NZ Herald business editor at large

Auckland's housing ranking nothing to celebrate

Auckland dropping down the ranks of the world's least affordable cities should be good news for potential home buyers.

Unfortunately, while it's nice that prices in the city aren't soaring further out of reach, New Zealand hasn't really got much cheaper yet.

Measuring the cost of housing relative to incomes, Demographia International Housing Affordability Survey is not a great one to top.

We still rate as the third least affordable country after Hong Kong and Australia.

High housing costs might be seen as a measure of success where they reflect the desirability of a place to live, but when wages aren't rising too then the equation is unbalanced.

Auckland house price growth has slowed and there are signs of the boom cooling in the regions, but New Zealand now needs the wage growth side of the affordability equation to come to the party.

In the past few years Auckland has been the fourth or fifth least affordable major city - headed off by the likes of Hong Kong, Vancouver and Sydney.

This year the City of Sails is ninth and - on a broader list including small cities - has even been surpassed by Tauranga.

Given the way that the regions have outpaced Auckland's housing market in the past year Tauranga's shift to the top of New Zealand's least affordable list shouldn't be a surprise.

Rankings are relative anyway.

Take a look at the cities that became less affordable than Auckland in the past year - San Jose, Melbourne, Los Angeles, Honolulu and San Francisco.

The stand out there is that there is the rise of American cities. These are the places you'd expect to be unaffordable but after the global financial crisis wiped out the US housing market they dropped down the list.

It's taken almost a decade but in key US markets house prices are finally topping pre-GFC peaks.

New Zealand now needs the wage growth side of the affordability equation to come to the party. Picture / Kenny Rodger
New Zealand now needs the wage growth side of the affordability equation to come to the party. Picture / Kenny Rodger

On top of that, the survey's New Zealand author Hugh Pavletich notes that local incomes got a statistical bump in the latest survey because of a change in Stats NZ methodology.

An error resulted from calculations which counted all dwellings in New Zealand rather than counting all usually-occupied dwellings. This meant the average annual household income data was lower than it should have been.

The correction means that the average annual household income has risen 50.5 per cent since 2007, rather than the 42 per cent.

So perhaps things looked worse than they should have in previous surveys. But no one is actually any better off.

So where does that leave New Zealand's affordability? Treading water while we wait to see what happens next to the housing market.

Auckland sales volumes have been well down in the past year. Prices are slightly down or slightly up depending on which data you use, which suburbs you focus on and which measures you prefer.

Most of the rest of the country is still seeing good growth but the regions typically tend to follow once Auckland cools.

Will central and local Government be able to deliver on house building plans? Will new zoning changes open up the market? Will immigration changes and new tax rules for landlords further dampen demand?

And what about wages? We're overdue some wage inflation - particular in Auckland where we are seeing the cost living translate into skills shortages in the trades and important service sectors.

If the economy continues to grow steadily then history suggest wages will start to rise.

Central government moves on minimum wages and pay equity settlements for care workers could provide a kick starter.

In short, the elements for more substantial change on housing affordability are falling into place now.

While this year's Demographia Survey hints at progress, it is largely cosmetic. The real test is still to come in 2018.

- NZ Herald

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NZ Herald business editor at large

Liam Dann is business editor at large at the New Zealand Herald. He has been a journalist for 20 years, covering business for the last 14 of them. He has also worked in the banking sector in London and travelled extensively. His passion is for Markets and Economics, because they are the engine of the New Zealand economy. He hosts The Economy Hub video show every Thursday.

Read more by Liam Dann

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