehold that Fletcher’s and CHH have on the building supplies business.

    2. poorly designed bespoke houses unsuited to NZ’s climate and built slowly by self-employed builders rather than simple, no-frills, prefabricated modular houses built in factories.

    3.poor city planning and inefficient use of land within cities.

    4. exorbitant resource consents to feed the city council beasts

    5. a real estate industry that works for the seller and is incentivised to get the highest price possible.

    6. aggressive, tax-dodging Australian banks (eg. Westpac) that have jumped on the bandwagon and created larger loans than they should have for people who, realistically, may one day be unable to keep up with loan repayments given the fragility and shallowness of NZ’s economy.

    There are other factors too, but everyone should be concerned about the socially and economically corrosive effects of high property prices in a low wage, low productivity country, all of which are driving forces behind one of our major exports to Australia and North America, young, skilled and educated people.

  31. Some good ideas coming through here , around why are houses so fricking expensive and should something as primal as shelter be governed by market forces.
    Something has gone seriously wrong here.
    Land prices way out of whack , building costs inflated by local government regulations and building supply cartels, no serious supply of modular housing as they has in Europe.
    It would be a really useful exercise to cost out what a house, a home, should cost. Strip out the huge compliance costs, the inflated land cost, add in efficiency in building eg modular factory made component buildings . What should it really cost to erect a shelter to keep you and your family dry and warm for heavens sake.
    For starter if you take the median household income at $77,490 ( Interest.co.nz)
    times the ideal of 3 times =
    $230,000
    Needing a deposit ( 20%) of $46k or $23k for a 10% deposit which may be more achievable .
    Still seems a bit high to me so remembering that prior to 1980 our income to house price ratio was 2 so that would make the ideal house price $154k and a 10% deposit of $15k , that sounds more achievable .
    Can we build a house on a patch of ground for $150,000?

  32. The lesser reported and darker side of housing affordability is rental housing in NZ.
    Its more than just affordability its the lack of security and the inhuman nature of it.
    Our tenancy laws in NZ are appallingly one sided ( to the landlord) and rentals are influenced far too much by market forces that don’t give a shit for people’s basic need for shelter.

    Something is seriously wrong when rental housing becomes a investment vehicle for so many ma and pa investors who have no appreciation for the fundamental human need for safe and secure shelter.

  33. 33

    Richard, your last two sentences are nonsense. You try to get rid of a bad tenant without having your house trashed. Then tell us how one-sided the tenancy laws are.

    And quality of the rental houses is immensely varied not necessarily directly related to price. However, excessive building costs lead directly to unaffordability of good rental housing for many people.

  34. Sure, building costs, compliance costs and land values are all relevant and higher than they should be, but inflation must be driven by something else. I bought a house for $300k in 1993 and sold it (meaning “accepted an unsolicited offer out of the blue”) for 5 times that 15 years later. That’s madness! Nothing else went up in that period by 400% – not gold, not oil – nothing other than a couple of old Ferraris, a Rembrandt and a few dot com outfits.

    I’ve concluded that houses appreciate simply because we expect them to, so we don’t mind paying more than we would have last year.

    As far as rentals are concerned, I don’t think I’m in a position to afford to lash out half a mil on a property and not want a viable return on it, so I’d just have to leave the dough in the bank.

  35. Alan – looks like I hit a nerve there , sorry.
    I stand by what I said though , yes I have heard the odd horror story about bad tenets but I have heard many more about bad landlords. Well not bad in the evil sense more negligent.
    My point was around the expectations of newer landlords going into property as a pure investment vehicle with no consideration or sensibility that property = houses = homes = human lives.

    I don’t entirely agree that excessive building costs contribute hugely to the un-affordability of rental housing. My sense is the majority of the rental housing stock is not new houses. I wonder if its more a supply and demand issue, Auckland’s housing stock is too low for our population, buying a new house is out for so many hence an increase in demand for rental housing.
    Increased demand plus lower supply = increase in rents.
    All good in an investment market but it leads to real and ongoing social costs.

  36. Zinc – Some good points about expectation of price increases actually feeds the increases – I think that is called a property bubble.
    I am very happy for you that you can leave that half a mill in the bank but the property investors I know don’t invest anything like that , its all done on borrowed money, leveraging off one house to buy the next and so on. Many I know are quite proud they have done it all on borrowed money. Its not investment in the old sense of capital investment.
    What has been the contribution these investors have made to house price increases?

  37. Richard: What has been the contribution these investors have made to house price increases?

    I suspect they’re a part of the problem but so small a part as not to be the underlying reason: if you’re convinced that you’ll get rich by owning houses, you tend to not mind paying whatever you have to to get a good one – and that may be inflationary. That was certainly the case between, say, 2004 and 2007 when it didn’t matter how much you borrowed – in a few weeks someone will want your house for $25k more than you just paid.

    And if you’re led to believe that all you have to do is own property to prosper, then borrowing to let doesn’t seem stupid – but recent years have shown that it’s not all that smart either. Apparently a big percentage of the recent mortgagee sales are of investment properties – ask Barry Hart. And Alan’s perfectly right – try to evict a dodgy tenant at your peril.

    Personally, I haven’t the balls to borrow for speculative investment – not on property any more than I’d take out a bank loan to buy Facebook shares. Many people I know refuse point blank to accept that it is possible to lose your shirt on a residential property.

    I still think it’s the decades of programming we’ve all undergone – “you can’t go wrong with bricks and mortar”. We just expect houses to appreciate, so they do – and we don’t mind paying more every time!

    You’re right about the bubble, but it’s only a bubble if it bursts. Until then, it’s a fountain of fortune.

  38. 38

    Richard, yes, prices are set by demand/supply
    The point, of course, is that excessive costs restrict supply. Were there sufficient supply poor landlords would have no tenants.

    And were prices driven too high by speculators you could make a fortune building new ones. You can’t.

  39. 39

    Or you may want to ponder this,

    Q: Why do anarchists drink herbal tea?

    A: Because proper tea is theft.

    BE: Thank you. Like it.

  40. 40

    This is a comprehensive dismantling of the Hickey nonsense:
    http://m.nbr.co.nz/article/fallacy-housing-affordability-and-inter-generational-theft-ck-123882

  41. Prices have moved rapidly. In onehunga it’s tough to find a standalone place under $500k.
    The thing is that suburbs like this are trendy and considering aucklands attraction as an international city still good value. Olive trees, fruit trees, a harbor view and a safe quiet area… Most people in first world countries would say that’s a good deal.. Prices aren’t bad when you put our lifestyle into the mix.