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Affordability of Housing: Concepts, Measurement and Evidence - WP 06/03

5  International Comparisons

5.1  International House Price Comparison

Figure 19 shows the annual house price inflation for New Zealand, Australia and the United Kingdom.

All three countries have experienced rising house price inflation recently, up until 2003. While New Zealand’s rising inflation only begun in 2000, Australia and UK have experienced this since around 1995. In the last 5 years, New Zealand follows a similar trend to the others, with around a 12 month lag. Australia and UK experienced a housing downturn around 2002, and both now have house price inflation close to zero. New Zealand has followed a similar trend so far, having reduced the inflation to some extent. If New Zealand continues to follow the UK/Australia trend, house prices will stagnate around the end of 2006. This situation is similar to the predictions of the RBNZ, The Treasury and the NZIER.

5.2  NZ / UK Affordability Comparison

Figure 20 shows the ratio of average house price to average income over time for New Zealand and the UK. The NZ line is the same as that shown in Figure 10.

Figure 19 – House prices, annual percentage change; New Zealand, UK, Australia
Source: QVNZ, Australian Bureau of Statistics, Nationwide Anglia Building Society (all obtained through the RBNZ).

Note that both house prices and income are calculated differently for the UK line. House prices are the average sale price, but are weighted by various things (like floor area) which differ depending on the year. Average income is gross, for individuals, and seasonally-adjusted (none of which is the case for NZ). This data is sourced from the Nationwide Building Society.

Figure 20 – NZ ratio of average house price to average net household income; UK ratio of average house price to average gross individual income

Figure 21 shows the ratio of prospective mortgage payments to average income over time for New Zealand and the UK. The NZ lines are the same as those shown in Figure 5.

The UK line is calculated quite differently and displayed against a different axis – the chart shows the trends of change in both the UK and NZ rather than directly comparing the same data for each country. The income and house price figure used are those used for Figure 10, and discussed above. Interest rates are calculated in a similar fashion to the ‘combination rate’ used for NZ. A 10% deposit is also assumed. Finally, the ratios are indexed to 100 at 1985 Q1.

Figure 21 – ratio of prospective mortgage payments to income; indexed for UK

We cannot establish any definitive conclusions from this comparison. There is nothing in the data to suggest that New Zealand’s experience is out of line with the rest of the world.

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