House buyers
Ten years after the surge in house prices began, national measures of
house price-to-disposable income ratios remain elevated and would require sharp falls in house prices to return to long-term averages (Figure 0.3). Affordability measures that include financing costs are currently closer to longer-term averages, owing to interest rates that are low compared with earlier times (Figure 0.4). This is often over-looked.
During the last house price boom, housing affordability became a constraint for some middle-income groups, whereas it had previously mainly been an issue for those on lower incomes. It is not yet clear if this is a cyclical phenomenon or a structural trend.
Renters
During the house price boom, rents increased at around the same rate as generalised inflation. Across territorial authorities, rents grew in a relatively tight range of 2.3% per year (in Dunedin City) to 8.2% per year (in Buller District). In all cases, rent increases were significantly less than real house price inflation and the ratio of house prices to rents increased markedly, a departure from the long-term broadly stable relationship.
This apparently benign aggregate situation disguises a more difficult position for renters on lower incomes. In particular, people in the lowest two income quintiles spend a much higher proportion of their income on rent than people on higher incomes (Figure 0.5). Even though the situation appears to have improved since the late 1990s, t
hose in the two lower income quintiles still spend, on average, more than 30% of their disposable income on rent, after allowing for government assistance.
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