New Zealand: Selected Issues
Author: International Monetary Fund. Asia and Pacific Dept
Publication Date:
03 Jul 2018
eISBN:
9781484365823
Language:
English
Keywords:
ISCR; CR; firm; industry; productivity; price; housing affordability; household income; valuation metrics; housing cost; policy agenda; Income; Mortgages; Global
Download PDF (872.2 KB)

Selected Issues

Abstract

Selected Issues

Housing Affordability in New Zealand and Policy Response1

A. Introduction

1. House prices in New Zealand have risen rapidly since early 2000s. After the housing boom of 2001–07, house prices took a short pause after the global financial crisis (GFC), and resumed a rapid growth path from 2011. During 2011–16, house prices rose by 54 percent (60 percent) in real (nominal) terms or an average 9 percent (10 percent) in real (nominal) terms annually. The surge in house prices in New Zealand has mostly surpassed other advanced economies, in part because it has not experienced a major house price correction.

uA03fig01

House Prices

(Real SA, 2005=100)

Citation: IMF Staff Country Reports 2018, 203; 10.5089/9781484365823.002.A003

Sources: Haver Analytics; and IMF staff calculations.
uA03fig02

Residential Investment

(Y/Y percent change)

Citation: IMF Staff Country Reports 2018, 203; 10.5089/9781484365823.002.A003

Source: Haver Analytics.

2. The rapid house price growth has resulted in skewed increases in income and rent ratios. These house price valuation metrics put New Zealand above other OECD countries, after large increases in price-to-income and price-to-rent ratios since 2000.

3. The persistent rise in house prices is due to a combination of demand-side factors and stickiness in the housing supply response. Demand for home ownership rises with household income, including upgrades to larger and higher quality houses. The low interest rate environment since the GFC has increased household loan servicing capacity. Combined with the relative ease of obtaining credit as banks have competed for mortgage market shares, low interest rates have boosted growth in housing loans and supported higher house prices. Population has grown rapidly since 2000, driven partly by two waves of strong net immigration. In the most recent surge from 2013–17, almost half of the population increase was recorded in Auckland. With this geographical concentration of the population increase and the associated demand for housing, the price impact of the constrained housing supply response has been particularly large. This is despite residential investment increasing from 4 percent to 8 percent of GDP during 2011–17, making up nearly a third of all gross fixed capital formation in 2017. In other words, inelastic supply has amplified the impact of the demand shock.

uA03fig03

House Price-to-Income Ratio

(Nominal house prices over nominal disposable income per head, 2010=100; Deviation from average, 2000 to 2017Q4 or latest available)

Citation: IMF Staff Country Reports 2018, 203; 10.5089/9781484365823.002.A003

Sources: OECD; and IMF staff calculations.
uA03fig04

Price-to-Rent Ratio

(Nominal house prices over rent prices, 2010=100; Deviation from average, 2000 to 2017Q4 or latest available)

Citation: IMF Staff Country Reports 2018, 203; 10.5089/9781484365823.002.A003

Source OECD; and IMF staff calculations.

4. House price increases became more pronounced around 2015–16. Staff’s updated estimate suggested that real house prices are around 20–25 percent higher than the level consistent with economic fundamentals reflecting demand underpinned by affordability (house price to income), real disposable income, working-age population, equity prices, and the level of short and long-term interest rates (Nyberg, 2016). [A large deviation from price fundamentals expose the economy to a higher risk as a disruptive house price correction could put the banking system, with more than 60 percent of credit exposed to residential mortgages, under severe pressure. The resulting credit contraction would further amplify the impact of the downturn on domestic economic activity and the banking sector.

5. The housing market has cooled recently, but household debt remains elevated. House prices appeared to have peaked in 2016. Household credit growth has moderated due in part to the impact of loan-to value ratio (LVR) restrictions, banks’ tightening of lending standards and marginally higher mortgage rates since early 2017 (Box 1). Nevertheless, the high cost of housing drove household debt further to 168 percent of household disposable income in 2017.

