Housing crisis: Auckland housing affordability among fastest-deteriorating in the world - report

Auckland has perhaps the fastest-deteriorating housing market in the world when it comes to affordability, according to a new report.

After a year that saw prices in the city leap about $140,000 on average, Auckland is now ranked the fourth-least affordable major (population 1 million-plus) housing market in the 2021 edition of the Demographia International Housing Affordability report, which covers New Zealand, Singapore, Australia, the United States, the UK, Ireland, Canada and Hong Kong. 

Last year, Auckland was sixth.

Demographia ranks cities not just on how much house prices cost, but how much locals earn. The calculation gives each city a score, called the median multiple - the median price of a home divided by the annual household income. Anything above three is considered 'moderately unaffordable', above four 'seriously unaffordable' and above five, 'severely unaffordable'. 

It's not hard to guess which category Auckland fits into. Its median multiple is 10 - behind only Hong Kong (20.7), Vancouver (13) and Sydney (11.8). Auckland's score leapt a massive 1.4 in 2020 - meaning the price of a median house went up 40 percent more than the median household earned that year, faster than any of the other 92 markets analysed.

The only affordable major markets in the eight countries Demographia covers are in the US - Rochester, Buffalo, Pittsburgh and St Louis the only with median multiples of three or under.

"Housing affordability has deteriorated materially in recent decades, which has been a principal factor in an internationally observed reduction in middle-income standards of living," Demographia said.

The median household income in New Zealand is about $80,000, and in Auckland, $95,200 (both figures before tax). 

In the 1980s, New Zealand's nationwide median multiple was just under three. It's now seven. Auckland has been in the 'severely unaffordable' category ever since Demographia started tracking affordability in 2004. 

While much has been made here of the Reserve Bank's moves to lower interest rates resulting in massive borrowing poured into property, Demographia says there are other factors at play, such as job losses, urban limits and - at least in the short-term - working from home.

"Virtually all of the markets with severely unaffordable housing have urban containment policies that severely restrict building on the periphery," the report said.

With working from home suddenly becoming an accepted way of working in 2020, people scrambled to buy better places to both live and work, Demographia said.

"House prices have escalated amidst the pandemic in a number of housing markets, even as incomes have been dropping for a large portion of middle-income households. 

"This is in large measure a result of substituting telework for physical commuting, which gave households the flexibility to seek new housing with more space, indoors and outdoors. This rapidly developing demand shock drove house prices up."

Whilst councils have sought to limit urban sprawl, fearing having to pay for the infrastructure to support it, Demographia says the rise of working-from-home could in time allow people to move out of expensive central areas to the periphery where housing is cheaper, without the worry of a lengthy commute or missing out on jobs.

"Greater remote working could begin to remove housing as a principal source of inequality. This could reduce housing demand in the least affordable areas, providing relief at every price point, including for many middle-income households whose living standards have declined as house prices have raced ahead of incomes."

The data Demographia used for this year's edition of the report was collected in September - and Auckland prices have only deteriorated further upwards since then.

The Government was due to reveal its latest plans to tackle the housing crisis this week, but delayed the announcement until next month after the latest COVID-19 scare. Senior ministers - including Prime Minister Jacinda Ardern and Finance Minister Grant Robertson - have said previously they don't want house prices to fall.