New Zealand homeowners struggle to pay mortgage

New Zealanders are struggling afford a home, with higher interest rates and elevated property prices squeezing borrowers.

According to the CoreLogic Housing Affordability Report, housing affordability has improved since 2021, but the percentage of household income required to service a mortgage is still at 49 per cent.

Prior to the Covid-era property boom, the highest reading was 46 per cent in 2007-08.

CoreLogic NZ Chief Property Economist, Kelvin Davidson, said the share of income required for repayments was unchanged from the figures in both the second and third quarters of 2023.

“The stability in mortgage servicing in recent quarters isn’t really much consolation,” Mr Davidson said.

“Housing affordability is still significantly stretched on this measure, given that the long-term average sits at 37 per cent, illustrating the current challenges from high mortgage rates.

“The increase in mortgage rates themselves means that repayments continue to eat into a many households’ incomes.”

Source: CoreLogic NZ Housing Affordability Report

Across the main centres, there has been a small drop compared with its previous cyclical peak.

Tauranga (60 per cent) is the most stretched, followed by Auckland (55 per cent), Hamilton (47 per cent), Christchurch (47 per cent), Wellington (44 per cent) and Dunedin (43 per cent).

Properties in New Zealand are now valued at seven times the average household income.

Source: CoreLogic NZ Housing Affordability Report

Mr Davidson said this is an improvement, dropping from a peak of 8.6 in early 2022, however, the measure remains above the long-term average, of 5.9, as well as the figure of 6.9 in Q3 2023.

He said Tauranga remained the most expensive main centre, with its value-to-income ratio sitting at 8.5 in Q4 2023, however, other markets are more stretched relative to normal.

Mr Davidson said the years to save a deposit measure was 9.3 in Q4 2023, down from the worst point of 11.5 in Q1 2022. 

However, it is still a small rise from Q3’s reading of 9.2 years and well above the long-term average of 7.9 years.

“That’s the first rise in this measure, or worsening in time to save a deposit, since the first quarter of 2022,” Mr Davidson said.

Tauranga has the longest period of time required to save a deposit at 11.3 years, followed by Auckland at 10.3 years, while Hamilton (8.9), Christchurch (8.7), Wellington (8.3), and Dunedin (8) all have a figure below the national average.

Mr Davidson said the New Zealand rental market is quite stretched with pressure on the supply and demand balance causing rents to rise.

Rents currently account for 21.6 per cent of household income, back to past highs seen in the first half of 2022.

Christchurch has slowly deteriorated, with rents rising faster than gross average household incomes to become the second most expensive main centre to rent in behind Tauranga.

In contrast, Dunedin, Hamilton, and Tauranga have been generally stable lately, as Auckland and Wellington show a gentle improving trend.

Mr Davidson said stretched housing affordability itself will tend to be a natural handbrake on the rate of house price growth.

“It’s conceivable that prices may only rise roughly in line with incomes over the next few years,” he said.

“That wouldn’t necessarily see affordability improve, but it might not get much worse either.”

He said mortgage rates are likely to drift lower within the next two-year horizon.

“This may throw that delicate balance between prices and incomes off course a little, pushing up measures such as the value to income ratio,” he said.

“However, when it comes to actually servicing debt, lower mortgage rates would obviously be beneficial for affordability.

“Debt to income ratio restrictions also have the potential to restrain house price growth over the medium term.”

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Rowan Crosby

Rowan Crosby is a senior journalist at Elite Agent specialising in finance and real estate.