Kiwis need six-figure incomes to be able to buy in most main centres. Illustration / Andrew Louis
Kiwis in our main cities often need to earn big incomes to comfortably afford to buy a home. But as Ben Leahy reports, the good news is affordability has improved over the past two years.
Aucklanders would need to earn more than $213,000 a year – or about one-and-a-half times the city’s typical household income – to comfortably afford to buy a median-priced home.
That’s according to analysis by the Herald and property commentators Cotality that shows the typical city house price was $1.08 million in the three months to June this year.
Homeowners who saved a 20% deposit and secured a typical two-year fixed interest rate at June of 5.88% would then face $63,948 in mortgage payments over the coming year.
That’s equivalent to a typical Auckland family handing 47% of their $136,529 household income over to the banks.
By contrast, many academic studies consider buying a home comfortable when buyers spend no more than 30% of their income on mortgage costs.
For that to happen, the Auckland family above would need to earn $213,158 for a median-priced home.
Wellington buyers would need to be bringing in $174,755, while Tauranga buyers would require $180,435 and Dunedin buyers $119,775.
Kelvin Davidson, chief property economist with analysts Cotality (formerly CoreLogic), said the earnings were a sign much of New Zealand wasn’t affordable for buyers.
“That is way above what people borrowing often actually earn,” he said.
Yet affordability has also been steadily improving over the past two years as house prices dropped from the record highs of 2021-2022.
While house prices were cheaper in the early 2000s, interest rates were higher, Davidson said in relation to findings in Cotality’s latest NZ Housing Affordability Report, released today.
That meant the percentage of income Auckland, Wellington and Tauranga homebuyers spent on mortgage repayments was slightly lower in the last quarter than the average over the past two decades.
Davidson cautioned against placing too much importance on rule-of-thumb measures about comfortably affording to buy, saying the 30% affordability data point no longer applied in the “real world”.
“What we see in the real world is people can make it work spending more than that,” he said.
That included young buyers banding together to raise deposits, bringing in boarders to cover mortgage payments or being willing to stretch themselves thin financially to get on the property ladder.
Wellington highlights the slight improvement in affordability over the past two years.
A typical buyer in the capital would spend 38% of their income on mortgage payments in the last quarter, which is down from the historical average of 40%, according to housing data by Cotality and income statistics by Infometrics.
Wellington house prices rose 2% overall since quarter two of 2020, while incomes jumped 17%.
That’s led to what Cotality called “a rare scenario where housing became genuinely more affordable through income growth rather than price falls”.
Nationally, there had also been an improvement in affordability thanks to the drop in house prices from record highs of 2022.
While a new buyer would have spent 57% of their household income on mortgage payments three years ago, current buyers would spend 44% – a 13 percentage point improvement.
Auckland mortgage affordability improved from a high of 63% of median income in late 2021 to 47% now.
Despite the improving picture, the real statistics are still hard for many Kiwis.
Tauranga remains the country’s most unaffordable main city.
Tauranga homes sold for a median price of $910,745 during the second quarter of this year, according to Cotality.
That would leave a buyer with a 20% deposit facing $54,130 in mortgage payments over the coming year.
Paying that mortgage would use up 50% of the buyer’s earnings if they took home a median household income of $107,440, according to Infometrics.
Davidson pointed out Tauranga had nearly always been the least affordable major city relative to income over the past two decades.
And those able to afford to buy in the area were likely not on the city’s typical salary.
Instead, they might be older Kiwis bringing their wealth into the city or people receiving a helping hand from family members, Davidson said.
The same applied to other tourist hotspots where the raw numbers practically ruled out home ownership for many people on local salaries.
Someone trying to buy in Queenstown or Thames-Coromandel on the median household income for those areas would need 20 years to save their deposit, according to Cotality’s new report.
That would likely put them in their mid-40s before they could buy.
Similarly, with deposits often taking about 10 years nationally to save, most buyers would theoretically be in their mid-30s when purchasing.
At the other end of the scale, a Clutha resident on a local household income would take 5.9 years to save their deposit and a South Waikato resident 6.1 years.