New report provides light at the end of housing affordability tunnel as property prices fall

The report suggests the worst of housing affordability has passed.
The report suggests the worst of housing affordability has passed. Photo credit: Supplied

A new report released by CoreLogic has revealed the "turning point is here" for housing affordability in Aotearoa, following a 41 percent surge in property values last year. 

With the help of falling house prices and a slow increase in incomes, CoreLogic's bi-annual housing affordability report shows slow signs of homes becoming more affordable. 

In 2021, affordable housing reached the worst levels on record, when average property values surged 41 percent during the "COVID era".

Chief property economist at CoreLogic Kelvin Davidson said following record-breaking lows in affordable housing last year, "the turning point is here".

"Affordability has started to improve on most measures since April however it is not universal.

"Higher mortgage rates still cause strain when you look at affordability in terms of debt servicing costs relative to household income."

The report suggests the worst of housing affordability has passed, but it could take another quarter or two before this becomes clearer for those renting and with mortgage payments when compared to household incomes. 

"Any long-term improvement in affordability may need to come from sustained wage growth. Of course, further moves over time to increase housing supply and the related infrastructure are still very important too."

CoreLogic's report acknowledged affordability still remains stretched. And even if property value dropped by 10-15 percent many Kiwi buyers will be under financial pressure. 

In the first quarter of 2021, the value-to-income ratio climbed to a record 8.9 percent, in quarter two it dropped to 8.5 percent - still sitting higher than it was before the COVID-19 pandemic hit at 6.6 percent. 

Davidson said the small drop in the second quarter should provide would-be first-home buyers with a little more confidence. 

"The small improvement in the value to income ratio is evident right across the country, main centres and the provinces alike."

The report found just over half of gross household income is needed to service an 80 percent LVR mortgage. 

"Compared to the long-run average of 37 percent, the latest reading is still the most problematic area of affordability and surpasses the sustained 50 percent peak we hit in 2007-08," Davidson said.

And when it comes to renting, rental costs soak up 22 percent of gross average household income.

"Landlords have held the balance of market pricing power for several months, pushing up rents fairly sharply."

But Davidson said that power could weaken, as more rentals become available and the demand lessens while Kiwis leave Aotearoa to travel. 

"That should help improve tenants' affordability in the coming quarters."