The effects of COVID-19 and ultra-low interest rates have exacerbated the imbalances in New Zealand's housing imbalances and turned affordability issues into a full-blown crisis.

In our latest Public Analysis Report, Infometrics Chief Forecaster Gareth Kiernan details Infometrics' latest research into the housing market and looks at the massive hurdles faced by the young generation of potential buyers whose dreams of a first home look further away than ever.

Release date: 23 June 2022

Housing update 2022: A new lens on affordability

Our analysis of housing affordability compares the payments over the lifetime of the loan against the value of the asset when the mortgage has been repaid. This approach takes into account a broader range of factors that affect the financial costs and benefits associated with homeownership, including:

• mortgage rates throughout the life of the loan
• consumer price inflation
• income growth over time
• house prices at the time of purchase
• house price changes during the period of ownership

Key Findings

Our analysis suggests that 2022 is the worst time since 1957 for first-home buyers trying to get into the housing market in New Zealand.

There are two key factors that contribute to 2022 being a bad time to buy a house.

• The average proportion of a household’s income needed to service the loan throughout the mortgage: people taking on mortgages now are committing to having an average of 33% of their income tied up in mortgage repayments for the next 25 years or longer. At 49% of income, initial debt servicing costs are similar to in 1987, but without the likelihood of the very strong income growth that quickly reduced the debt burden during the 1980s.
• The increase in the value of the property over the life of the loan: the scope for house prices to rise rapidly from here, and provide today’s purchasers with significant capital gains, appears heavily limited. First-home buyers purchasing after a sustained period of strong house price growth risk buying at the peak of the market and enjoying less capital appreciation than buyers after a period of flat or falling house prices. Judging when the market is at its peak requires considerable foresight, but the reversal in house prices in the first half of 2022 suggests the boom that has persisted since the Global Financial Crisis has finally run out of momentum.

Of course, people’s decision to purchase their first home is often determined by their age and stage of life. In this regard, the current housing affordability crisis has significant implications for a whole generation of younger people, who now see homeownership as a far-off dream that might only be attainable with financial assistance from their parents.

Homeownership is seen as a fundamental part of New Zealand society, and people enjoy a range of benefits, both financial and non-financial, from owning their own home. There is a social responsibility for greater political action to ensure that homeownership does not continue to slip further out of reach for more and more Kiwis.