6. Housing affordability remains a key concern. For New Zealander, the standard aspiration or the Kiwi dream is centered on the acquisition of a family home. However, as the impact of high house prices persists, affordability has become a political hot-button issue. In response, the recently- elected new government is putting in place a comprehensive program to improve the affordability of housing. Against this background, the rest of this paper reviews how much housing affordability has deteriorated and summarizes recent policy measures to support housing affordability. It also discusses the appropriateness of the policy response and provides suggestions for refinement.

Demand Impact of Macroprudential Policy

Financing constraints from loan-to-value ratios (LVRs) restrictions have reduced housing demand temporarily and thereby contributed to slowing house price growth. After three rounds of tightening of LVRs restrictions in October 2013, November 2015 and October 2016, the share of outstanding residential mortgages with LVR above 80 percent has declined to under 8 percent in September 2017, from 21 percent in September 2013 before the imposition of nay LVR restrictions. Bank and household balance sheets have thereby become more resilient with a lower share of loans with high LVRs. The RBNZ relaxed the LVR restrictions marginally as of January 1, 2018, raising for each bank’s new mortgage lending to (i) owner occupiers at LVRs of more than 80 percent to no more than 15 percent from previously 10 percent; and (ii) residential property investors at LVRs of more than 65 percent from previously 60 percent while keeping the cap at no more than 5 percent. Going forward, it will be important for the banks to maintain high lending standards, including robust assessment of debt serviceability with rising mortgage rates. The macroprudential toolkit could be strengthened by adding a debt-to-income (DTI) or debt-service-to-income (DSTI) instrument, which in event of a future decrease in interest rates, would just increase housing demand, unless there is the ability to curb it through an additional instrument.

Macroprudential policy is nonetheless not the instrument to address housing affordability. Macroprudential policies aim to manage financial system risk by increasing the resilience of bank balance sheets to a potential shock; and by dampening a credit and asset price cycle on the upswing to reduce the risk and severity of the eventual downturn. In this context, there is a trade-off between macro-prudential policy measures that might make credit less accessible but should help to make house prices more affordable in the longer term. However, as macroprudential policy is not for enhancing social equity, the implications on housing affordability are just positive side effects, not the intended objective.

B. How Much Has Housing Affordability Declined?

7. Housing affordability has different implications for renters, potential home-buyers and existing home owners. The concept probably has evolved from “one week’s pay for one month’s rent” (Hulchanski, 1995), common benchmarks of affordability are expenditures on housing (mortgage repayment, rents) to income ratios in the range of 25–40 percent, focusing more on the lowest 40 percent of income earners or households. Factors that contribute to housing affordability would often include income (affected by labor market condition), house prices and rents (reflecting supply constraints), and interest rates and mortgage term (indicating costs of borrowing). MBIE (2017) defines housing affordability as being able to meet housing costs (either of owning or renting) out of income without having an adverse impact on the ability to afford the basic living requirements, recognizing that determining affordability depends on each household’s circumstances and expectations of what qualifies as a socially accepted standard of living. Given heterogeneity in the level of affordability, there are inherent difficulties in measuring housing affordability with simple averages across house prices and household incomes.

8. Housing affordability in general has not deteriorated much because of the large decline in interest rates since the GFC. The decline in residential mortgage rates (floating rate for new customers) from an average 8.7 percent in 2000–08 to 6.1 percent in 2009–15, and further to 5.7 percent since 2016 against the global low interest rates environment has largely offset the impact of higher house prices on mortgage costs. The remaining of this paragraph summarizes some standard affordability indicators, with the appropriate caveats.

