Central Otago/Lakes joins Auckland as the second region in NZ where housing is now unaffordable for typical first home buyers

Housing became substantially less affordable for first home buyers in Auckland last month, as a big jump in the region's lower quartile selling price more than offset falls in mortgage interest rates and increases in household income.

But an even bigger jump in prices in Central Otago/Lakes last month has seen the region join Auckland as the only two regions in the country where housing is now unaffordable for typical first home buyers, according to interest.co.nz's Home Loan Affordability Report. 

However while home ownership is increasingly out of reach for first home buyers in Auckland and Central Otago/Lakes, the dream of home ownership should still be achievable for first home buyers in all other regions of the country, according to the report.

It found that home loan affordability improved for first home buyers in six regions (Hawkes Bay, Manawatu/Whanganui, Taranaki, Wellington, Canterbury/Westland and Southland) last month, while affordability declined in six regions (Northland, Auckland, Waikato/Bay of Plenty, Nelson/Marlborough, Central Otago/Lakes and Otago).

The biggest declines in affordability for first home buyers were in Central Otago/Lakes, Auckland and Northland, driven by big jumps in the lower quartile selling price of homes in March.

Based on REINZ figures, the lower quartile selling price in Auckland jumped from $629,500 in February to $673,400 in March, an increase of $43,900 (7%) in a month.

That more than wiped out the benefit of falling interest rates, with mortgage payments on a lower-quartile priced home in the region rising from $756.07 a week in February to $806.93 in March, an increase of $50.86 a week.

According to the report, the combined median after tax income for a typical first home buying couple in Auckland (defined as a couple where both are aged aged 25-29 with no children and both working full time) was $1574.81 a week in March, meaning the mortgage payments would be taking up 51.2% of their take home pay, up from 48.2% in February.

Housing is considered unaffordable when mortgage payments take up more than 40% of a household's take home pay. 

That was after allowing for a fall in the average two year fixed mortgage rate offered by the major banks, which dropped form 4.54% in February to 4.47% in March.

A similar story was evident for first home buyers in Central Otago/Lakes, where the lower quartile selling price soared from $415,100 in February to $527,000 in March, pushing the mortgage payments on a lower quartile-priced property from $480.11 a week to $619.80, a jump of $139.69 a week.

That means the mortgage payments on a lower quartile-priced home in Central Otago/Lakes would suck up 42.4 % of typical first home buying couple's take home pay, putting the region squarely into unaffordable territory.

In February the mortgage payments on a lower quartile-priced home would have been just 32.9% of a typical first home buying couple's take home pay, which was still considered affordable.

The sharp fall in affordability in Central Otago/Lakes appears to have mainly been driven by huge increases in house prices in Queenstown, which have been rising strongly since the end of last year.

In March the lower quartile house price in Queenstown was $676,250, up a staggering $70,000 compared to February's lower quartile selling price of $606,250.

That means that lower quartile property prices in Queenstown now exceed those in Auckland, making it the most unaffordable place in the country for first home buyers.

It also means that first home buyers on average incomes in Central Otago/Lakes are increasingly likely to have to look outside of the town to find a home they can afford, just as first home buyers in Auckland are being forced to the city fringes or out of the city altogether, or resign themselves to renting.

Compounding the problem for aspiring first home buyers in Auckland and Central Otago/Lakes would be the difficulty they would have in saving a sufficient deposit to buy a home.

According to the Home Loan Affordability Report, if a typical first home buying couple in Auckland saved 20% of their net income a year into an interest bearing account, they would have saved $72,116 after four years, which is just 10.7% of March's lower quartile selling price in Auckland.

In Central Otago/Lakes, a typical first home buying couple would have saved 12.5% of the region's lower quartile selling price after four years.

However buying a home should still be well within affordable limits for typical first home buyers in all other parts of the country.

Although lower quartile prices have been rising in other parts of the country, it is off such a low base that the mortgage payments to buy a lower quartile priced home would be well under the 40% affordability threshold in all regions except Auckland and Central Otago/Lakes.

After Central Otago/Lakes, the next most expensive region in the country is Wellington, where the lower quartile selling price was $362,500 in March.

However the mortgage payments on a lower quartile-priced home in Wellington would only take up 25.5% of a typical first home buying couple's take home pay, and after saving 20% of their income for four years they would have saved a deposit of 20.3% to put towards the purchase of their home.

So buying a home definitely remains achievable for first home buyers on average incomes in all regions of the country except Auckland and Central Otago/Lakes.

Source: CartoonStock. © Used with permission