New Zealand has a strong culture of home ownership. Its internationally high rates of ownership were fuelled between the Second World War and the late 1980s, by government actively promoting the benefits of home ownership and supporting families wishing to buy or build their own homes.
Methodology
This study comprises two complementary analyses. These are:
1. The ratio analysis. This computes house price to income ratios for local authority and local authority sub-areas, throughout New Zealand. Ratios are calculated based on lower-quartile house prices for two/three-bedroom dwellings, and lower-quartile incomes for working households.
2. The access analysis. This computes the proportion of working households in each local authority and local authority sub-area, that would be able to purchase a local two/three-bedroom dwelling based on lower quartile prices.
Lender practices in defining incomes required to purchase a house vary, but a typical maximum loan would be three times gross household income. For the access analysis an affordability threshold is calculated based on a simple 3:1 mortgage to income ratio, and an assumed ten percent deposit. The threshold household income level calculated in this way is then applied against the distribution of earnings from the 1991 and 2001 Census. In this way it is possible to derive estimates of the proportions of households with incomes below the threshold level required to purchase in each local authority and sub local authority area, at lower quartile house prices for 2/3 bedroom dwellings.
Both the ratio and access analyses use the same household income data derived from the 1991 and 2001 Census, plus QVNZ house price data for the same years, to investigate changing patterns of housing affordability over this period.
This study focuses on housing affordability at local authority and sub local authority levels. Analysis was conducted at a sub local authority level in an attempt to learn more about the variation in housing affordability that exists within local authorities, especially within the larger urban local authorities.
The factors used in determining local authority sub areas included:
- The population of the local authority – local authorities with populations above 50,000 were divided into sub areas.
- The income profile of groups of contiguous statistical area units (SAUs) – where possible SAUs with similar income profiles were grouped together.
- The ‘visual coherence’ of the sub area when mapped.
- Knowledge about local housing markets.
In general, sub areas were the equivalent of three to four suburbs, each sub area with a population of 25,000 to 35,000. For example, the Auckland region was divided into 31 sub areas, and both the Wellington and Canterbury regions into 9 sub areas.
Ratio and access analyses for sub areas were conducted in the same manner as for local authorities.
The tables and figures in Appendix 1 and 2 show the results of the analyses for all local authorities and for 71 sub areas. A summary of the results of the ratio and access analyses are considered in turn below.