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4  Evidence

4.1  Aggregate New Zealand Trends

4.1.1  All households’ (owning and renting) housing costs

OTI measures

In this section we analyse the number of households that spent more than a given proportion of their disposable income on housing costs[12]. Household income and housing costs are calculated from the Household Economic Survey (HES) conducted by Statistics NZ[13]. Since this income is gross, disposable income was calculated using Treasury’s TAXMOD system[14].

The proportion of all households who spent more than 25%, 30%, 40% and 50% of their household disposable income on housing costs all rose over the period from 1984-1997 (see. Figure 1). This was followed by a period of levelling off, which preceded a modest fall from 2001 to 2004.

Figure 1 – Proportion of total households spending more than a given percentage of net household income on housing costs

Note: the HES was not conducted in 1999, 2000, 2002 or 2003.

The above ratios include all households regardless of their position in the income distribution. Ratios that consider all households tend to become heavily influenced by those at the top-end. High-income households might be easily able to spend 50% of their income on housing costs.

For some policy purposes, interest lies with the low-income households. These are normally indicative of first-home buyers but include retirees and students. Figure 2 shows the same ratios for only those households that have equivalised household disposable incomes below 60% of the median equivalised household disposable income.[15]

For low-income households the general decline in affordability (shown by an upward trend in the values) is apparent from 1984, until reaching a peak much earlier in 1995. After that time there is steady improvement in affordability from 1995 to 2004, (albeit with a slight regression in 2001). This distinct improvement after 1995 is in contrast to the ratios for all households, which had a very small decline from 1997 to 2004, back to roughly their 1995 levels.

It is clear that housing is relatively less affordable for low-income households than for all households, which is unsurprising. In 2004, the proportion of households spending more than 30% of their net household income on housing costs is 22%, whereas this figure is 34% for low-income households.

Figure 2 – Proportion of low-income households spending more than a given percentage of net household income on housing costs

Residual Income measures

From the same HES data, we have calculated the residual income of households after housing costs. This income has been equivalised using the method described earlier. We have calculated the proportion of households with an equivalised household residual income below certain benchmarks.

We have used three different benchmarks. The first is used by Statistics NZ, and is 60% of the median equivalised residual household income (MERHI). The other two were used by Housing New Zealand Corporation to review their Monthly Living Allowances for home ownership assistance. They were calculated in 2005, and we have used the same base household that Statistics NZ use for their equivalised scale. Earlier years are retrospectively adjusted for changes in the CPI. This benchmark is referred to by us as the living allowance (LA) and the second benchmark is simply 80% of this figure, which may be more realistic for those on lower incomes.

For all three cases, the proportion of households with incomes below the benchmarks increased from 1987 or 1988 to 1994 (Figure 3). However on either side of this period the trends differ. After 1994, the proportion below the LA and 80% of it jumped about before levelling off in at a level lower then the earlier peak. However the proportion below 60% of the median rose to 1997, fell and then rose again to 2004, which is its highest value.

Consequently, definitive trends are difficult to ascertain based on the differences between benchmarks. Generally affordability deteriorated in the early 1990s before levelling off somewhat to today.

4.1.2  Renters’ housing costs

We have calculated the ratio of average rent to average income. Average rent data was obtained from the Tenancy Bond Centre. We only have rental data as far back as 1991, which limits the time-series analysis somewhat.

Figure 3 – Proportion of households with equivalised residual household income below budget thresholds

Average household income data is obtained from the HES. The raw data collected is gross income, but we have used Treasury’s TAXMOD system to derive disposable or net figures. We have estimated the non-survey years using two methods. Values for 1999, 2000, 2002, 2003 and 2005 (when no HES survey took place) were estimated using data from the Quarterly Employment Survey (Statistics NZ)[16]. Values prior to 1988 (when TAXMOD was not available) were estimated using the percentage changes in the gross HES values. This is the standard method we use for average net household income in this paper.

Average individual income is obtained from the New Zealand Income Survey (NZIS) conducted by Statistics NZ, and is gross. The NZIS is an annual survey and only began in 1997.

The ratio of average rent to average household income has been fairly stable for the past 15 years (Figure 4). The ratio of average rent to average individual income has fallen slightly from 1997 to 2005. However the 2005 values are higher than the lowest values, in 2002. Therefore, affordability has improved slightly for individuals over the last 8 years, but remained stable for households.


  • [12]Includes rent, mortgage payments, payments to local authorities, and property maintenance.
  • [13]A detailed explanation of the HES is in the Appendix.
  • [14]TAXMOD is a computer model of the NZ population, designed to forecast data and model policy related to income, tax and transfers.
  • [15]We use this definition of low-income households because this is the data we were able to obtain from Statistics NZ. Estimates of equivalised incomes are from Statistics NZ using the revised Jensen scale.
  • [16]This method which we have adopted is based on work by Gareth Kiernan; personal communications.
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