Want to know if housing affordability is still a problem in New Zealand? What are the factors affecting property prices? Check out this article to learn more
While many people around the globe view New Zealand as a great place to live or invest in, residents are facing a housing affordability crisis. This problem has lasting effects in the country’s real estate and mortgage sectors.
The unsustainable supply of inexpensive houses has been cited as a big reason why housing affordability in NZ is a major issue. However, this is not the only factor. There are others that have created a downward trend in NZ’s housing market.
In this article, NZ Adviser will discuss what you need to know about housing affordability in NZ. We will talk about the factors that contribute to NZ’s housing market problem and if houses will ever be affordable again. We will also explore why prices are so high and why it is such an important issue.
Is housing affordable in NZ?
The short answer to that question is: no, not particularly. In fact, according to the World Population Review, NZ is one of the countries where buying a home is difficult. NZ even ranked as the sixth least affordable country to buy a house in 2022.
The same report found that housing in NZ, with an affordability ratio of 17.8%, was less affordable than 32 other countries. These include:
- Australia
- Canada
- United Kingdom
Some of the reasons why housing in NZ is unaffordable might be due to:
- rising property prices
- living costs
- property shortages
- stagnant wages
Watch this video about the housing crisis in the country:
Housing affordability has led to concerns for residents, especially first time homebuyers.
Factors affecting NZ’s housing affordability
Housing affordability is a major concern in NZ. Over the past few years, property prices have skyrocketed, making it challenging for many people to buy homes. To better understand why housing affordability is an ongoing problem in the country, here are some essential factors:
- high prices
- low supply
- rising interest rates
- rental market challenges
- government initiatives
Let us discuss each factor on why housing affordability is an issue in NZ:
1. High prices
Property prices have drastically increased over the years, especially in major cities like Auckland. This rise has outpaced wage growth, making it very difficult for many people to afford to buy a home.
2. Low supply
There is often a shortage of available homes on the market. This limited supply leads to increased demand, which drives prices even higher. It then makes it harder for property buyers to find cheaper options, adding to the overall housing affordability problem.
3. Rising interest rates
As interest rates increase, mortgage payments become more expensive. Higher monthly payments can strain budgets and make it challenging for families to manage their finances while trying to buy a home.
On the brighter side, the Reserve Bank of New Zealand (RBNZ) has lowered the Official Cash Rate (OCR). Want to know how this affects the mortgage interest rates? Watch this:
4. Rental market challenges
Many people are also facing high rental costs, which can make it difficult to save money for a deposit on a home. When rent takes up a large portion of income, there’s often little left for savings.
5. Government initiatives
The government has introduced programs aimed at improving affordability, like the First Home Loans that replaced First Home Grant, which help first-time buyers with their deposits. However, the effectiveness of these measures has varied, and many still find it hard to go around the country’s housing affordability crisis.
Why are NZ house prices so high?
For the last few years, the trajectory of home prices in NZ has been steadily increasing, even if prices have been falling (slightly) over the past few months. For instance, the median house price in July of 2022 was an astronomical $810,000—compared to the median house price in the year 2000, which was roughly $170,000.
To understand this dramatic increase, a previous report by the Housing Technical Working Group, a joint initiative of three agencies, looked at what drove these rising prices.
The report—which focused on the Hamilton and Waikato area—found that three things drive up housing prices in NZ:
- tax system
- land restrictions
- declining global interest rates
Construction costs and population growth, on the other hand, were found to be factors, although less impactful. On the issue of land supply, the report found that changes to the tax system impacted the value of urban land more than the housing supply, or rents.
Even rental costs have been rising in the past few years. Watch this clip to know more:
Challenges faced by NZ homebuyers
Housing in NZ is increasingly seen as unaffordable for many residents. In recent years, property prices have skyrocketed, making it difficult for low- to middle-income families to enter the housing market. Many people are forced to spend more than 30% of their income on housing costs, which is the generally accepted standard for affordability.
In some places, both house prices and rents have previously increased. This has created financial strain for many households. It has also led to a growing number of people living in shared accommodations or renting long-term, rather than being able to buy their own homes.
Although the government has introduced some initiatives to help increase the availability of affordable housing, the demand still far exceeds supply. As a result, the overall housing market remains challenging, and many citizens struggle to find suitable and affordable living options.
What does affordable housing mean in NZ’s market?
Affordable housing in NZ refers to homes that are accessible to low- to moderate-income households. It is generally defined as housing costs, including rent or mortgage payments, that do not exceed 30% of a household's gross income. This standard helps ensure that families can afford other essential expenses.
Usually, affordable housing can also refer to homes priced at or below the KiwiBuild price points. It also includes assisted housing programs provided by Community Housing Providers (CHPs) for families who do not qualify for social housing or KiwiBuild but cannot afford higher market prices.
What then is the future for NZ’s housing market? Check out this video to find the answers:
Do you have clients who want to buy a property despite NZ’s housing affordability crisis? You can give them better advice if you are well-informed about the market. Stay up to date about the country’s housing market trends on our Mortgage Industry page.
Why housing affordability is an important issue
One major reason why housing affordability is an important issue in NZ is that roughly 300,000 NZ families are living in unacceptable housing conditions due to poor housing and overcrowding. And housing affordability is only getting worse.
House prices and rents in NZ have risen over the past two decades much faster than household incomes. In fact, the average NZ household can cost up to eight times more than household income. For context, home prices that are three times more than household income are considered affordable.
This housing affordability crisis is keeping NZ families in a cycle of poverty. A significant portion of most household budgets go toward housing, and this determines the standard of living. If most of the household income goes toward home costs, there is less for other basic needs like:
- food and water
- education
- medical care
- transportation
Will houses ever be affordable again in NZ?
It does appear that housing will be affordable again in NZ any time soon since house prices are now stabilising. Economists have already predicted that current unsustainable housing prices to dip previously. It remained unlikely that they would fall more than 20% to where they were back in 2021. However, recent reports show that they dropped more than 16% in 2024.
A reasonable measure for affordable housing is for prices to stay within three times household income, meaning a drop in average home prices of more than 50%. It is highly unlikely, however, that home prices will drop by that much.
How to navigate housing affordability crisis
Navigating NZ's housing affordability crisis can be tough, but there are some steps that homebuyers can take. They can consider looking for housing in areas outside major cities. Home prices might be more affordable in smaller towns or suburbs. They can also talk to real estate agents and other experts in the mortgage industry to know when the best time is to buy or invest in a house.
Stay updated about the housing market’s changes and if they will ever flatten. Being flexible can help aspiring homeowners find a place that fits their needs and budget even when the country faces this ongoing issue in the coming years.
Do you have other tips for navigating NZ’s housing affordability crisis? Feel free to tell us in the comments section below.
