7 Discussion
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.
The aim of this paper has been to inform debate by drawing out evidence from two surveys: the Household Economic Survey; and the Survey of Family, Income and Employment. In particular, the paper examined how patterns of house prices, expenditures, and home ownership have changed over time and across groups. A model which may be suggestive of whether or not an individual or couple is likely to find home-ownership affordable was also developed. This model incorporated information relating to four important influences of affordability: income; net wealth; house prices; and the structure of mortgage contracts (including the interest rate and mortgage term).
These elements, or outcomes, of housing affordability were explored primarily by way of various descriptive techniques. However, panel logistic regressions were employed to examine how the likelihood of home-ownership and housing affordability in turn depend on a wide range of demographic and economic variables simultaneously. These included: income, age, education, gender, ethnicity, New Zealand born, region, partnership status, regional house prices and mortgage 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 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.
For both singles and couples affordability initially increases with age, likely reflecting the higher incomes associated with greater work experience. However, beyond a certain point affordability actually decreases with age. This likely reflects that while most older people already own their home, some, such as the lifetime poor, struggle regardless of age. It also reflects that incomes tend to be lower in the highest age groups due to retirement.
Affordability declined for all ethnic groups between 2004 and 2008. However, the capacity to buy a house varies across ethnic groups, and was highest for European New Zealanders and lowest for Pacific peoples over the entire period of analysis. This may partly reflect location choices, with some ethnic groups more likely to be concentrated in Auckland. Rather than disparities in income or net wealth per se, differences between ethnicities may also be due in part to age, with Maori for example tending to be much younger on average than Europeans.
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. 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.
Differences in affordability between homeowners and non-homeowners serve to highlight the potential importance of transitioning into home ownership. In future work we intend to measure transitions into and out of home ownership between waves 2, 4, 6 and 8 of SoFIE, and to attempt to explain them using information on a range demographic and economic factors. Further, this will provide an opportunity to test the predictive power of a number of 'rules of thumb' relating to housing affordability in predicting transitions into home ownership. It will also be possible, and interesting, to examine the extent to which the deterioration in housing affordability observed between 2004 and 2008 could have been ameliorated with the introduction of real mortgage contracts.
