6.3 Homeowners

The financial consequences of home ownership will of course linger well beyond that point at which one chooses to buy a house. For this reason we also apply our affordability model to those who currently own the house they live in.

As was the case for non-homeowners, couples are more likely to find homeownership affordable than singles, however, the difference between these two groups is much less pronounced. The proportion of home owning couples able to afford a lower quartile priced house in their region according to our model was 91% on average over all three waves compared to around 82% for singles. Overall, the proportion of home owning individuals declined slightly between 2004 and 2008, from around 95% to 88%.

Even so, the levels of affordability for home owners compared to non-homeowners were much higher throughout the entire period of analysis, for example, 88% versus 31% in 2008. This is not necessarily surprising as in this analysis we examine all homeowners regardless of how long they have owned their home. It is likely that the levels of affordability for recent homeowners would be lower than for those who purchased their homes some time ago.[17] However, the large difference between affordability of non-homeowners and homeowners does highlight the potential importance of transition into home ownership.

The observed relationships between affordability and each of income, age, ethnicity and region for homeowners are similar to that of non-homeowners. For example, Figure 14 shows the proportions of individuals and couples who, according to our model, could afford to buy a lower quartile priced home in each of waves 2, 4 and 6 of SoFIE, by income. Housing affordability improves with income, particularly for singles. The most substantial falls in affordability between 2004 and 2008 were experienced by singles belonging to the bottom two income quintiles.

Figure 14 - Affordability by income (homeowners)

Source: Statistics New Zealand (SoFIE) data

Finally we examine the effects of relaxing our housing affordability model for homeowners in Figure 15. Specifically, we change the affordability test 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.

Interestingly, the result is that affordability actually increases. Given that for most homeowners (around three quarters of them) their current house would be more expensive than a lower quartile priced house in their region this is suggestive that individuals, on the whole, make rational decisions about house purchases. In other words, those who purchase relatively expensive houses can afford them, and those that may struggle to afford even a lower quartile price house tend to purchase still cheaper houses.

Figure 15 - Affordability of lower quartile versus own home (homeowners), singles and couples combined

Source: Statistics New Zealand (SoFIE) data