Housing unaffordability issues spread beyond first home buyers in Auckland and Queenstown - AMP360 Home Loan Affordability Report

Surging house prices in Auckland and Queenstown last month pushed home ownership even further beyond the reach of first home buyers in the two districts, according to the AMP360 Home Loan Affordability Report for March.

However the high houses prices in both places aren't just affecting first home buyers. They could also be preventing some existing home owners from moving up the property ladder, the report has found.

But housing remained affordable for first home buyers everywhere else in the country. And in Wellington, Otago and Hawkes Bay, affordability improved slightly in March compared with February.

The AMP360 Home Loan Affordability Report tracks the lower quartile selling prices of homes in each region of the country, along with the median after-tax income of typical first homes buyers (a working couple, both aged 25-29).

It then estimates what their mortgage repayments would be on a lower quartile priced property, with repayments totaling less than 40% of their net income considered affordable, and repayments of more than 40% of their net income considered unaffordable.

Last month a leap in Auckland's lower quartile house price to $587,200 from $554,600 in February, would have pushed the mortgage payments to $778.77 a week, or 50.6% of the couple's net income.

That would put a lower quartile-priced home in Auckland squarely into unaffordable territory for the first home buyers, especially once other home ownership expenses such as rates, insurance and maintenance are allowed for.

The report also shows that Auckland homes have only become unaffordable for first home buyers over the last two years.

The following table charts the changes to the key drivers of housing affordability in Auckland since March 2010.

In March 2013, when the lower quartile house price was $455,600, mortgage payments would have been $583.34 a week, just within the affordable limit at 39.3% of net income at the time.

It also suggests a typical first home buying couple would struggle to save a 20% deposit to buy a lower quartile-priced home in Auckland.

Assuming they had been able to save 20% of their net income into an interest earning account, they would have saved $67,631 after four years, which is only 11.5% of the price of a lower quartile home in Auckland.

After Auckland, the most expensive region is Central Otago where the mortgage payments on a lower quartile priced home would take up 35.6% of a first home buying couple's after tax income. In Queenstown housing was almost as unaffordable as in Auckland, with the mortgage payments on a lower quartile priced home gobbling up 49.6% of a first home buying couple's net income.

That's followed by Canterbury 29%, Wellington 25.8%, Nelson/Marlborough 25.7%, Northland 22.5%, Waikato/Bay of Plenty 22%, Taranaki 21%, Otago 16.1%, Hawkes Bay 16%, Manawatu 14.3% and Southland 10%, all well under the 40% affordability limit.

Times tougher for upwardly mobiles too

The report also highlights the difficulties that might be faced by couples with young families, who may want to move up the housing ladder from their first home (at the lower quartile price) to a median-priced home, perhaps moving from an apartment or home unit to a house on its own section.

The model for the couple with a young family is based on the median income for a couple aged 30-34, with one child, where the male works full time and the female works part time, earning 50% of a full time wage.

It is assumed they would have a 20% deposit for a median-priced house, either because they have saved the money or accumulated sufficient equity in their first home.

Unfortunately the figures show that house prices in Auckland and Queenstown would be too high for them to be able to afford to step up into a median-priced home.

In both Auckland and Queenstown, the mortgage payments on a median priced home would eat up 62.1% of their take home pay, making such a move severely unaffordable.

However such a move should be affordable for a young family in all other parts of the country, where their mortgage payments would be under 40% of their net income.

Outside of Auckland and Queenstown, the mortgage payments on a median-priced home in Canterbury would take up 37.7% of the  "young family" couple's net income, followed by Wellington 35.4%, Nelson/Marlborough 35%, Waikato/Bay of Plenty 31.3%,  Northland 31%, Taranaki 31%, Hawkes Bay 27.2%, Otago 25.1%, Manawatu/Wanganui 21.8% and Southland 18%.

That means a young couple would be able to keep moving up the property ladder in most parts of the country, even if they have a reduced income during their early child rearing years.

But in Auckland and Queenstown, such couples are likely to face more difficult choices, which could include delaying having children until later in life, having children but remaining in their first home for longer, or making arrangements to enable both partners to continue working full time during their children's early years.

"It's particularly important that people looking for mortgage finance in high-priced areas like Auckland or Queenstown get appropriate professional advice about their mortgage options, because of the large amounts of money that may be involved," AMP360 national manager Paul Gardiner said.

 

"That is especially true for first home buyers, who may have to borrow large amounts of money relative to their incomes or the property's purchase price to get the home of their dreams."