Most Saturdays we dig into the archives. This post by Peter was originally published in September 2014.

It’s no secret that Auckland has a problem with high-cost housing. House prices have risen significantly faster than average incomes in recent years. As a recent Treasury working paper (Skidmore, 2014) documented, Auckland’s house prices have quadrupled in the last generation, and rents have more than doubled.

Skidmore (2014) house price indexSkidmore (2014) rental price index

This is widely acknowledged as a problem, but it’s important to understand that it’s not necessarily a problem for all Aucklanders. Another Treasury working paper (Law and Meehan, 2013) shows that young New Zealanders – singles and couples between 25 and 34 – are significantly less likely to own their own homes.

Most middle-aged and retired people are on the property ladder and thus able to benefit from capital gains from Auckland’s housing market. Rising prices are often positive for older people. But they’re not very good for the young, who don’t own property and, increasingly, find themselves shut out by rising prices.

Law and Meehan (2013) home ownership rate

To make matters worse for young Aucklanders, rising house prices are coupled with falling real incomes. We aren’t merely standing still – we’re rapidly falling behind.

The chart below shows real income growth for employed people by age group from Statistics NZ’s LEED data on median earnings of full quarter jobs, deflated by the consumer price index. Since the global financial crisis, real median wages for people under 35 have fallen. But people over 35 have done pretty well over the same time period:

Generational divergence in incomes
Generational divergence in incomes

In short, Auckland seems to be developing a dangerous “two-speed” economy. Most middle-aged people can expect their wages to rise and the value of their houses to boom. Most young people are experiencing wages that are stagnating or falling while being shut out of the housing market by high prices.

This is the point at which older Aucklanders sometimes seem to shrug their shoulders and say, “so what – I’ve got it good.” But they shouldn’t be so complacent, because we don’t have to be here. If it becomes too hard to live in Auckland, young Aucklanders will leave. If we can get a better deal elsewhere – higher wages or cheaper housing – we can go there instead. And for many of us, this will mean leaving New Zealand.

Young New Zealanders are mobile. We’ve seen our friends and family abscond to Melbourne or Sydney, or go to London on OE and choose not to come back. We may have moved here from other places. While we want to be able to live in Auckland and participate in the city’s revitalisation, we’re keenly aware that we have options.

I’ve written before about how New Zealand has the opportunity to raise its living standards by investing in better cities. Well, the reverse is also true. Expensive housing and lower wages for the young is a recipe for long-term economic failure. If you’re middle-aged, this should worry you: We might not be around to pay your pensions and buy your expensive houses when you want to downsize. We’d like to stay and pay for your retirement – we really would! – but we need a pay rise and affordable housing options.

So what’s your plan to make Auckland affordable for young people?

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8 comments

  1. Quite an interesting look back. All those struggling babies back in 2014 have made a fortune out of the property market in the last 8 years.
    The reality is that first home buyers always struggle. I don’t remember reading of any generation that had an easy pathway to home ownership. I certainly remember my parents (boomers) really having to struggle. Dad had two jobs and my Mom worked shifts at the tavern every evening. They also laid their own driveway and built the fence. I do not remember us eating avocado on toast
    The problem isn’t affordability, the problem is entitlement.

    1. Its funny how older people can look at all the stats and stories in the world and still deny that things are broken.

      Homeownership rates are at their lowest in 70 years. When one person fails, personal responsibility has some sway. When entire demographics show continuous, long run declines in the stats over the course of decades, thats a the system’s / policy failure, an affordability failure.

      Not for 70 years has someone been less likely to own the home they live in in NZ

    2. LOL. Seriously?

      House to income ratio in the 70’s was like 2.
      The average house cost twice the average wage.

      Now it is like 8. The average house costs 8 times the average wage.
      No amount of cutting back on avocado toast can make up for that gap.

      You have to be a complete and total idiot to not understand that buying a house in the 70’s was child’s play compared to buying a house now. It was doable back then. Impossible now.

      1. Spot On. The irony of the comparison is that part of the solution that many saw as making housing more affordable was to go smaller and higher density.

        Well, that is what has happened as a %, yet housing has gotten less affordable. A double loss for many.

        Density has never been a proxy for affordability, if it was, Hong Kong would have the cheapest housing in the world, not the dearest.

        1. Auckland’s housing has actually gotten more affordable since the unitary plan was introduced. No one is arguing that density improves affordability. They are arguing that supply improves affordability. Density allows more supply in a specific area.

        2. If Hong Kong had single house density, it wouldn’t be able to offer a place to live for many people at all (so they’d have to go elsewhere) and there’d be a totally different and far smaller economy.

          If Hong Kong had, say, 75% of its current density, it would house fewer people, there’d probably be homelessness, and there’d be pressure to sprawl onto more farmland, increasing trip distances, trip travel time, ecological impact and carbon emissions, and reducing liveability, with access to green space being harder. Housing would cost more.

      2. Apart from being more affordable, I also heard land was really cheap back then, so for not too much upfront cost you could get started and build a small home. And extend it later when you had saved some more money to do it.

    3. I wonder if people know how silly they look with these avocado on toast comments? In the UK the stereotypical dinner for the working poor is beans and/or cheese on toast. An avocado costs about $1 most of the year, i.e. the same as a tin of beans . Avocado on toast is about the cheapest meal I can imagine. How little thought does it take to realise that comment is foolish?

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