  • Household by tenure. Home ownership has been declining from more than 70 percent during 1990–97 to 63 percent of the total households in June 2017.2 At a broad level, a decline in home ownership could indicate a deterioration of housing affordability, assuming there are no underlying changes in ownership preference. However, the share of owner and tenant households vary widely across countries while in most countries more than two out of three households own their dwelling (OECD, 2016). On the other hand, in New Zealand, the share of dwelling not owned by its primary resident is higher in lower income quantiles relative to higher quantiles, which is consistent with the global pattern that a household’s likelihood of home ownership increases with income.

  • House price-to-income ratio. The nationwide house price-to-income ratio rose rapidly to about 7 from below 3 in the early 1990s, with a widening wedge between Auckland and the rest of New Zealand since 2013. While this indicator is simple to compile and widely used for cross-country and time series comparison, it does not reflect the level of housing related expenses such as the prevailing interest rate (see further analysis below).

  • Housing cost indicators. Housing cost indicators suggest that affordability in general has not changed much over the last decade, with average housing costs remaining at below 20 percent of household income. The ratio in 2016 marginally exceeded the previous peak in 2011 but has since declined in 2017, with the national average at 15.8 percent and Auckland at 17 percent. In terms of the distribution at different cost thresholds, 71 percent of all households have housing costs at less than 25 percent of total household income in 2017 at the national level, compared with 11 percent of households that have housing costs at more than 40 percent of total household income. The mortgage interest to principal repayment ratio declined to 1.3 in 2017 from 2.8 in 2008. Historically low interest rates level has helped keep total housing costs largely unchanged despite higher principal repayment required for larger housing loan.

uA03fig05

Household by Tenure

(Household estimates in million, percentage share)

Citation: IMF Staff Country Reports 2018, 203; 10.5089/9781484365823.002.A003

Source: NZ Statistics.
uA03fig06

Housing Tenure by Income Group

(June 2017, in percent)

Citation: IMF Staff Country Reports 2018, 203; 10.5089/9781484365823.002.A003

Sources: NZ Statistics; and IMF staff calculations.
uA03fig07

House Price-to-income

(Ratio)

Citation: IMF Staff Country Reports 2018, 203; 10.5089/9781484365823.002.A003

Source: RBNZ, Financial Stability Review (November 2016).
uA03fig08

Housing Costs

(In percent of total household income, mid-year)

Citation: IMF Staff Country Reports 2018, 203; 10.5089/9781484365823.002.A003

Source: NZ Statistics, Household Income and Housing Cost Statistic.
uA03fig09

Component of Housing Costs

(In percent of total housing costs expenditure)

Citation: IMF Staff Country Reports 2018, 203; 10.5089/9781484365823.002.A003

Sources: NZ Statistics, Household Income and Housing Cost Statistics; and IMF staff calculations.

9. Some segments of the population however suffered a larger deterioration in housing affordability. Lower income groups are naturally more adversely affected by declining housing affordability given their smaller income buffer net of living expenses. This includes renters, accounting for a higher share in lower income groups, who are exposed to higher rents in private rental markets if the impact of housing shortages pushes up rent. As for first home buyers, increasing house prices is a growing barrier delaying their entry into home ownership, since it takes longer to save for a mortgage down payment and requires a higher level of debt servicing capacity. even with low interest rates.

  • Lower income households. Using an outgoing-expenditure-to-income ratio (OTI) of 30 percent as a benchmark for high OTIs, 29 percent of households had high OTIs in 2016, compared to only one in five in the early 1990s. Unsurprisingly, 39 percent of households in the bottom two income quantiles had high OTIs in 2016, considerably higher than 22 percent for the second highest and 15 percent for the highest income quantile. While affordability has been broadly unchanged over 2007–16, households in the second-lowest income quantile experienced a considerable increase in their OITs from 29 percent in 2007.

