Why NZ's Cheapest Towns Are Getting Less Affordable
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What metric do the hosts use to measure housing affordability across New Zealand?
Hello and welcome along to the Property Academy podcast by Opus Partners. I'm your host, Tepic Knight.
And I'm Andrew Nicholl.
And this is the show that helps Kiwis go from zero to five investment properties so you can be financially free and stick around for the next 15 minutes because you're going to learn where housing affordability has got better and where houses are getting less affordable. The one number that tells you if a house is genuinely affordable or not and why the cheapest towns are the ones becoming more unaffordable. Now, housing affordability has gotten better in New Zealand. House prices are down. Interest rates have come down relative to the last couple of years. They've creeped up a little bit over the last few months. So houses must be getting more affordable. Now, I've gone and got the data and I'm comparing each part of the country with how affordable house prices have been over the last 22 years.
Now, Andrew, how much has housing got more affordable in New Zealand?
Well, firstly, we're going to decide how we're going to measure it. So there are different ways that you can measure affordability. But if we look at the cost of a mortgage, nationally, a mortgage now takes about 40% of your typical household income. Now, the long run average since 2004, it's about 42%. So we're slightly better than average, but not everywhere in the country is getting more affordable. So there are 38 districts that are more affordable than their long-term average, but there are 24 that are worse.
And the reason I like looking at housing affordability this way is because whenever a young person, a millennial or a Gen Z, complains about high house prices and how housing is unaffordable, you always get the boomer response that back in my day in the 80s, the interest rates were 26%.
How much has the national mortgage‑to‑income ratio improved compared to the long‑run average?
A thousand percent.
21%. And so you kind of get this argument about people measuring affordability in different ways. One side is arguing about the deposit and not being able to get a deposit. And then the boomers are saying, yeah, but the mortgages were really unaffordable previously. So the reason I like to measure it in terms of the proportion of your income that you need to service the mortgage is because it kind of accounts for both. It takes into account the lower interest rate, but also the higher house price as well. Having said that, though, it does ignore the deposit. Now, the typical rule of thumb is that an affordable house is 30 to 35 percent of income. That's kind of the line. Under that, it's considered reasonably affordable.
Over it, it's typically considered to be quite stressed. And there are some areas of New Zealand that are well into that affordable area. Now, which are the areas, though, Andrew, where housing affordability is better than average right now?
So the most improved player goes to Wairoa, which is a small town north of Hawke's Bay. Now, for anyone that knows Rocket Lab, that's where it launches all its rockets from. That's probably what's made it the most famous. Now, in terms of affordability, a mortgage which used to take 36% of a typical income now takes only 26%. So it's 29% more affordable than its long-run average. Now, do you think that's probably because incomes have spiked there?
No. You don't think it is? No, no, I don't think it's incomes at all. Because while Rocket Lab launches its rockets from the Mahia Peninsula, my understanding is that a lot of their staff aren't all based down there, right?
Which districts are now more affordable than their historical average?
Rocket Lab headquarters, my understanding is in Auckland, because my friend used to work for them, as opposed to down in the Mahia Peninsula. But I think it's because house prices have come down. And remember, Wairoa has seen some of the largest house price decreases in in the whole of the country. Yes, Lower Hutt and Wellington City have done it really tough in terms of house prices coming down, but Wairoa and Hawke's Bay have also done it particularly poor. So I don't think it's that Rocket Labs pulling in a whole heap of rocket engineers and rocket scientists, and that's increasing both the income level and the average IQ of the area.
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Chapters
7 chapters
1
What metric do the hosts use to measure housing affordability across New Zealand?
0:08–1:55
2
How much has the national mortgage‑to‑income ratio improved compared to the long‑run average?
1:55–3:37
3
Which districts are now more affordable than their historical average?
3:37–6:35
4
Why is Wairoa the most improved town in terms of affordability?
6:35–8:53
5
Which larger cities have seen the biggest affordability gains?
8:53–10:52
6
Which smaller towns are becoming less affordable and why?
10:52–12:06
7
How do high‑income areas like Thames‑Coromandel still remain unaffordable?
12:06–12:13
Speakers
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