13 July 2015
Aucklanders simply can’t afford to own land, need to be more comfortable with renting
New research by Infometrics shows that the affordability problems in Auckland’s housing market are not solely being
caused by cyclical factors such as strong migration inflows and a lack of new house building over recent years. The
median house price in Auckland is now equivalent to 11.3 years of average income in the region. But even a significant
drop in Auckland house prices of 20% between 2016 and 2020 would still leave this ratio at 8.6 years, which would be
highly unaffordable. Central and local government’s current efforts to boost the supply of new housing in Auckland will
only go a small way to addressing the region’s housing crisis.
Infometrics Chief Forecaster Gareth Kiernan said “New Zealanders’ aspirations of the size of house they can own, and
particularly the amount of land that comes with that house, are not realistically aligned with our actual incomes and
wealth positions. Land prices are particularly critical in Auckland, and by clinging to the Kiwi dream that we should
all be able to own our little piece of New Zealand, a significant proportion of society is effectively being priced out
of the housing market.”
At a nationwide level, section prices rose from 27% of the average house price in 1984 to 55% by 2006. “Home buyers’
expectations need to be realigned to a greater acceptance of terraced housing and apartments as liveable options,” said
Mr Kiernan. “The reality is that, in larger urban areas overseas, having your own private yard is simply not viable for
most of the population. New Zealanders need to accept the need for a more intensive dwelling stock – both potential
buyers, as well as existing property owners who can be resistant to more intensive housing developments in their
neighbourhoods.”
The need for densification in Auckland has been well signalled by planners and policymakers. Infometrics believes it is
important that high-density housing is built to a high quality, and that prices of units are not set at overinflated
levels. The reputation of apartment living suffered during the building boom in the first half of last decade, with
construction typified by small and low-quality units that were not really fit for purpose, which were then sold at high
prices as developers aimed to make as much profit as possible in a relatively immature market.
The second area where Infometrics believes a change needs to take place in how the property market functions is to
improve the attractiveness of renting as an accommodation option. Rental regulations that heavily favour landlords are a
significant factor making renting a less appealing option than homeownership, while the absence of a comprehensive
capital gains tax on property also boosts the attractiveness of homeownership compared to many other investment options.
“Leasing conditions in New Zealand are set up firmly in the favour of landlords and offer tenants little security of
tenure. The structure of the rental market in New Zealand is in stark contrast to what can be seen across much of
continental Europe,” said Mr Kiernan. “On average, people are now paying an additional $11,300 per year above the cost
of renting to service their mortgage. Changes need to be made to reduce the perception of inferiority that renting has
suffered in this country, including the introduction of regulations that encourage longer-term leasing arrangements.”
ENDS