  • First-home buyers and renters. A new Housing Affordability Measure (HAM) compiled by the MBIE examines household incomes, subtracting the cost of buying or renting and compares that to a 2013 benchmark to track affordability over time.3 The share of potential first home-buyer households with below average income after housing costs increased to 82 percent in 2016Q1 in Auckland, compared to 77 percent at the national level. In contrast, the share of renter households with below average income net of housing costs decreased to 60 percent in 2016Q1 from 66 percent in 2011Q2. For Auckland, HAM suggested a similar declining trend for renter households to 56 percent in 2016Q1 from 61 percent in 2011Q2. Taking the above two HAMs together, the outlook does look dim if an existing renter were to also save to purchase a home (see further discussion in Box 2). In this regard, the HAM could be usefully extended to measure the number of years needed for a potential first home-buyer to save for a mortgage down payment.

uA03fig10

Households with Housing Cost Greater Than 30 percent by Income Quantile

(Percent)

Citation: IMF Staff Country Reports 2018, 203; 10.5089/9781484365823.002.A003

Source: Ministry of Social Development Household incomes in New Zealand: Trends in indicators of inequality and hardship, 1932–2016.
uA03fig11

Housing Affordability Measure: National vs. Auckland

(Percent share of households with below average income after housing costs)

Citation: IMF Staff Country Reports 2018, 203; 10.5089/9781484365823.002.A003

Sources: Ministry of Business. Innovation & Employment; NZ Statistics; and OECD.Note: Housing affordability measure (HAM) compares the income after housing costs of renters and potential first home buyers to income after homing costs for the average New Zealand household in June 2013.

10. The central group subject to the affordability problem is new entrants to the labor market with little of the savings needed for home ownership. Rising house prices pose increasing difficulties for first-time home buyer as the national median house price rose to NZ$550,000 in December 2017 from NZ$520,000 a year ago, while Auckland’s median rose to NZ$870,000 from NZ$855,000 over the same period. This translates into a house price-to-income ratio of 6.4 for the national median and 6.7 for Auckland. To estimate housing affordability for a first-time home buyer, a 20 percent down payment is assumed with associated monthly repayment costs of a 5-year fixed rate mortgage as of April 2018 on a 30-year annuity payment, to determine the debt service-to-income (DSTI) ratio. Also assumed is a maximum allowable DSTI at 30 percent to derive a corresponding affordable house price. The results in Table 1 illustrate that at existing median house price at the national level and in Auckland, DSTI ratios would rise to 37 percent and 56 percent, respectively (Scenario A). Alternatively, if the home buyer has an objective to achieve a more comfortable DSTI ratio at 30 percent, the implied affordable median house price level would be NZ$451,000 (18 percent lower than actual) at the national level and NZ$466,000 (46 percent lower than actual) in Auckland (Scenario B). The illustration also shows that with the higher DSTI, it will take 4.2 years (4.5 years) at the national level (in Auckland) to save for a 20 percent mortgage down payment to purchase a median price house assuming a relatively high saving rate at 30 percent of household income.4

Table 1.

Illustrative Housing Affordability Scenario

article image

Average annual household income is used for Auckland instead due to the lack of data.

Sources: REINZ, NZ Statistics; and IMF staff calculations.

11. Overall housing affordability in New Zealand is broadly comparable with trends in other advanced economies facing similar challenges from housing booms. For Canada, housing affordability has deteriorated after an improvement post-GFC, with the average mortgage payment reaching 35 percent of average income in 2017. In Australia, mortgage repayments in capital cities have crept up since 2013, accounting for 42.5 percent of average earnings in 2017 while the steepest increase was in Sydney where mortgage repayments used up close to 60 percent of income. These levels are considerably higher than the 30 percent threshold in Australia which demarcates affordable conditions for an average first home buyer.

uA03fig12

Canada: Housing Affordability Index

(Average mortgage payment to average income)

Citation: IMF Staff Country Reports 2018, 203; 10.5089/9781484365823.002.A003

Source: Haver Analytics.
uA03fig13

Australia: Mortgage Repayments

(In percent of income)

Citation: IMF Staff Country Reports 2018, 203; 10.5089/9781484365823.002.A003

Sources: Housing Industry Association Limited; and Haver Analytics.

