Before you read the rest of this post, get out a pen, and write down what income you think someone in New Zealand needs to earn to count as rich. You could also write down what income you think the top 5% of income earners in this country earn, and what income you think the top 1% earn. I’ve got some data on that at the end of the post, but you’ll find it more interesting if you test it against your own assumptions.
In Question Time on Tuesday 9 and Wednesday 10 of August, the Prime Minister responded to questions about Auckland house prices by listing the numbers of houses in Auckland that had sold at various prices in the last few months, and saying just how many were sold under the average price. For context, the average house price in the Auckland region is now getting close to a million dollars, and in Auckland city itself, it’s over a million.
Here’s how the PM responded to concerns about Auckland house prices on Wednesday 10 August.
I stand by my full statement in the House yesterday, which was: “If you look at the year to 31 March 2016 in Auckland there were 31,963 sales. Sales in the under $600,000 category of … homes were over 30 percent of that—9,638 sales. For … houses under $650,000 there were 11,842—37 percent of sales.” My point was that there is a significant number of Auckland houses selling for well under the reported average price. Source – Hansard
So 37% of homes sold at 2/3 of the average price. Those are the cheaper homes in Auckland, and they’re the homes that we would expect lower paid people to be able to buy.
Later on in Question Time, Metiria Turei, co-leader of the Green Party, made the point that principals and firefighters were finding it hard to afford houses in Auckland. This is one of the critical concerns with respect to outrageous house prices: soon the people we rely on to run our communities – teachers, police officers, fire fighters, and so on – simply won’t be able to afford to live in those communities.
Here’s what Ms Turei said, and what the PM said in reply.
Metiria Turei: Is that the excuse for unaffordable housing that he would give to the principal of an average-size primary school, who would have to spend about eight times their income to buy a median-priced house in Auckland; I mean, is the housing market working for that family?
Rt Hon JOHN KEY: Well, the member talks about an average principal of a New Zealand primary school, I think she quoted. If they live in Hamilton, 71 percent of all sales that took place were under $500,000. But if they lived in Auckland, 30 percent of sales that took place were under $600,000, and 37 percent under $650,000. My colleague before was just looking on TradeMe and the number of properties in Auckland that are under $500,000. There are many properties listed there. Source – Hansard
Putting a somewhat uncharitable gloss on this, the Prime Minister’s advice is for principals of Auckland schools to live in Hamilton, or for them to buy a house in the lower third of the market.
But we expect people to buy houses that are roughly commensurate with their incomes. That is, we expect, more-or-less, that people who are better paid to buy higher priced houses, and we would ordinarily expect people who are less well paid to buy lower priced houses. Of course, some of the least well paid people will rent houses instead. But in a property owning liberal democracy, where most people aspire to owning their own home, we might expect that higher paid people are buying houses above the average price.
So are principals among New Zealand’s higher paid income earners?
Yes. In fact, principals are in the top 10% of income earners in the country. The very lowest paid principals earn about $85,000 a year (Source: NZEI Principals Collective Agreement – pdf). And based on IRD data, the top 10% of income earners in this country earn $81,000 or more.
Here’s the breakdown of incomes in this country. These are incomes based on taxable income, that is, the amount that Inland Revenue thinks that each person earns.
This analysis excludes untaxed income such as capital gains, and it doesn’t adjust for the way business income can be calculated. There are no assumptions in this data: it’s just the cold, hard numbers collected by Inland Revenue. But let’s be very clear about this: most people in this country are wage and salary earners. This is as good a basis as any for assessing how much money people have available to spend, based on what they earn.
So what does this table tell us?
It tells us that school principals are in the top 10% of income earners in this country. Yet our PM expects them to look for the less expensive houses in Auckland. Is he really saying that people in the top 10% should only aspire to cheaper housing?
It tells us that based on the hard numbers that IRD collects, about half of all income earners in New Zealand earn less than $28,000 a year.
It also tells us that if we think that say, the top 10% of income earners in New Zealand are “the rich”, then we think that earning around $80,000 is enough to make someone “rich”. Not just well off, but rich. I strongly suspect that many of the people earning around $80,000 or so don’t feel rich, especially if they are living in Auckland. Yes, I know that an income of $80,000 is massive compared to what many people earn, but I am talking about people’s perceptions here.
Some other information from the same source but not shown in the table: the top 5% of taxable income earners in New Zealand earn $107,000 or more, and the top 1% of income earners have taxable incomes of about $200,000 or more.
The PM’s glib answers in Question Time yesterday do him no credit. They were fob-off answers that disguised the real problems with Auckland house prices: they are simply far too far out of reach for even people who are earning in the top 10% of incomes in this county. It’s time for him to grapple with this problem, instead of treating it as just one more playing piece in the game of politics.
Some caveats with the data: it’s for the year ending 31 March 2014, and it’s based on information collected by IRD up to September 2015. So there’s still some data coming in. But, if you look at the previous years, you will see that the same broad pattern holds: the top 10% band of income earners kicks in around $80,000 or so. The data does account for Working for Families tax credits, and income earned from benefits, but not for people with no income whatsoever, or people who earn only interest and dividends that are fully taxed at source. You can see the bands I’ve used in the table are not exact 10% bands: I decided it was better to work as closely as possible with the raw data, rather than making assumptions about where to draw the exact line on some income bands.
You can download the data yourself from the Research and Tax Statistics page on the IRD website. There’s a wealth of information available there.