We have a housing affordability crisis in this country. Close to one in three New Zealanders are in strife – spending 30% or more of their disposable income on housing. The 30% is an internationally agreed benchmark for housing affordability. Pay any more than that, if you are on a low income, and you’re likely to be in trouble.
The numbers of New Zealanders paying more than 30% have been high for years. But they just got higher. To record levels.
Housing costs this high can mean there just isn’t enough left over at the end of the week for food, clothing, transport, medical care or all the other expenses of raising a family.
If you’re heavily mortgaged it can mean your family is one job loss away from a mortgagee sale.
Our houses are amongst the most expensive in the OECD in relation to incomes. It is driving more and more Kiwi families into poverty. And it is a major driver of income inequality.
We all know house prices have gone up. But according to a paper produced last year by the Department of Prime Minister and Cabinet they have gone up a whopping 80% since 2002.
If you got into the market in the 70s or 80s you might be sitting pretty. Skyrocketing prices have effectively transferred huge amounts of wealth to home owners through capital gain. Net wealth per capita doubled between 1980 and 2001. And doubled again 2001-6 as a result of the housing bubble.
But for the growing number of Kiwis who cannot afford to get into the market that dream of home ownership is disappearing into the distance. A big wealth gap has opened up between homeowners and renters. It is yet another way that the babyboomers have grabbed the best cuts, leaving Generations X and Y to fight over the scraps. By 2006 only 29% of renting couples and 2% of renting individuals could afford to buy a cheap house in their region (spending 30% of income on mortgage payments).
Scarily, the long term trend is heading in the wrong direction. In 1988 only 11% were spending 30% or more of their income on housing. By 1997 it was up to 25%. It dropped 2001-4 but has been rising rapidly since and is now up to 29%. The recession is bound to have slowed the trend with house prices stabilising but there are already signs the market is picking up again.
According to the 2009 Social Report lower income families have been particularly hard hit by the increases. The proportion of households in the lowest 20% of income spending more than the benchmark 30% on housing trebled between 1988 and 1994 (rising from 16% to 48%). It dipped and then levelled off for a while but has been rising steeply for the past couple of years, going from 33% in 2007 to 39% in 2008.
That increase in the last couple of years ate up much of the benefit from Working for Families tax credits. And without doubt is a big factor behind the rise in poverty levels in 2008.
As you’d expect, rates of home ownership are now plummeting too. Owning a home has been one of the main factors keeping older people’s heads above water financially. As things stand Gen X and Y won’t have mortgage-free homes to get them through their twilight years. Add that to the question mark over superannuation caused by National’s suspension of pre-funding and it is not a pretty picture.
Something has to be done.
* Borrowed from “Gizza job, I can do that” the immortal line of Yosser Hughes a character in Alan Bleasdale’s 1980s TV drama The Boys from the Blackstuff.