Private Rental Market

Rental yield in New Zealand, as in most advanced economies, has been declining since the 1990s. Rental yield—the rent a property could potentially generate in a year expressed as a percentage of its purchase price—has fallen to 2.5–3.5 percent in 2017 from 6–7 percent in the early 1990s as house prices have risen faster than rents (RBNZ 2018). Low and falling yield could indicate that residential investors are buying properties mainly because of expected capital gains that far outstrip rental income.

The cost of renting is expected to pick up as the housing market rebalances. Private rents, as reported by MBIE based on mean rents (from bonds lodged with Tenancy Services), rose on average just below 5 percent annually in the last 5 years, largely consistent with inflation and growth in earnings, as opposed to house price inflation. The relative stability of rents while house prices were rising more rapidly has allowed the rental market to act as a “safety valve’ for households that cannot afford to own a house. However, this apparent disconnect between house prices and the rents may disappear when higher demand for rental housing, in part as home ownership becomes less affordable, begin to push up private market rents. Moreover, the recent rapid increase in short-term rentals, particularly in Auckland, along with the tourism boom may also reduce rental availability and push up rents.

A shortage of affordable housing for private rental or ownership also poses challenges for social housing. Government intervention is in general needed more on the weaker end of the housing continuum starting with emergency and transitional housing, social housing, and subsidized private rental, and much less in private rental and ownership markets (MBIE 2017). Housing New Zealand manages more than 64,500 social housing units (June/August 2017) nationwide but the stock is clearly not sufficient to meet the demand for lower income families. As more low-income households may have to rent from the private rental market, a surge in private rents would put many into precarious situations.

uA03fig14

Rental Yields

Citation: IMF Staff Country Reports 2018, 203; 10.5089/9781484365823.002.A003

Source: RBNZ Macro-Prudential Chartpack, March 2018.
uA03fig15

Dwelling Rents

(Y/Y percent change)

Citation: IMF Staff Country Reports 2018, 203; 10.5089/9781484365823.002.A003

Sources: MBIE Detailed Mean Rents; Haver Analytics; and IMF staff calculations.

C. Supply-Side Policy Response to Improve Housing Affordability

12. Creating responsive housing supply is key to improve housing market imbalances. The authorities estimated the nationwide housing shortfall at more than 70,000 homes in 2017, of which the shortage in Auckland accounts for around 45,000 units. Relieving chronic housing supply constraints would require policy action to address bottlenecks including land markets, infrastructure, and the construction sector. Increasing land supply and more efficient use of land through improving planning rules and zoning would lower cost of housing. For instance, the new Auckland Unitary Plan appears to have freed up significantly development capacity over previous plans, over a larger geographic area. Infrastructure to support housing development would need to overcome often financing constraints faced by local governments. The significant price mark-up to construction costs suggests that housing prices would be lower in more competitive markets. Improving the capacity and competition in the construction sector would help to improve the price and quality of housing.

13. Direct government intervention through the KiwiBuild program to supply affordable housing. The government’s new KiwiBuild program announced in late 2017 aims to build 100,000 affordable housing units over 10 years to address the housing shortfall. One-half of the KiwiBuild housing units are planned for Auckland where the housing shortage is more severe than the rest of the nation. With an initial financing of NZ$2 billion, the program is expected to be financed subsequently through sales of completed houses to first-time home buyers. While details of the KiwiBuild program are being planned and rolled out, at present, KiwiBuild dwellings (one-bedroom and outside of Auckland and Queenstown) will be priced at or below NZ$500,000. For the starting first three years, the bulk of the targeted 16,000 units will be constructed as part of private development underwritten by the KiwiBuild program. If it is as effectively implemented as planned, the increase supply of housing from the KiwiBuild program would help to close the housing gap based on current assumptions and forecasts for underlying demand.

