A lifetime of renting?
%26bull; Radical plans for cheaper housing
%26bull; Family forced out of home in mortgagee sale
The couples rolling up in brand-new SUVs bought after double-digit capital gains on the house are looking nervous. But the aspiring home owners left behind by soaring prices over the past five years wonder if the housing slump could prove to be their silver lining. They should steel themselves for more bad news.
There may be bargains around, but the credit crunch is likely to keep the cost of servicing a mortgage beyond the reach of those shut out from the housing market by its record-breaking five-year run.
A report by the Government%26#39;s high-powered house prices steering group, led by Prime Minister Helen Clark, sees little likelihood of a housing downturn severe enough to ease the housing-affordability crisis. The report points to a lifetime of renting for tens of thousands of New Zealanders who, in their parents%26#39; day, might have expected to own their own home.
It finds that just 2 per cent of single renters, and 29 per cent of couples who rent, can actually afford a mortgage. The measure of affordability is that mortgage repayments cost no more than 30 per cent of their income.
Yet surveys show home ownership remains their dream. According to one, most renters aspire to owning a home within 10 years.
The Government is looking at measures to boost the supply of affordable housing, but these on their own are unlikely to meet the 20,000-a-year shortfall in the number of new houses that are needed to return New Zealand to historical home-ownership levels.
And renters are not immune from the housing downturn.
One downstream effect could be fewer speculative developments and a decline in the number of property investors till the dust has settled. That means fewer rental properties, pushing up demand, which in turn will push up rents. Expect rent rises in the next one to two years, the report concludes.
So saving for a deposit looks as if it%26#39;s going to get harder, not easier - and just as food and petrol prices march upward.
New Housing Minister Marian Street acknowledges the growing housing-affordability problem among those who fall into what the Government labels the %26quot;intermediate market%26quot;.
These are the people who don%26#39;t earn enough to comfortably service a mortgage at today%26#39;s prices - while earning too much to put them in line for assistance from the Government and other providers aimed at easing low-income earners and vulnerable families into their own homes.
But Ms Street despairs at some of the %26quot;hard luck%26quot; stories.
The latest target of her ire is a weekend newspaper article about a young professional couple who turned up their noses at $400,000 do-ups in Grey Lynn and starter houses in %26quot;dodgy%26quot; outer suburbs. They were distressed when they found a two-bedroom townhouse in Herne Bay, one of Auckland%26#39;s most exclusive suburbs, was on the market at $900,000.
The Government, Ms Street stresses, is looking at a raft of innovative solutions to the affordable-housing crisis %26quot;but I think people have got to get back to that idea that they start somewhere in the home ownership market.
%26quot;I%26#39;m really sick of reading stories about nice young couples who have got hugely high earning potential stretching out in front of them complaining about how awful the housing market is because they can%26#39;t get a house in Herne Bay.%26quot;
The couple in last Sunday%26#39;s article had dismissed $400,000 do-ups in Grey Lynn because they said they couldn%26#39;t afford to renovate - an argument that holds little truck with Ms Street.
%26quot;Well, you afford it the same way as their parents did when they brought their three-bedroom house in Ponsonby. You do up one room at a time. And when you have people round you only show them the room that you%26#39;ve done up.%26quot;
THE Government is looking at a multi-pronged approach to the affordability crisis - the first step being to see whether there is more land that can be freed up for development.
It has a stocktake of crown land under way and wants to use some of it for affordable housing.
But getting developers on board is the key. The carrot would be the opportunity to develop some prime land that might otherwise never have become available for subdivision. The stick is a requirement to have affordable housing in the mix.
%26quot;We can say, [to developers] `Here%26#39;s some land you never thought you%26#39;d be able to build on and we%26#39;re keen to go into an arrangement with you to develop this land. But we%26#39;d like 15 per cent of it to be in affordable houses and they%26#39;ve got to be nice houses, sustainable houses, clever, smart attractive houses%26#39;,%26quot; Ms Street says.
