Housing affordability has improved in NZ since late 2021, but it remains stretched, and recent house price rises as well as high interest rates continue to add strain on Kiwi households, according to the latest CoreLogic Housing Affordability Report.
Mortgage repayments as a percentage of gross annual household income stood still at 49% in Q4 2023, remaining in the tight range of 49%-52% seen since Q1 2022. Prior to that, the highest reading on this measure was 46% in 2007-08.
CoreLogic NZ Chief Property Economist Kelvin Davidson said the share of income required for repayments was unchanged from the figures in both Q2 and Q3 2023.
"The stability in mortgage servicing in recent quarters isn't really much consolation. Housing affordability is still significantly stretched on this measure, given that the long-term average sits at 37%, illustrating the current challenges from high mortgage rates.
"The increase in mortgage rates themselves means that repayments continue to eat into a many households' incomes."
Beneath the national level, each main centre has seen a small drop in Q4 compared with its previous cyclical peak.
Tauranga (60%) is the most stretched by repayments, followed by Auckland (55%), Hamilton (47%), Christchurch (47%), Wellington (44%) and Dunedin (43%).
House value price to income ratio falls
Properties in New Zealand are now valued at seven times the average household income.
Mr Davidson said this is an improvement, dropping from a peak of 8.6 in early 2022, however the measure remains above the long-term average for this measure (5.9) as well as the figure of 6.9 in Q3 2023.
Tauranga remains the most expensive main centre with its value to income ratio sitting at 8.5 in Q4 2023, however other markets are more stretched relative to normal.
| Value to | Share of income | Years to | Rent to | ||||
Main centre | Latest | Average | Latest | Average | Latest | Average | Latest | Average |
Auckland | 7.7 | 7.1 | 55% | 44% | 10.3 | 9.4 | 19% | 21% |
Hamilton | 6.7 | 5.4 | 47% | 34% | 8.9 | 7.2 | 20% | 20% |
Tauranga | 8.5 | 7.2 | 60% | 45% | 11.3 | 9.6 | 27% | 24% |
Wellington | 6.2 | 5.5 | 44% | 35% | 8.3 | 7.4 | 18% | 18% |
Christchurch | 6.6 | 5.2 | 47% | 33% | 8.7 | 7.0 | 22% | 20% |
Dunedin | 6.0 | 4.6 | 43% | 29% | 8.0 | 6.2 | 22% | 19% |
NZ | 7.0 | 5.9 | 49% | 37% | 9.3 | 7.9 | 22% | 20% |
The path to ownership
Mr Davidson said the years to save a deposit measure was 9.3 in Q4 2023, down from the worst point of 11.5 in Q1 2022. However, it is still a small rise from Q3’s reading of 9.2 years and well above the long-term average of 7.9 years.
"That’s the first rise in this measure, or worsening in time to save a deposit, since the first quarter of 2022," he said.
Tauranga has the longest period of time required to save a deposit at 11.3 years, followed by Auckland at 10.3 years, while Hamilton (8.9), Wellington (8.3), Christchurch (8.7), and Dunedin (8) all have a figure below the national average.
Rental affordability returns to peak
Mr Davidson said the New Zealand rental market is quite stretched with pressure on the supply and demand balance causing rents to rise.
Rents currently absorb 21.6% of gross average household income, back to past highs seen in the first half of 2022. Christchurch has slowly deteriorated, with rents rising faster than gross average household incomes to become the second most expensive main centre to rent in behind Tauranga.
In contrast, Dunedin, Hamilton, and Tauranga have been generally stable lately, as Auckland and Wellington show a gentle improving trend.
Affordability outlook
Mr Davidson said stretched housing affordability itself will tend to be a natural handbrake on the rate of house price growth.
"It’s conceivable that prices may only rise roughly in line with incomes over the next few years. That wouldn’t necessarily see affordability improve, but it might not get much worse either."
He predicts mortgage rates are likely to drift lower within the next two-year horizon.
"This may throw that delicate balance between prices and incomes off course a little, pushing up measures such as the value to income ratio. However, when it comes to actually servicing debt, lower mortgage rates would obviously be beneficial for affordability. Debt to income ratio restrictions also have the potential to restrain house price growth over the medium term."
Download the Housing Affordability Report
CoreLogic New Zealand