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Auckland has the worst unaffordable housing market globally

Auckland has the fastest-deteriorating housing affordability market globally after the average price of a home leapt $140,000 last year, the latest Demographia Housing Affordability report shows.

Friday, February 26th 2021, 8:18AM 1 Comment

Last year, Auckland was sixth on the least affordable scale of a major (population of one million plus) housing market.  It has now leapt up to fourth.

The report provides housing affordability ratings using the median multiple, a measurement of income in relation to housing prices, in 92 metropolitan markets in eight nations - New Zealand, Singapore, Australia, the United States, the UK, Ireland, Canada and Hong Kong.

Anything above three is considered moderately unaffordable, above four seriously unaffordable and above five, severely unaffordable.

On the severely unaffordable scale, Auckland with a median multiple of 10 (up 1.4 from last year), comes in behind only Hong Kong on 20.7, Vancouver on 13 and Sydney 11.8.

Housing affordability deteriorated by more than 1.0 median multiple points in just one year — the equivalent of one year’s pre-tax median household income — in Vancouver, San Jose, San Francisco and Honolulu, with the greatest deterioration in Auckland (1.4 points) and Toronto (1.3 points).

The deterioration was from 0.5 to 1.0 --- six months of household income --- in Sydney and San Diego. Virtually all of the markets with severely unaffordable housing have urban containment policies that severely restrict building on the periphery

Only four markets are rated affordable, with median multiples of 3.0 or less — Pittsburgh, Rochester, Buffalo, and St. Louis, all in the United States.

The report says with the continuing global pandemic and lockdowns, it is not surprising housing affordability — given the large influx of new buyers, particularly in suburban and outlying areas — has continued to deteriorate.

As a result, many low-income and middle-income households, which already have suffered the worst consequences from housing inflation, will see their standards of living further decline.

Report author Wendell Cox says the affordability issue is particularly critical due to the strong increase in remote working (telework) during the pandemic which, in some cases, is accelerating the movement to more affordable places. “It will likely also help flatten or even reduce prices in some of the highest cost housing markets as other households seek less costly housing elsewhere.”

Historically, housing affordability had been similar between nations until a few decades ago. For example, national price-to-income ratios were 3.0 or less in Australia, Canada, Ireland, New Zealand, the United Kingdom and the United States until the late 1980s or early 1990s.

However since that time, housing affordability has deteriorated significantly and by 2019 national median multiples had increased to 4.0 in the United States and Canada, nearly 6.0 in Australia and 7.0 in New Zealand.

The difference between the least affordable and most affordable markets, measured in median multiple points, expanded from 1.7 in 1970 to 3.5 in 2000 and 7.2 in 2020 --- more than four times that of 1970.
By 2004, all of the major markets in Australia and New Zealand had become severely unaffordable.

He says the deterioration in housing affordability represents an existential threat to the middle-income households. Higher housing costs relative to incomes are strongly correlated with higher overall costs of living and thus lower standards of living.

The past year has involved material setbacks, mostly due to the impact of the pandemic, which has led to a home buying boom in some areas while suppressing incomes.

Cox says a considerable body of research associates worsening housing affordability with the implementation of stronger land use regulation. “At the same time many housing markets have adopted perhaps the most stringent land use regulation, urban containment at the housing market level, which is associated with substantially higher land costs.”

Urban containment
The largest housing affordability differences between major metropolitan areas arose as significant restrictions on urban fringe housing development were applied, says the report.

These measures include “growth management” and “compact cities” policies. A principal purpose of urban containment is to curb the physical expansion of urban areas - that is, conversion of rural land to urban land, or what some refer to as “urban sprawl.”

Unfortunately, this results in higher land costs having an effect on middle-income households.

Urban containment’s prototypical strategy is urban growth boundaries encircling urban areas. Urban containment can render it impossible to profitably build tracts of housing affordable to middle-income households due to much higher land costs.

