House prices too high

A report from the OECD says that New Zealand house prices are the second highest in the developed world. Our houses are 60 to 70% over-valued. House prices in Japan are the lowest. The prices are compared to incomes in each country.

Mortgage payments for an average house in New Zealand cost 49% of an average wage before tax. This means that owning a house is becoming impossible for people on low incomes.

Another way to look at this is to compare house prices with annual household incomes before tax. The World Bank believes the house price should be no more than 3 times the owner’s annual income. However, in New Zealand at the moment, the average house costs 5.3 times the average household income. In Auckland City and North Shore, the average house costs 7.9 times the average income.

On the other hand, people who rent should expect to pay 30% of their take-home pay. Social housing such as state housing, may be as low as 25%.

Why are house prices so high in New Zealand? Some of the reasons may include foreign investors buying houses, immigrants and the fact that we don’t have a capital gains tax.

Vocabulary

  • OECD – Organisation for Economic Co-operation and Development. It has 34 members.
  • over-valued – not worth so much
  • household income – this assumes one full-time worker and one part-time worker in the household
  • capital gains – if you buy a house for $X and sell it for $X + $Y, the extra ($Y) is a capital gain. Some countries have a capital gains tax

Questions

Why do you think house prices are so high? Are our houses too big?






Leave a Reply