Key Points:

Falling house prices have prompted New Zealand's housing affordability to improve slightly in the past year, compared with other countries.

Instead of leading six countries for the most dire house price/wage comparison, we are now only the second-worst nation and tagging Australia when it comes to the most unfavourable income and property comparison.

In a surprise move, the Tauranga/Western Bay of Plenty market is now less affordable than Auckland.

Demographia, an international survey business run by Hugh Pavletich of Christchurch and Wendell Cox of the United States, today issued its fifth annual report showing our housing fortunes improved slightly on an international scale.

The United States, Australia, Britain, Ireland, Canada and New Zealand were studied and the results revealed our house hunters still faced one of the biggest gaps between earnings and house prices.

A year ago, NZ was worst off out of the six, a result questioned by the Prime Minister at the time, Helen Clark, who dubbed it misleading, saying the survey's sample of countries was too small and it lacked enough European nations to have any real meaning.

This year, the survey has expanded to compare earnings with house prices in 265 cities, up from 227 cities last year.

A median multiple is used so median houses prices are divided by the gross annual median household income to give the total number of years of income needed to pay off a mortgage.

The survey said the United Nations and World Bank recommended that no more than three years of annual household income should be required, yet New Zealanders need five years and seven months of full earnings to afford a house.

Of the New Zealand cities surveyed, Tauranga/Western Bay of Plenty was found to be the least affordable, as it takes six years and six months to pay for a house. Second least affordable was

Auckland, at six years and four months; followed by Christchurch, six years and one month; Wellington, five years and nine months; Dunedin five years, five months and Hamilton/Waikato and

Napier/Hastings both at five years two months.

The most unaffordable place is Australia's Sunshine Coast, with a median multiple of 9.6 (years and months); followed by Honolulu, 9.1; the Gold Coast, 8.7; Vancouver, 8.4; Sydney, 8.3; San

Francisco, 8; San Jose, 7.4 and Victoria, in British Columbia, 7.4.

Last year, Canada's Thunder Bay was the most affordable place. Now, Ohio's Youngstown is the easiest place to buy, with a median multiple of 1.8 (one year and eight months); Indiana's Fort

Wayne, 1.9; Evansville and South Bend, both in the same state, at 2 and Cape Breton, in Canada at 2.1

Property Council national director Connal Townsend praised the survey for highlighting New Zealand's plight, saying no one could dispute its simple comparison between wages and house prices.

While affordability had improved marginally, highly expensive and extremely constrained urban land supplies caused our plight, he said.

"The economic downturn has taken some of the pressure off but the fundamentals are still not right.This housing trouble has occurred due to the strangulation of urban land markets," Mr Townsend said.

Mr Pavletich was pleased that Housing Minister Phil Heatley had last year been on a study tour of housing in the US and Britain, examining land supply and the difficulties local governments were

experiencing in meeting obligations to enable provision of affordable housing.

The NZ Planning Institute supported Demographia and recognition had been made of the important influence land supply played in the cost of housing, Mr Pavletich said.

BNZ chief economist Tony Alexander said house prices were going down.

"Prices will decline but only on average by something between 5 and 10 per cent, and not the 30 per cent to 40 per cent some punters are picking.

"We think a further supporting factor for the housing market later this year will be a turnaround in net migration flows as Kiwis realise there is little incentive to go overseas to find employment

during the worst global recession since the Great Depression in some economies, and more people overseas shift back here.

"When five-year fixed mortgage interest rates hit 5.5 per cent (our two-year rate is now 5.99 per cent) people will buy again, provided they keep their jobs."

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Area -- Median house prices -- Median household income -- *Years to pay mortgage

- Tauranga/Western Bay of Plenty -- $341,700 -- $52,100 -- 6.6

- Auckland -- $427,500 -- $67,300 -- 6.4

- Christchurch -- $313,300 -- $51,100 -- 6.1

- Wellington -- $373,000 -- $63,300 -- 5.9

- Dunedin -- $249,500 -- $45,500 -- 5.5

- Hamilton/Waikato -- $301,000 -- $58,400 -- 5.2

- Napier/Hastings -- $272,900 -- $52,700 -- 5.2

- Palmerston North/Manawatu -- $250,000 -- $50,600 -- 4.9

* A household's full earnings would be needed to pay off a mortgage in this time.

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Least-affordable countries (wages versus house prices) -- Household earnings (in years and months) needed to pay mortgage

1. Australia -- 6
2. New Zealand -- 5.7
3. Ireland -- 5.4
4. Britain -- 5.2
5. Canada -- 3.5
6. United States -- 3.2

Survey by Demographia

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The new Government has an aggressive attack plan to tackle the housing affordability crisis.

Housing Minister Phil Heatley said the marginal improvement in New Zealand's fortunes shown by Demographia's latest survey was of little comfort to many people and strengthened his resolve to act.

"I am well aware of the plight of investors who are seeing the value of their properties diminish, but also many first-home buyers who, at present levels which this research proves, are still excluded from entering the property market.

"The Government will be introducing initiatives aimed at improving housing affordability and reform of the Resource Management Act will improve the planning system and land supply to providing greater opportunities for New Zealanders to enter into home ownership," he said.

This will ensure councils plan for a supply of suitable land zoned for new housing and make it easier to redevelop existing and unused land within city and town limits, Mr Heatley said.

The Building Act 2004 would be amended to reduce the excessive costs imposed on councils and the building industry and ensuring supporting roading and other infrastructure was provided to enable the growth and development of towns and cities.

More housing innovation funding and working with councils to axe planning restrictions would help, he said. Development would be encouraged on communal and multiple-owned Maori lands.

"Alongside the Housing Innovation Fund we will explore ways to give banks the confidence to back such projects."

The Government would look at alternative shared ownership, financing arrangements for homeowners and how to increase trades and training opportunities.

Mr Heatley said he was also looking at the establishment of an options and advice service provided by Housing New Zealand Corporation which would match rental and ownership housing needs with solutions.