1 Introduction
Housing affordability has been a topic of much interest in New Zealand over recent years with the median house price increasing by over 50% between 2004 and 2008. Indeed, the House Price Unit was formed in 2007 to analyse both demand and supply side factors likely responsible for this and any policy options that might reduce pressure on house prices (House Prices Unit, 2008). With the newly formed Productivity Commission's inaugural inquiry being housing affordability, these issues are again receiving significant attention.
Housing affordability is important for a number of reasons. Unlike many other goods, expenditures on housing (whether renting or owning) usually absorb a large proportion of household income. Housing makes up a significant share of household wealth and retirement accumulations for many New Zealanders. Further, home ownership has been linked to building social capital and a sense of community (DiPasquale & Glaeser, 1999. More generally, the performance of the housing sector has widespread implications for investment, banking, saving and employment (Scobie et al., 2007).
The aim of this paper is to inform debate by drawing out evidence from two surveys: the Household Economic Survey (HES); and the Survey of Family, Income and Employment (SoFIE). The main advantages of HES are that it contains detailed expenditure data and has been running for several decades. SoFIE on the other hand contains a wealth of asset and liability information, and though it spans a shorter period, it tracks the same individuals through time.
In particular, the paper:
- examines the distribution of house prices and how this has changed across time and between regions
- examines changes in housing expenditures (rent or mortgage payments) as a proportion of income over time and across groups
- examines patterns of home ownership over time and across groups, and
- develops a model which may be suggestive of whether or not an individual or couple is likely to find home-ownership affordable. This is based on whether a lower quartile priced home in their region can be purchased without mortgage payments exceeding 30% of gross-income after taking account of their income, assets, liabilities and prevailing interest rates. Comparisons are then made of housing 'affordability' across groups and over time.
These elements, or outcomes, of housing affordability are explored primarily by way of various descriptive techniques. However, panel logistic regressions are employed to examine how the likelihood of home-ownership and housing affordability depend on a wide range of demographic and economic variables. These include: income, age, education, gender, ethnicity, New Zealand born, region, partnership status, regional house prices and mortgage interest rates.
Results show considerable increases in prices throughout the house price distribution between 2004 and 2008. Interestingly, lower quartile house prices increased by more than upper quartile house prices in all major regions. Further, although Auckland remains the most expensive region, growth in house prices across all other major regions was higher than Auckland during this period.
Home ownership rates, however, have declined only slightly between 2004 and 2008. Factors associated with a higher likelihood of owning a home include being partnered, female or older, and living in any region other than Auckland. Higher house prices are negatively associated with home ownership as is belonging to an ethnicity other than NZ European. A statistically significant relationship between income and home-ownership was not found. However, higher levels of education were positively associated with home-ownership, perhaps indicating that lifetime rather than point in time income is more important for home ownership.
For non-homeowners housing affordability improves significantly with income and is much higher for couples than singles. Between 2004 and 2008 income quintiles 2 and 3 (for couples) and 5 (for singles) experienced the greatest falls in affordability. Other income quintiles either had persistently high or low levels of affordability. Across regions, Auckland had the lowest levels of housing affordability throughout the period, however, by 2008 affordability levels in other regions had deteriorated such that they were much closer to those of Auckland. Housing affordability for homeowners was much higher throughout the period than for non-homeowners. Interestingly, when the affordability test for homeowners was changed so that rather than being able to afford a lower quartile priced house in their region we asked whether or not they could afford their current house, affordability actually increased.
The remainder of this paper is organised as follows. Section 2 briefly outlines the data. Sections 3 and 4 examine house prices and expenditures respectively. Descriptive and regression analyses of patterns of home ownership between 2004 and 2008 are presented in Section 5. Section 6 outlines a model of housing affordability and presents results separately for both non-homeowners and homeowners. The final section concludes and offers possible directions for future work.
