While Government and opposition parties try to claim they have the solutions for ‘affordable housing’ the numbers simply don’t stack up for a lot of people, especially those who want to buy their first house.
Neil Binnie, manager of the Bays Community Housing Trust, does some calculating to point out what should be obvious.
… the issue of affordable housing is not well explained.
Kiwis in upper wage brackets can always afford the high prices especially when they are buying and selling on the same market. It is the first home buyers and those with lower wages who are in trouble.
“Affordable housing” is a phrase that has been used in the media in different ways. A common definition is that a house is said to be affordable if its asking price is 75 per cent of the median selling price of houses in the area.
In a few months the median house price in Auckland will be a million dollars. Does that mean that a house costing $750,000 dollars is suddenly “affordable”? Likewise we are told 20 per cent of houses at Hobsonville are “affordable”.
Binnie’s number crunching:
- Statistics NZ gives the median family income in Auckland for 2015 as $1575 a week.
- Using the IRD tax calculator and taking 3 per cent for KiwiSaver leaves $1183 take-home pay.
- Taking 40 per cent of this gives $473 a week to pay the mortgage (or rent).
- If interest on the mortgage is 5 per cent this will sustain a mortgage of $350,000.
- With a 20 per cent deposit, a house costing $440,000 is therefore affordable under this definition.
(Prudence suggests you should be prepared for an increase in mortgage rates to 7 per cent, meaning you should only spend $360,000 on a house.)
When National came to power mortgage interest rates were over 10%.
This is consistent with the analysis by Simon Collins, “Affordable houses a Dream” in the Herald on July 12. He stated that only 46 per cent of people aged 20 to 65 are able to afford a house priced at $500,000. Incidentally I am wondering how these families save the $100,000 deposit while paying an unaffordable (median) rent of over $500 a week.
When Labour promises 10,000 “affordable homes” a year costing $500,000 to $600,000, the discussion above shows they are not affordable to more than half of the population. In fact Labour have shut out exactly the families they are claiming to help.
And in the main those who don’t yet own a house will be the ones who are shut out.
There are properties for sale in Auckland with prices less than $440,000. The vast majority of these are one-bedroom apartments with body corporate fees of at least $50 a week which will blow the budget. These one-bedroom units are inappropriate for young families.
Half of Auckland’s families have less income than this, so they have no hope of ever buying their own home. This is the reality for a family on the median wage or less.
There is one obvious solution to families wanting to buy their first home – start somewhere other than Auckland (or Queenstown or Hamilton or Tauranga). Once you have a house you can grow your equity (with the help of inflation) and then some time in the future you may be able to upgrade to a big city
There are still a sizeable proportion of houses in Dunedin selling for between $200-$300 thousand (some are less).
The problem is a limited supply of jobs in the regions. In part this is due to Governments over the last thirty years gutting regions of Government departments and jobs, choosing to concentrate them in a few large cities. There is no sign of that changing.
But for many people if the want an affordable house they can’t rely on the Government, nor the opposition.
Perhaps they have to choose an affordable town or city for themselves.