The Government is also looking at what can be done with existing state-house land, such as some of the older state-house developments, where little old cottages sit on luxuriously large sections.
She points out that the Government has already embarked on a building programme %26quot;the scale of which we%26#39;ve never tried before%26quot;. It includes 3000 houses in Hobsonville, 3000 in Tamaki and about 650 across Papakura and Weymouth.
Local councils are also looking at solutions, including requirements for affordable housing within any new developments.
But Ms Street is careful to avoid raising hopes that such schemes can plug the 20,000 shortfall identified by the steering group.
IT used to be that young couples would get their foot on the property ladder by buying in the new-build %26quot;nappy valley%26quot; suburbs that sprang up on city borders. But building costs have pushed new homes well beyond the reach of nappy-valley buyers.
The house prices group puts the increases down to factors including rising costs for material and labour. But higher Government-imposed costs are also to blame.
Some of those costs arose out of the backlash to the leaky homes crisis; tougher rules and stricter controls have been put in place over new building projects. But some of the figures are staggering. According to the house prices steering group %26quot;the costs of finance, development levies and the costs of development are a larger component of section prices than the raw land itself%26quot;.
Those costs include council-imposed developer levies, which can add $25,000 to the cost of a new house, rising to as much as $40,000 in Auckland city. These levies are to pay for the extra load on services such as sewerage, drainage, water and electricity.
There are also building consent fees of $1500 to $3000 a house and %26quot;holding costs%26quot; - the cost of delays in gaining planning approvals and building consents - of about $15,000 a house.
New Building and Construction Minister Shane Jones is keenly conscious of the burden some of those costs have imposed and wants to simplify the building-consent process, particularly in cases where houses are built to a simple, standardised design.
But that could still be a drop in the ocean. Continuing labour shortages mean building costs could be difficult to pull back.
Wages in construction have soared 28 per cent since 2001, compared with 14 per cent across the rest of the economy. That is a reflection of a tight labour market.
In 2006, only 34 per cent of carpentry positions were filled within 10 weeks of advertising and there was an average of only eight suitable applicants per 10 vacancies.
HOUSE PRICES
* House prices have gone up by 80 per cent since 2002.
* Between 2001 and 2006, 120,000 new houses were built.
* In 2006, only 29 per cent of renting couples and 2 per cent of singles in rental accommodation could afford to buy a house. At current incomes and interest rates, falls in prices are unlikely to make a marked change in home affordability.
* Mortgage repayments account for 22 per cent of the average household expenditure, while paying rent for those who do not own their own home accounts for 28 per cent of the average household expenditure.
WHO OWNS HOUSES?
* In 1991, 74.9 per cent of Kiwi families owned their own home, compared with just 66.9 per cent in 2006.
* But some of us own more than one house. In 2007, 15 per cent of all households owned an investment property, including holiday homes, rental properties, timeshares and overseas properties. Most were aged between 45 and 54.
* We don%26#39;t all own our own home outright, however. Around 50 per cent of owner- occupiers make mortgage payments.
* Female home owners now outnumber male ones %26ndash; reflecting the ageing population of home owners and the tendency of women to outlive their spouses.
* The biggest falls in home ownership have been among those aged 25 to 29 and 30 to 34. But home ownership rates have also fallen among older age groups, up to age 44.
IS BUILDING YOUR OWN HOUSE A CHEAPER OPTION?
* Not really. Estimates by the Building and Housing Department put the cost of building a 145-square-metre house at $422,000, compared with $232,000 seven years ago.
* Section prices are the main factor in the price jump, increasing from an average of $81,250 in 2001 to $175,000.
* Building costs are also up. In 2001 they were estimated at $150,607 for a 145-square- metre house. This has risen to $247,636, reflecting a sharp rise in the price of both materials and labour.
* Regulatory costs have also soared.
A report by the House Prices Unit puts them at between $5000 and $40,000 per dwelling, depending on location.
