Home Affordability Report

Key Points:

• Overall national affordability continues to improve.

• 4 out of 12 regions show quarterly improved affordability

Quarterly Survey May 2008, Volume 18 Number 2

Affordability Slow to ImproveTo date the current downturn in the property cycle has mainly been refl ected in signifi cant reductions in monthly house sales volumes when compared to the same period last year. In some regions monthly sales volumes have been down by around 50%. However, there have only been small annual reductions in house prices resulting in a modest improvement in affordability.

The affordability equation is driven by three variables, mortgage interest rates, average wages and median house prices. Over the last quarter existing mortgage interest rates increased by 1.5% to 8.63%, the national average weekly wage increased by 2.0% to $904.45 and the national median house price actually increased by 2.20% to $345,000. This resulted in a quarterly improvement in national affordability of 0.6%. Readers should note that the national median house price in the fi rst part of 2008 may be skewed upwards by a reduction in house sales in the lower price brackets.

Over the last quarter four of the twelve regions showed improvements in affordability, Central Otago Lakes (10.9%), Canterbury Westland (6.4%), Waikato Bay of Plenty (6.2%) and Nelson Marlborough (5.4%). Regions showing declines in affordability were Northland (21.0%), Auckland (4.9%), Southland (4.3%), Manawatu/Wanganui (3.6%), Taranaki (2.8%), Hawkes Bay (1.5%), Otago (0.7%) and Wellington (0.2%).

On an annual basis the all districts national affordability declined by 1.5%. Canterbury/Westland was the only district showing an improvement (1.0%). All other regions registered declines in annual affordability. The largest decline was in Southland (32.9%) followed by Central Otago/Lakes (15.3%), Northland (9.5%), Manawatu/Wanganui (9.4%), Otago (6.4%), Nelson/Marlborough (5.2%), Hawkes Bay (4.5%), Taranaki (3.1%), Waikato/Bay of Plenty (2.8%), Wellington (2.8%) and Auckland (1.8%).

Southland remains the most affordable regions with an index of 66.5% of the national benchmark of 100%. Second place in the affordability stakes goes to Otago 72.2% followed by Manawatu/Wanganui 77.7%.

Central Otago Lakes remains by far the least affordable region with an index of (149.8%) of the national average. The Auckland region (123.5%) stays in second place with Northland (111.4%) in third.

Further details on affordability and the methodology used in this study are reported on the following pages.

Home Affordability IndexPercentage Change in

Home Affordability in the last 12 months

Region Feb 08 May 08 improvement decline

Northland 30.31 36.66 9.5%

Auckland 38.73 40.64 1.8%

Waikato / Bay of Plenty 34.33 32.20 2.8%

Hawke’s Bay 27.95 28.37 4.5%

Taranaki 25.18 25.89 3.1%

Manawatu / Wanganui 24.69 25.57 9.4%

Wellington 32.37 32.43 2.8%

Nelson/Marlborough 37.02 35.02 5.2%

Canterbury / Westland 32.33 30.25 1.0%

Otago 23.61 23.78 6.4%

Central Otago Lakes 55.36 49.30 15.3%

Southland 20.98 21.88 32.9%

New Zealand 33.12 32.92 1.5%

Regional Affordability as a percentage of National Average

111.4%

97.8%123.5%

78.7%

77.7 86.2%

98.5%106.4%

91.9%

149.8%

66.5% 72.2%

NATIONAL HOME AFFORDABILITY INDEX(a low index equals improved affordability)

0

5

10

15

20

25

30

35

40

45

Feb-97 Feb-99 Feb-01 Feb-03 Feb-05 Feb-07 Feb-08

NZ AKL STHLD

RegionalAffordability Index

Northland Auckland Waikato / Bay of PlentyMay 07 - May 08 May 07 - May 08 May 07 - May 08

Hawkes Bay Taranaki Manawatu / Wanganui May 07 - May 08 May 07 - May 08 May 07 - May 08

Wellington Nelson Canterbury / WestlandMay 07 - May 08 May 07 - May 08 May 07 - May 08

Otago Central Otago Lakes SouthlandMay 07 - May 08 May 07 - May 08 May 07 - May 08