14. The KiwiBuild program should aim to promote cost and price efficiency while limiting market distortions. The main rationale for the government’s direct involvement in an affordable private housing program should be to focus on creating the certainty needed to redirect builders’ incentives (including easier bank funding under guaranteed prices for KiwiBuild homes), and bringing necessary reforms in the construction sector. For instance, the adoption of new building technology would promote more cost-effective construction. Similarly, easing land use regulation would help to reduce the large price-cost markups (Lees, 2017). Given the current labor supply constraint in the construction sector, the KiwiBuild program would also require a smooth implementation of the announced special visa program to augment skilled labor. Overall, the proposed increase in homes under the program should not crowd out private residential construction by adding to supply side constraints.

uA03fig16

New Housing Supply and Demand Projection

(Unit)

Citation: IMF Staff Country Reports 2018, 203; 10.5089/9781484365823.002.A003

Notes: Supply is projected using building consents issued for new dwellings plus planned Kiwi Build housing, adjusted for an assumed 10 percent vacancy rate. Demand is projected using population growth and household size (2.7 person/house-hold).Sources: Haver Analytics: and IMF staff calculations.

15. The effective delivery of the KiwiBuild program will depend critically on harnessing complementary reforms. These should include increasing land supply, improving planning and zoning, and increasing local governments’ financing and capacity for supporting infrastructure. At the same time, the government’s Urban Growth Agenda’s aims to enhance land market competition, which if successfully implemented will address over-regulation, under-funding and fragmented planning. Together the two, should contribute to building enough homes and infrastructure to support the population.

D. Demand-Side Policy Response to Housing Imbalances

16. Foreign buyers appear to have played a minor role in New Zealand’s residential real estate markets recently. Similar to other advanced economies with favorable investment climate, global capital inflows appeared to have played an increasingly important role in augmenting housing demand in New Zealand. However, the extent to which non-resident investors have impacted quantity and price pressures are difficult to quantify due to the paucity of data. Property transfer and tax residency data collected under the Land Transfer Amendment Act from Oct 1, 2015 provide limited data in capturing foreign investors’ share in the real estate market. Based on these data, about 3 percent of all buyers nationwide and 5 percent of buyers in Auckland have overseas tax residency in 2017 (Table 2). The share of overseas tax resident buyers appears to have increased from around 1 percent in 2015 when this set of data first became available.5

Table 2.

Tax Residency of Buyer

article image
Sources: Land Information New Zealand; and IMF staff calculations.

17. A ban of residential real estate purchases by nonresidents is therefore unlikely to significantly improve housing affordability. The draft amendment to the Overseas Investment Act currently under the parliament’s consideration aims to restrict non-residents’ purchase of existing residential properties by bringing all residential land under the Overseas Investment Act’s definition of “sensitive land” which requires approval for purchases by non-residents. The proposed screening regime allows overseas persons to obtain consent to acquire residential land where they are committed to reside, and become tax resident, in New Zealand; where their investment will increase housing supply; or where they will develop the land for other purposes (such as commercial premises). However, this ban on foreign home ownership could discourage potential foreign direct investment that could help build more houses. The broad housing policy agenda consisting of supply initiatives including the KiwiBuild program and reducing tax incentives (discussed below), if fully implemented, would address most of the potential problems associated with foreign buyers more effectively and on a non-discriminatory basis.

18. Tax incentives have favored investments in residential housing. Property investors accounted for slightly above 35 percent of total purchases during 2014–16, before declining marginally to below 35 percent in 2017, while the share of first home buyers has been largely stable at around 20–22 percent during 2013–17.6 At the same time, tax incentives might have accentuated the house price increase as they affect an investor’s demand response to a price or yield shock. Therefore, reducing the preferential treatment for investment in real estate would reduce incentives to buy real estate as an investment product, and reduce demand and supply imbalances in the housing sector.

