NZ housing not cheap, but affordability shows signs of improving
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By Kelvin Davidson, CoreLogic NZ Chief Property Economist
New Zealand's housing affordability has improved to its best level since 2019 on some measures, with falling property values, rising incomes, and, most recently, lower mortgage rates easing affordability pressures.
The latest CoreLogic NZ Housing Affordability Report Q4 2024 shows that while affordability remains stretched compared to historical averages, improving conditions have made it easier for buyers to enter the market. The fall in mortgage payments as a share of gross median household income has been less marked than some other measures, but it's still at its lowest point in 3½ years.
Despite the improvements for buyers, CoreLogic NZ Chief Property Economist Kelvin Davidson warned the market remains very challenging for tenants, with rental costs absorbing a record-high share of household income.
"Housing isn't cheap, but it's the most affordable it's been on many measures since before COVID-19. The surge in property prices through 2020 and 2021 created a significant affordability challenge, but much of that deterioration has now reversed," he said.
"Value-to-income ratios, mortgage servicing costs, and deposit-saving timeframes have all improved, making homeownership more attainable. That said, rental affordability remains a key issue, with tenants spending a record-high share of their income on rent."
Signs of improvement, but affordability pressures remain
Three of the four key housing affordability metrics have improved in the past six months since our previous report, reflecting the impact of falling property values, rising incomes, and lower mortgage rates.
New Zealand's median home value of $804,366 as at December 2024 is 7.3 times the median annual household income ($109,975), marking a significant improvement from 10.1 at the market peak in late 2021.
Mr Davidson said this brings affordability back to levels last seen in 2019, reversing the impact of pandemic-driven price surges.
Three of the four key housing affordability metrics have improved in the past six months since our previous report, reflecting the impact of falling property values, rising incomes, and lower mortgage rates.
New Zealand's median home value of $804,366 as at December 2024 is 7.3 times the median annual household income ($109,975), marking a significant improvement from 10.1 at the market peak in late 2021.
Mr Davidson said this brings affordability back to levels last seen in 2019, reversing the impact of pandemic-driven price surges.
Mortgage repayments have also become more manageable, with households spending 46% of their income on servicing an 80% LVR mortgage, down from 56% at the worst point in 2022.
While still above the long-term average of 42%, Mr Davidson said the decline on this measure reflects the easing of affordability pressures as interest rates have fallen over the past six months.
While still above the long-term average of 42%, Mr Davidson said the decline on this measure reflects the easing of affordability pressures as interest rates have fallen over the past six months.
Saving for a 20% deposit remains a challenge, taking 9.8 years on average. An improvement from 13.5 years in 2021, it still exceeds the long-term average of nine years.
"Lower mortgage rates and falling house prices have helped affordability, but getting into the market is still no easy task. For first-home buyers, the deposit hurdle remains high, and mortgage repayments are still taking a large share of income," Mr Davidson said.
"Lower mortgage rates and falling house prices have helped affordability, but getting into the market is still no easy task. For first-home buyers, the deposit hurdle remains high, and mortgage repayments are still taking a large share of income," Mr Davidson said.
"That being said, compared to a few years ago, buyers now have more breathing room and may find it easier to get a foothold in the market, especially in areas where house prices have softened the most."
Renters face mounting pressures
Affordability has improved for buyers, however, renters continue to face significant pressures with the rent-to-income ratio at a record 28% due to previous increases in rental prices (albeit they've flattened off now).
Of the main urban centres, Wellington has the lowest rental burden at 23%, while Christchurch and Dunedin have seen rising rental costs relative to income.
Of the main urban centres, Wellington has the lowest rental burden at 23%, while Christchurch and Dunedin have seen rising rental costs relative to income.
Mr Davidson said this may make it harder for tenants to save for a deposit if that's their goal, reinforcing the financial divide between those who own property and those trying to enter the market.
"The affordability equation for renters hasn't improved in the same way as for buyers. Many tenants are already stretched, and this limits landlords' ability to raise rents further," Mr Davidson said.
"Without stronger wage growth or greater access to affordable housing, rental costs will remain a key challenge for many New Zealanders."
"Without stronger wage growth or greater access to affordable housing, rental costs will remain a key challenge for many New Zealanders."
Regional affordability shifts
Auckland and Wellington have seen some of the strongest improvements in affordability and are close to their long-term averages. Despite a median property value of almost $1.1 million, Auckland's value-to-income ratio is 7.9, its lowest level in a decade and its years to save a deposit figure of 10.5 is at multi-year lows.
Wellington City too has returned to pre-2017 affordability levels with a value-to-income ratio of 6.5.
Wellington City too has returned to pre-2017 affordability levels with a value-to-income ratio of 6.5.
Meanwhile, markets such as Hamilton, Christchurch, and Dunedin have proven more resilient, with smaller declines in house prices limiting affordability gains.
"Tauranga remains the least affordable main centre, with a value-to-income ratio of 8.6, but this has dropped significantly from its peak of 12.1 in late 2021," Mr Davidson said.
"Wellington's affordability is back in line with its long-term average and at its lowest level since Q3 2016. Although Wellington City isn't necessarily 'cheap' it's more affordable than it's been for many years."
"Wellington's affordability is back in line with its long-term average and at its lowest level since Q3 2016. Although Wellington City isn't necessarily 'cheap' it's more affordable than it's been for many years."
What's next for affordability
Despite improvements and more favourable conditions, affordability remains worse than 'normal', Mr Davidson said.
The introduction of debt-to-income (DTI) lending restrictions could provide further support over the medium term, but meaningful and sustained progress will require more housing supply.
The introduction of debt-to-income (DTI) lending restrictions could provide further support over the medium term, but meaningful and sustained progress will require more housing supply.
"The Government is focused on increasing supply, which is positive for long-term affordability," Mr Davidson said.
"However, ongoing challenges remain as elevated construction costs and infrastructure pressures all have a material impact on access to housing. A more sustained improvement in affordability will require continued action to boost housing supply relative to demand."
To download a copy of the CoreLogic NZ Housing Affordability Report Q4 2024 visit: https://www.corelogic.co.nz/news-research/reports/housing-affordability-report
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Source: CoreLogic NZ
