New Zealand’s house prices are very high. An international housing affordability survey has found that New Zealand has severely unaffordable house prices: the national median multiple house price is 5.7. In other words, the median house price in New Zealand is 5.7 times the median wage. Australia is the only housing market less affordable than New Zealand out of the United Kingdom, North America, and Australasia.[1] Of the 8 housing markets surveyed in New Zealand, five were ranked by the survey as “Severely Unaffordable”, (the median multiple being over 5.1), and the remaining three were classed as “Seriously Unaffordable” (the median multiple being 4.0-5.1).[2] International standards for affordability of housing generally hold 2.8 times the gross household wage to be the limit of affordability.[3] In June 2010 the median house price in New Zealand was $352,500, almost double the 2002 median price of $175,000.[4] A quick calculation using the median household incomes in 2001 and 2009 of $39,600[5] and $64,388[6] respectively yields median multiples of 4.4 and 5.5, so it is evident that housing affordability has decreased markedly in the last nine years.
Why is affordable housing important? Housing costs are usually the largest single expense in a household’s budget.[7] Supply of affordable housing has correlations to several important societal drivers: education, health, community participation, and social cohesion.[8] Furthermore, when supply of affordable housing is lacking, the economy is constrained in the following ways:
- Reduced access to labour as low-paid workers move location to find more affordable areas to live in
- Less profitability as high housing costs push up wages
- Reduced consumption as more income goes towards paying rent or mortgages
- People can become trapped in low-cost housing, which can limit their employment options, reinforcing low-income status
- Reduced investment as cities gain the status of ‘unliveable’ due to the social effects of community polarisation caused by unaffordable housing[9]
This report is designed to explore innovative approaches to solving the problem of unaffordable housing in New Zealand. High purchase costs for landlords can result in high rents, and high demand from household investors speculating on the housing market combined with demand from new entrants to the property market can drive up purchase prices. A possible solution is to attract household property speculators into other forms of investment, thus de facto increasing supply as investors divest their stock and move to other markets. The above solution and others will be assessed for effectiveness and plausibility using a market-based approach. Trade-offs and pitfalls of various approaches will then be discussed, and recommendations for providing incentives for household speculators to invest in innovation and technology offered.