19. Redirecting savings from housing to other investments to reduce housing demand could also help affordability. To dampen property speculation, the bright-line test on residential property sales introduced in October 1, 2015 had its threshold extended to five years from two years. Any residential properties other than main home acquired after March 29, 2018 will be subject to tax if disposed of within five years of acquisition. The government has also proposed to limit negative gearing from rental properties, such that the deductibility of net losses from property investment from other taxable income would be eliminated. Further, a Tax Working Group is considering possible additional reform, including a broader capital gains tax on housing investment (while still excluding primary residences) and possibly a land tax reform (also excluding primary residences). However, ad valorem land tax for local governments could be introduced to secure infrastructure funding to support housing development, as user fees only cover new developments which do not meet the needs in existing neighborhoods.

E. Summary and Conclusions

20. The housing market is cooling but managing housing-related risks remain challenging. Rising house prices were associated with rapid household credit growth through 2016. Given the slower rise in income, house price-to-income ratios reached unprecedented levels, especially in Auckland where the surge in house prices has been stronger. Household credit growth has moderated in 2017 while household debt continued to rise from already high levels. Given the underlying shortages in housing supply, the moderation in house prices is expected to be slow.

21. Affordability concerns have also become more pressing, especially for first-time home buyers. The deterioration in housing affordability because of high house prices as measured by housing cost to income has been partially offset by lower interest rates. Lower income groups remain more adversely affected by declining housing affordability. Rising house prices pose increasing difficulties for first-time home buyers entering the home market as it increases the length of time needed to save for a mortgage down payment regardless of the level of interest rates, and lead to higher debt servicing requirements as they need to have a larger mortgage than in the past.

22. The housing policy agenda is ambitious and appropriately focuses on closing key gaps on the supply side and in the tax system. Housing supply shortfalls have contributed to the runup in house prices, reflecting supply constraints amid strong demand fundamentals, including rising net migration, lower interest rates, and stronger income growth. While demand-side drivers have stabilized, they remain robust, and improved housing affordability requires eliminating supply bottlenecks. Supply and demand sides reforms are complementary, and the success of the housing policy agenda will depend on well-coordinated progress on all fronts.

23. Lastly, improving the availability of housing affordability and other related statistical data is important. Further effort to compile and regularly release key housing related indicators such as house prices, housing costs, housing ownership and affordability measures would help to enhance analysis and inform policy decisions.

References

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  • Nyberg, D., 2016, “House Prices, Household Debt, and Financial Stability Risks in New Zealand,” IMF Selected Issues Paper, IMF Country Report No. 16/40.

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  • Hulchanski, J., 1995, “The Concept of Housing Affordability: Six Contemporary Uses of the Housing Expenditure-to-Income Ratio,” Journal of Housing Studies 10(4): 471–491.

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  • Lees, K., 2017, “Quantifying the Impact of Land Use Regulation: Evidence from New Zealand,” Sense Partners, report for Superu, Ministerial Social Sector Research Fund, June 2017.

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  • M. Robinson, G. Scobie, and B. Hallinan, 2006, “Affordability of Housing: Concepts, Measurement and Evidence,” Working Paper 06/03, The Treasury.

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  • MBIE, 2017, Briefing for the Incoming Minister of Housing & Development, October 25, New Zealand Government.

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1

Prepared by Yu Ching Wong (APD). The chapter benefited from valuable comments by the Treasury of New Zealand and participants at a roundtable discussion including members of the Treasury, the Ministry of Business, Innovation and Employment, and the Reserve Bank of New Zealand.

2

Stats NZ estimates of households and dwellings by tenure show that the number of dwellings either rented or provided rent-free to occupants grew almost 23 percent between 2007 and 2017, while the total number of dwellings grew only 11 percent (MBIE, 2018).

3

Income after housing costs for the average New Zealand household is NZ$662 per week for a one-person household. This amount is adjusted for household size.

