Affordability

Housing and Rental affordability has changed little in 20 years

Affordability is often referred to as the price of a home divided by the household income. To make a point some commentators compare the price with average incomes, which decreases the affordability dramatically.

As a buyer, I have yet to find a bank that compares the price with income over a period of time to decide if you can afford a purchase. Banks ALWAYS compare the ability to pay interest and principal with the household income of the proposed owner(s).

If that is the case, then surely affordability is simply mortgage payments as a percent of income - as in this chartwhere short speculative periods in Auckland show the impact of interest rate increases until the market bubble crashes (1998, 2008 - and 2018?). For investors, that ratio is the proportion of rent as a percentage of income.


This is also true of the rental market, affordability is much easier to understand, it is simply how much of your household income is going on rent. A study of this percentage using public data from MBIE and Stats has some surprising insights over 20 years:


Notice two important and obvious features of this chart:

  1. The proportion of rent has remained constant over 20 years for all regions with some minor changes here and there, usually returning to the long term average. This is especially so for the entire country, ie Rents are fixed to incomes.
  2. Auckland rents are 5% greater portion of income than all other cities. This is really just an indication that some areas have higher proportions than others, as you would expect to see in different suburbs, eg Te Aro should be higher than Taita.

Close study shows a change happening in Tauranga (Bay of Plenty), where the proportion has increased quickly from about 23-25% over time to a recent high of 27%. Wellington on the other hand, where rents are now rising quickly, has obviously had an increase in income to lower the line, this is recently driving an increase in rents (Anecdotally too recent to show a change).


This chart could be an important factor for deciding on a fair rent. If the chart were to be applied to specific sub-regions using the regional income, then an average rent can be deduced for the purposes of justifying the rent to meet the new requirements of advertising that may come into effect if the rules change in that direction.

I will soon publish sub-categories of this chart below this main page as I develop the studies. If you want your area of interest early, please ask in the comments below.


Jonette 2011