4 Expenditures
In this section we examine changes in housing expenditures between 1987 and 2010 using data from HES. Here, the unit of analysis is the household rather than the individual as expenditures in HES are only available at the household level.[6]
We consider both median rent (Figure 2) and mortgage payments (Figure 3) as a proportion of household disposable income by disposable income quintiles. In each case only expenditure on the primary residence is included. Related expenditures, such as those on utilities, rates, and depreciation are excluded.[7]
- Figure 2 - Median rent-to-disposable income by disposable income quintile
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- Source: Statistics New Zealand (HES) data
The share of household disposable income spent on rent decreases significantly with income. For the top two income quintiles, after a gradual increase from the late 1980s to the late 1990s, rent to disposable income remained relatively constant at around 16% and 21% respectively. Rent to disposable income for the bottom income quintile however, peaked at over 50% in the late 1990s.
A number of policy changes occurred over the period that are likely to have affected households in lower income quintiles. In particular, Housing New Zealand (HNZ) introduced a system of market-related rents. The accommodation supplement was then introduced, and finally, HNZ began charging income-related rents. These changes roughly coincide with the strong growth, and then decline, in rent as a proportion of disposable income observed for those in the bottom two income quintiles.
Recall from Section 3 that between 2004 and 2008 house values in SoFIE increased significantly, for example, the median house value rose by over 50%. It is interesting then that over the same period rent to disposable income for all income quintiles remained relatively constant.
- Figure 3 - Median mortgage-to-disposable income by disposable income quintile
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- Source: Statistics New Zealand (HES) data
The pattern for mortgage payments is similar to that for rent, minus the changes likely due to policy. If anything, the amount households spend on mortgage payments as a proportion of disposable income (compared to rent) appears slightly lower. Between 2004 and 2008 all but the bottom income quintile[8] experienced only modest increases in the proportion of disposable income allocated to mortgage payments. This is not particularly surprising, however, given that many households represented here would have purchased their homes before the period of strong growth in house prices.[9]
Notes
- [6]While a number of methods have been developed to attribute spending to various members of the household, it is not necessary to do so for our purposes.
- [7]Imputed rental is also excluded from income.
- [8]The volatility of mortgage payments to disposable income for this income quintile is likely to be at least in part due to a lack of observations as relatively few households in this income quintile own a home with a mortgage.
- [9]In future work we plan to contrast housing affordability of those who have recently purchased a house and those who have owned their homes for longer.