4

MBIE (2018) compared average wages of employees and median house prices to calculate the number of years at this wage required to purchase the median priced house. It showed that to the extent to which Auckland’s house prices have risen much faster than wages – it would require a rise from around ten years’ wages in early 2012 to 16 years in 2016 although with a slight easing more recently.

5

Further, based on more detailed data collected since Dec 2016, in 82 percent of all property transfers, one or more buyers were citizens or residents. Transfers in which none of the buyers being citizens or residents accounted for 2 percent (either at least one buyer had either a student or work visa or had immediate family with New Zealand citizenship/residency/work or student visa), whereas transfers which buyers are represented by corporate or business entities accounted for 16 percent. For transactions in Auckland, the share of transfers which buyers are not citizens or residents is higher at around 4 percent and transfers involving buyers that are corporate or business entities is about 20 percent.

6

RBNZ, 2018 Macroprudential Chart Pack, Chart 5D, March 2018.

Same Series

Other IMF Content

Other Publishers

Cover IMF Staff Country Reports
New Zealand: Selected Issues
Author: International Monetary Fund. Asia and Pacific Dept
Volume/Issue:
Volume 2018: Issue 203
Publisher:
International Monetary Fund
ISBN:
9781484365823
ISSN:
1934-7685
Pages:
55
DOI:
https://doi.org/10.5089/9781484365823.002
  • View in gallery

    House Prices

    (Real SA, 2005=100)

  • View in gallery

    Residential Investment

    (Y/Y percent change)

  • View in gallery

    House Price-to-Income Ratio

    (Nominal house prices over nominal disposable income per head, 2010=100; Deviation from average, 2000 to 2017Q4 or latest available)

  • View in gallery

    Price-to-Rent Ratio

    (Nominal house prices over rent prices, 2010=100; Deviation from average, 2000 to 2017Q4 or latest available)

  • View in gallery

    Household by Tenure

    (Household estimates in million, percentage share)

  • View in gallery

    Housing Tenure by Income Group

    (June 2017, in percent)

  • View in gallery

    House Price-to-income

    (Ratio)

  • View in gallery

    Housing Costs

    (In percent of total household income, mid-year)

  • View in gallery

    Component of Housing Costs

    (In percent of total housing costs expenditure)

  • View in gallery

    Households with Housing Cost Greater Than 30 percent by Income Quantile

    (Percent)

  • View in gallery

    Housing Affordability Measure: National vs. Auckland

    (Percent share of households with below average income after housing costs)

  • View in gallery

    Canada: Housing Affordability Index

    (Average mortgage payment to average income)

  • View in gallery

    Australia: Mortgage Repayments

    (In percent of income)

  • View in gallery

    Rental Yields

  • View in gallery

    Dwelling Rents

    (Y/Y percent change)

  • View in gallery

    New Housing Supply and Demand Projection

    (Unit)

House Prices

(Real SA, 2005=100)

Residential Investment

(Y/Y percent change)

House Price-to-Income Ratio

(Nominal house prices over nominal disposable income per head, 2010=100; Deviation from average, 2000 to 2017Q4 or latest available)

Price-to-Rent Ratio

(Nominal house prices over rent prices, 2010=100; Deviation from average, 2000 to 2017Q4 or latest available)

Household by Tenure

(Household estimates in million, percentage share)

Housing Tenure by Income Group

(June 2017, in percent)

House Price-to-income

(Ratio)

Housing Costs

(In percent of total household income, mid-year)

Component of Housing Costs

(In percent of total housing costs expenditure)

Households with Housing Cost Greater Than 30 percent by Income Quantile

(Percent)

Housing Affordability Measure: National vs. Auckland

(Percent share of households with below average income after housing costs)

Canada: Housing Affordability Index

(Average mortgage payment to average income)

Australia: Mortgage Repayments

(In percent of income)

Rental Yields

Dwelling Rents

(Y/Y percent change)

New Housing Supply and Demand Projection

(Unit)