According, to urban planning literature: “Urban development is steered to the area inside the line and discouraged (if not prevented) outside it.” Urban development is contrasted with …”traditional approaches to land use regulation by the presence of policies that are explicitly designed to limit the development of land outside a defined area…”

Harvard University showed the value of land tends to rise from the low agricultural values outside the built-up urban area to the centre. Land values tend to rise gradually as distances increase from the centre, but land values, and house prices, tend to be higher in a containment area the closer to the centre they are.

Tags: house prices

« Housing crisis needs building surgeProvincial towns worst hit by housing affordability issues »

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Comments from our readers

On 25 February 2021 at 10:47 pm Steve Judge said:
Another thing that is a result of labour.
My tenant moved out and left the place not as clean. Everything looked ok when the final inspection was done apart from the cleaning with the property manager. Went in and did a final clean 3 days later and thought We will turn on the TV to watch americas cup on that weekend. When turned on saw all the cracks on the screen, was no good. When tv was off it looked perfect. Contacted property manager and they contacted ex tenant who said it was fine when she moved out. Property manager said because she is saying it was fine and it wasn't found until 3 days later they cant take it from her bond as she will just say it was fine and not authorise it. I'm told the only option is to take her to the tenancy tribunal now over the broken TV. Property manager wants $90 per hr for the tribunal. As it is only worth $200 for the TV waste of time so we have to wear it have been told. I'm selling up now, had enough of this !

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AIA 4.55 ▲3.25 ▲3.75 ▲3.99
ANZ 4.59 ▲3.84 ▲4.30 ▲4.54
ANZ Blueprint to Build 1.68 - - -
ANZ Special - ▲3.24 ▲3.70 ▲3.94
ASB Back My Build 2.04 - - -
ASB Bank 4.45 ▲3.25 ▲3.75 ▲3.99
Basecorp Finance 5.49 - - -
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BNZ - Classic - ▲3.24 ▲3.79 ▲3.99
BNZ - Mortgage One 5.15 - - -
BNZ - Rapid Repay 4.60 - - -
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BNZ - Std, FlyBuys 4.70 ▲3.84 ▲4.39 ▲4.59
BNZ - TotalMoney 4.70 - - -
CFML Loans 5.15 - - -
China Construction Bank 4.49 4.70 4.80 4.95
China Construction Bank Special - 2.65 2.65 2.80
Credit Union Auckland 5.95 - - -
Credit Union Baywide 5.65 3.95 3.85 -
Credit Union South 5.65 3.95 3.85 -
First Credit Union Special 5.85 2.95 3.45 -
Heartland Bank - Online 2.25 1.85 2.35 2.65
Heretaunga Building Society 4.99 3.80 3.90 -
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HSBC Premier 4.49 2.19 2.45 2.69
HSBC Premier LVR > 80% - - - -
HSBC Special - 2.25 - -
ICBC 3.69 2.45 2.85 3.15
Kainga Ora 4.43 2.88 3.28 3.59
Kainga Ora - First Home Buyer Special - 2.25 - -
Kiwibank ▲4.00 3.80 ▲4.15 ▲4.50
Kiwibank - Offset ▲4.00 - - -
Kiwibank Special 3.75 2.95 ▲3.30 ▲3.65
Liberty 5.69 - - -
Nelson Building Society 4.95 2.99 3.24 -
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Pepper Essential 4.79 - - -
Resimac 3.39 2.98 2.79 3.29
SBS Bank 4.54 3.05 3.45 3.75
SBS Bank Special - 2.55 2.95 3.25
Select Home Loans 3.49 3.34 2.99 3.34
The Co-operative Bank - First Home Special - ▲2.79 - -
The Co-operative Bank - Owner Occ 4.55 ▲2.99 ▲3.60 ▲3.89
The Co-operative Bank - Standard 4.55 ▼3.49 ▲4.10 ▲4.39
TSB Bank 5.34 ▲3.75 ▲4.20 ▲4.44
TSB Special 4.54 ▲2.94 ▲3.40 ▲3.64
Wairarapa Building Society 4.99 3.55 3.49 -
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Westpac 4.84 ▲3.79 ▲4.39 ▲4.59
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Median 4.57 3.21 3.60 3.89

Last updated: 22 October 2021 8:59am

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