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Affordability can have dramatic impact: Dickens

The way people behave when houses become less and less affordable can have a dramatic impact on how many houses are needed to satisfy demand, Strategic Risk Analysis managing director Rodney Dickens says.

Monday, December 20th 2010, 12:00AM 2 Comments

by The Landlord

Responses to housing becoming unaffordable range from young couples staying or moving in with parents, those with spare rooms renting them to help pay the mortgage or rent and retired people, perhaps hit by finance company failures, moving in with their kids or with each other, Dickens says.

Other people may convert garages to living quarters or move mobile homes onto their properties to house children or in-laws.

"It only takes a small increase in the number of people per house to result in a significant reduction of houses required to house the population which translates into a large fall in demand for new housing," he says.

At the beginning of the latest housing market boom, back in 2002, the average house cost the average employee about 4.5 times their annual gross income - the average house price was $167,000 and the average annual gross wage was $36,000.

By the time the boom peaked in 2007, the average house cost eight times income.

"It should therefore be no wonder that in recent times the level of demand for housing, both existing and new houses, has been well below even the average level that existed prior to 2002," Dickens says.

The 2006 census showed the average number of people per dwelling was 2.46. If the number of people per dwelling has increased to 2.5, "it means we need 27,317 less new houses than would be the case otherwise."

If the number of people per dwelling has risen to 2.52, New Zealand needs 40,650 fewer houses than otherwise.

The impact is just as dramatic at the local level: in Tauranga, for example, if the number of people per dwelling rises from 2.33 to 2.39, 1,239 fewer houses are needed.

Dickens says many economic forecasters are failing to take such behaviour into account in predicting what will happen to residential building "which is why they have been way too optimisic in recent times."

« Momentum building in house market, according to ANZFree Investment Property Showcase Events: Auckland, Wellington and Christchurch »

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Comments from our readers

On 23 December 2010 at 9:19 pm julia llewellyn said:
totally agree. I live in a holiday park and we have increasing numbers of people wishing to live here in their campervans slash buses permanently. Constant enquiry from people from all walks of lifef. Bet this isn't taken into account either and beats living with your kids.
On 17 January 2011 at 11:35 am Rodney Dickens said:
Hi Julia, thanks for the extra insights you provided. It is these sorts of grassroots insights that are both important and which the economists often brazenly overlook or rule out. Cheers, Rodney
Commenting is closed

 

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Lender Flt 1yr 2yr 3yr
AIA - Back My Build 4.94 - - -
AIA - Go Home Loans 7.49 ▼5.79 ▼5.49 ▼5.59
ANZ 7.39 6.39 6.19 6.19
ANZ Blueprint to Build 7.39 - - -
ANZ Good Energy - - - 1.00
ANZ Special - 5.79 5.59 5.59
ASB Bank 7.39 ▼5.79 ▼5.49 ▼5.59
ASB Better Homes Top Up - - - 1.00
Avanti Finance ▼7.90 - - -
Basecorp Finance ▼8.35 - - -
BNZ - Classic - 5.99 5.69 5.69
Lender Flt 1yr 2yr 3yr
BNZ - Mortgage One 7.54 - - -
BNZ - Rapid Repay 7.54 - - -
BNZ - Std 7.44 ▼5.79 ▼5.59 5.69
BNZ - TotalMoney 7.54 - - -
CFML 321 Loans 6.20 - - -
CFML Home Loans 6.45 - - -
CFML Prime Loans 8.25 - - -
CFML Standard Loans 9.20 - - -
China Construction Bank - 7.09 6.75 6.49
China Construction Bank Special - - - -
Co-operative Bank - First Home Special - ▼5.69 - -
Lender Flt 1yr 2yr 3yr
Co-operative Bank - Owner Occ 6.95 ▼5.79 ▼5.59 5.69
Co-operative Bank - Standard 6.95 ▼6.29 ▼6.09 6.19
Credit Union Auckland 7.70 - - -
First Credit Union Special - ▼5.99 ▼5.89 -
First Credit Union Standard ▼7.69 ▼6.69 ▼6.39 -
Heartland Bank - Online ▼6.99 ▼5.49 ▼5.39 ▼5.45
Heartland Bank - Reverse Mortgage - - - -
Heretaunga Building Society 8.60 6.65 6.40 -
ICBC 7.49 ▼5.79 ▼5.59 5.59
Kainga Ora 8.39 7.05 6.59 6.49
Kainga Ora - First Home Buyer Special - - - -
Lender Flt 1yr 2yr 3yr
Kiwibank 7.25 6.89 6.59 6.49
Kiwibank - Offset 7.25 - - -
Kiwibank Special 7.25 5.99 5.69 5.69
Liberty 8.59 8.69 8.79 8.94
Nelson Building Society ▼7.94 5.95 6.09 -
Pepper Money Advantage 10.49 - - -
Pepper Money Easy 8.69 - - -
Pepper Money Essential 8.29 - - -
SBS Bank ▼7.49 6.95 6.29 6.29
SBS Bank Special - 6.15 5.69 5.69
SBS Construction lending for FHB - - - -
Lender Flt 1yr 2yr 3yr
SBS FirstHome Combo ▼4.94 5.15 - -
SBS FirstHome Combo - - - -
SBS Unwind reverse equity 9.75 - - -
TSB Bank 8.19 6.49 ▼6.39 ▼6.39
TSB Special 7.39 5.69 ▼5.59 ▼5.59
Unity 7.64 5.99 5.69 -
Unity First Home Buyer special - 5.49 - -
Wairarapa Building Society 8.10 6.05 5.79 -
Westpac 7.39 6.39 6.09 6.19
Westpac Choices Everyday 7.49 - - -
Westpac Offset 7.39 - - -
Lender Flt 1yr 2yr 3yr
Westpac Special - 5.79 5.49 5.59
Median 7.49 5.99 5.79 5.69

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