Housing has only become unaffordable for first home buyers in Auckland in the last 21 months - AMP360 First Home Buyer Affordability Report

New Zealand has a property market of two halves - Auckland and everywhere else, according to the latest AMP360 First Home Buyer Affordability Report.

Housing remains affordable for first home buyers everywhere but Auckland, where it is severely unaffordable, the report has found.

The report found that first home buying affordability improved slightly in April compared to March, driven mainly by declines in lower quartile selling prices in many regions.

However the improvement was so small that home buyers were unlikely to have noticed the difference.

The report defines housing as being affordable when mortgage payments are less than 40% of take home pay. If mortgage payments take up 40% or more of take home pay, they are considered unaffordable.

At the national level, the mortgage payments on a lower quartile priced home would have taken up 24.74% of typical first home buyers' take home pay, down from 25.32% in March and well within affordable levels.

That improvement was mainly a result of the national lower quartile selling price dropping from $308,500 in March to $303,000 in April.

The mortgage payments on lower quartile priced homes remained under the 40% of take home pay threshold in all regions of the country except Auckland in April, ranging from 11.03% in Southland to 34.45% in Central Otago/Lakes.

In Wellington the mortgage payments would have eaten up 25.44% of take home pay and in Canterbury it was 29.34%.

In other regions: Northland 23.8%; Waikato/Bay of Plenty 21.28%; Hawkes Bay 18.93%; Manawatu/Wanganui 13.37%; Taranaki 18.09%; Nelson/Marlborough 26.61%; Otago 17.54%.

Auckland in a class of its own

However Auckland was in a class of its own, with the mortgage payments on a lower quartile priced home taking up 50.2% of  typical first home buyers' take home pay in April. Other costs associated with home ownership such as rates, insurance and maintenance would be on top of that.

That was down from 50.58% in March mainly as the result of a small drop in the lower quartile selling price in the region, from the all time high of $587,200 in March to $584,500 in April.  

The report shows that unaffordability is a relatively recent phenomenon in Auckland, where housing was still affordable for first home buyers less than two years ago.

In July 2013 the mortgage payments on a lower quartile priced house in Auckland would have taken up just 38.72% of a typical first home buying couple's after tax pay, which was still below the 40% affordability threshold.

But in August 2013 it jumped to 40.08% and then kept trending up until it passed the 50% mark in March this year.

Over the same period, the lower quartile selling price in Auckland increased by $140,500 (32%), from $444,000 in July to 2013 to $584,500 in April this year.

That would have pushed the mortgage payments on a lower quartile priced home from $597.18 a week in July 2013 to $785.26 a week in April this year, an increase of $188.08 a week (+31.5%).

However the median take home pay of an Auckland working couple aged 25-29, has only increased by $52.02 (3.5% ) a week during that time, up from $1489.01 a week in July 2013 to $1541.03 in April this year.

The bottom line is that the Auckland house prices and the resulting increases in mortgage payments have vastly outpaced the growth in the household incomes of first home buyers.

Auckland housing is now beyond the reach of first home buyers on a median income.

By comparison, the mortgage payments on a lower quartile priced home in Wellington would have increased from $395.75 a week in July 2013 to $410.69 in April this year, an increase of $14.94 a week (3.8%).

In Canterbury, the mortgage payments would have gone from $383.71 to $458.58 over the same period, an increase of $74.87 a week (+19.5%).     

The AMP360 First Home Buyer Affordability Report tracks changes in mortgage interest rates and the REINZ's lower quartile selling prices in each region of the country, and the median after-tax income of first home buyers (defined at a working couple aged  25-29) in each region.

It then works out how much of a first home buying couple's weekly income would be taken up by mortgage payments on a lower quartile priced home.