Northland May 07 - May 08

Auckland May 07 - May 08

Wellington May 07 - May 08

Otago May 07 - May 08

Taranaki May 07 - May 08

Nelson May 07 - May 08

Central Otago Lakes May 07 - May 08

1 01 41 82 22 63 03 43 84 24 65 05 45 8

Ma y -0 7 Aug-0 7 Nov- 0 7 Fe b- 08 Ma y- 08

1 01 41 82 22 63 03 43 84 24 65 05 45 8

Ma y -0 7 Aug- 07 Nov -0 7 F e b-0 8 Ma y -0 8

10

14

18

2226

30

34

38

42

46

5054

58

May -07 Aug-07 N ov -07 F eb-08 Ma y -08

1 01 41 82 22 63 03 43 84 24 65 05 45 8

Ma y -0 7 Aug- 0 7 Nov - 07 Fe b- 0 8 Ma y- 08

1 01 41 82 22 63 03 43 84 24 65 05 45 8

M ay- 07 A u g-0 7 No v-0 7 Fe b-0 8 Ma y-08

1 01 41 8

2 22 63 03 43 84 24 65 05 45 8

Ma y- 0 7 Aug-0 7 N ov-0 7 F e b-0 8 Ma y- 0 8

1 01 41 82 22 6

3 03 43 84 24 6

5 05 45 8

Ma y- 0 7 A ug- 0 7 N ov- 07 F e b- 0 8 May -0 8

1 01 41 82 22 63 03 4

3 84 24 65 05 45 8

Ma y- 0 7 A ug- 0 7 N ov -0 7 F e b-0 8 Ma y- 0 8

1014182226303438

4246505458

Ma y- 0 7 Aug- 0 7 Nov -0 7 F e b-0 8 Ma y -0 8

1 01 41 82 22 63 03 43 84 24 65 05 45 8

Ma y- 07 Aug- 0 7 N ov -0 7 F e b-0 8 Ma y -0 8

1 01 41 8

2 22 63 03 43 84 24 65 05 45 8

May -0 7 Aug- 07 Nov- 0 7 F eb- 0 8 May -0 8

1 01 41 82 22 63 03 43 84 24 65 05 45 8

Ma y- 0 7 A ug- 0 7 Nov -0 7 Fe b- 0 8 M ay -0 8

1 01 441 882 22

4 24 6

5 05 4455 88

MMa y -00-- 77 Aug-gg 0 7 Nov-vv 0 7 F e b-0-- 88 May -0-- 8

New ZealandMay 07 - May 08

Prepared by Bob Hargreaves & Fong Mee Chin Department of Economics and Finance, Massey University.

ENQUIRIES MAY BE ADDRESSED TOHelen VauseCommunications and MarketingMassey UniversityPhone (09) 414 0800 extn 9421Email H.E.Vause@massey.ac.nz

Website www.masseynews.massey.ac.nz

Data SourcesThe average weekly earnings and mortgage interest rate fi gures are drawn from Statistics New Zealand and Reserve Bank data. Housing prices are released by the Real Estate Institute of New Zealand (REINZ). The combination of this data provides the opportunity to calculate a reliable and useful summary index. The lower the index the more affordable the housing. The index allows for comparisons over time and between regions of relative housing affordability in New Zealand.

TerminologyHousing affordability for housing in New Zealand can be assessed by comparing the average weekly earnings with the median dwelling price and the mortgage interest rate. The earnings fi gure represents the money available to the family, or household unit, and the median dwelling price combined with the mortgage interest rates provide an indicator of the expense involved.

Median Dwelling PricesMedian dwelling prices for various regions within New Zealand are released monthly by the REINZ. The fi gures are obtained from a survey of member agencies’ sales during that specifi c month. There may be irregularities in the data resulting from errors in the returns or processing, but when individual returns are combined with those of other agencies the distortion is likely to be small. In some months there may be very few transactions and this can result in somewhat non-representative median prices. The REINZ continues to research ways of improving the quality of the data. The research, and other continuing action by the REINZ to monitor and improve data quality, should minimise data errors.

Average Weekly EarningsAverage national and regional weekly earnings data is provided directly by Statistics New Zealand.

Average Monthly Interest RatesThe Reserve Bank publishes a range of data on mortgage interest rates. The Reserve Bank series selected for the affordability index is based on end of month fl oating and fi xed rates for existing borrowers. Weighted by volume, loan type and term from each lending institution, the rate used is effectively the weighted average interest rate earned by lenders (and paid by borrowers) for more than 90 per cent of the residential mortgage market.

This mortgage rate provides an indication of the interest which is payable on new mortgages entered into in the quarter under consideration. While there are various levels, as a percentage of the house price which a mortgage may represent, in general most new home buyers are up to the maximum percentage of approximately 80 percent.

Massey University Property FoundationThe Foundation is established to sponsor research and education in property related matters in New Zealand. Funding is obtained through sponsorship from corporations and fi rms within the property industry. The Foundation has established a Real Estate Analysis Unit to operate out of both Massey University’s Palmerston North and Albany campuses.

The Foundation works closely with the Property Studies Group at Massey University, and Ms Donna Dowse is the Secretary/Treasurer. She may be contacted on +64 6 357 4032.

Professor R.V.(Bob) Hargreaves is the Executive Offi cer and may be contacted on +64 6 350 5799 extn 7473.

Department of Economics and Finance, Massey UniversityMassey University has three campuses, located in Palmerston North, Wellington and Auckland, in New Zealand. The University has an enrolment of 33,000 students with approximately 13,000 business students. There are fi ve departments and two schools within the Business Studies College. Professor R.V.(Bob) Hargreaves, leads the Property group and directs the Massey University Real Estate Analysis Unit (MUREAU).

Important DisclaimerNo person should rely on the contents of this report without fi rst obtaining advice from a qualifi ed professional person. This report is made available on the terms and understanding that Massey University and the authors of this report are not responsible for the results of any actions taken on the basis of information in this report, nor for any error in or omission from this report.