Some housing affordability metrics, such as the time needed to save a deposit, are at their lowest since COVID, however would-be home buyers and owners still face significant challenges from elevated mortgage rates and high rent.
CoreLogic NZ’s latest Housing Affordability Report has found despite weaker property values and rising incomes, affordability remains worse than long-term averages - with the median property value 7.7 times the gross annual median household income.
CoreLogic NZ Chief Property Economist Kelvin Davidson said the value-to-income ratio had fallen from 7.9 in Q1 2024 and was at the lowest level since early 2020.
He noted that although the metric has declined from its peak of 10.2 during the height of the post-COVID boom in Q4 2021, home values continue to exceed household incomes, remaining above the long-term average of 6.8 established since 2004.
“The improvement in housing affordability, based on the value-to-income ratio of course, is broadly back to pre-COVID levels and reflects the sharp falls in property values that we’ve seen over the past 2-½ years as well as the steady growth in incomes over the same period,” he said.
The time required to save a deposit measure has also improved from 13.6 in Q4 2021 to 10.2 now, albeit still above its average of 9.1.
“However, while some measures have improved, they remain worse than historical averages. And the problems really arise when it comes to actually servicing debt. Mortgage payments as a percentage of median household income remain at 54%, close to the peak of 56-57%, and well above the average of 43%," Mr Davidson noted.
Share of income required for repayments
Mr Davidson expressed concern about households who have recently purchased a property and who are paying more than half their income to servicing a new mortgage, noting that the rising cost of living and dwindling savings are likely to intensify financial stress and leave little buffer for emergencies.
"For nearly three years, the share of income needed for mortgage payments has remained in the 53% to 57% range, highlighting the prolonged period of elevated repayment burdens on households," he said.
"To put this in perspective, during the previous peak in 2007-2008, mortgage payments only reached 50% or more of income for six quarters. The current phase of strained mortgage affordability has lasted much longer, possibly placing many more New Zealand households under considerable financial stress,” he said.
“One silver lining has been the sustained high employment and rising wages, which have helped people manage during this period."
Years to save a deposit
As of Q2 2024, it typically takes 10.2 years to save for a deposit, based on median property values and household incomes. This is above the long-term average of 9.1 years but represents the lowest figure since early 2020 and is a marked improvement from the peak of 13.6 years in Q4 2021.
"While saving for a deposit still takes longer than the historical average, we've seen a clear improvement from the heights of late 2021 and early 2022. The trend is positive, but for households to need more than a decade to save a deposit to get into the market, is a serious affordability challenge,” Mr Davidson said.
Rent to income ratio
Rents currently consume 28% of gross household income across New Zealand, surpassing the long-term average of 26% and remaining near record highs. Over the past three years, this ratio has stayed relatively constant as incomes and rents have increased at a similar pace.
"The rent-to-income ratio has stayed persistently high, creating financial pressure for many renters, particularly those with incomes below the median. These households are likely to feel the strain even more acutely than the average figure suggests," Mr Davidson said.
Affordability around the country
Tauranga remains the least affordable main centre with a value-to-income ratio of 9.0 in Q2 2024, despite improving from the peak of 12.3 in late 2021 and early 2022.
"While Tauranga remains expensive, it is not as stretched relative to its own historical average as other regions like Dunedin, Christchurch, and Hamilton, where affordability challenges are also pretty acute,” Mr Davidson said, noting affordability issues are an issue in many regional centres too.
Auckland is the second most expensive main centre, albeit with an improved value-to-income ratio of 8.2 and years-to-save figure of 11.0. Both figures are down significantly from their respective peaks of 11.6 and 15.5 recorded in late 2021. Wellington and Hamilton are the 'cheapest' among the main centres with value-to-income ratios of 7.0.
Affordability outlook
Even with the prospect of a near-term rate cut that will provide mortgage holders with some respite, Mr Davidson cautioned that the move is likely to only improve affordability slightly.
"Even if mortgage rates fall more significantly over the next 6-12 months, this could be offset to some extent by an increase in house prices, while at the same time the labour market is loosening and wages are slowing.,” he said.
“Any sustained improvement in housing affordability over the long term will require more significant changes such as an increase in the supply of dwellings, supported by government initiatives aimed at expanding land availability and infrastructure."
Download the Housing Affordability Report
CoreLogic New Zealand