The Great Reckoning (Part 2)

4 February 2009

The Myth of Housing Affordability

There has been some noise in the news media of late: there are claims that housing has become more affordable due to influence of lower interest rates and lower median prices.

Excuse me while I laugh.

The fact is that housing is now even more un-affordable than before.
The sort of nonsense that says otherwise is typical of the spin that vested interest groups such as the banks, spruikers, and bureaucrats promulgate — not to mention journalists who regurgitate the so-called ‘facts’ without necessarily questioning the validity of the claims.

Let’s look at the figures for a start.
Below is the comparison table of the world’s least affordable housing (wages versus prices) in years and months required to pay off the average house if living expenses are ignored.

1. Australia — 6.0 years
2. New Zealand — 5.7 years
3. Ireland — 5.4 years
4. Britain — 5.2 years
5. Canada — 3.5 years
6. USA — 3.2 years
(source: Demographia)

From this table we can see that Kiwis and Australians are right up there at almost double the USA figures — despite the USA average house price having fallen around 25% in the past year or so. Put the other way, wages would have to almost double in NZ to match the affordability of the USA housing market (which itself is in deep distress).
The following report prepared by the Reserve Bank etc in March last year makes worth while reading. In a nutshell it confirms what we all know: Home affordability has decreased alarmingly in the past decade — both for renters and prospective home owners. …

Read the rest of this column

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