At Polity, Rob Salmond asks:-
How an average family would fare under National’s do-nothing approach to the housing crisis?
YES, IT IS A STOCK PHOTO.
Here’s an anecdote, which has some numbers in it, too. In 2013, the median household income in New Zealand was around $69,300. Let’s call that $71,000 now. After tax, assuming the best possible split of incomes, the couple would have around $60,500 market income to live off.
Let’s assume this average family has two dependent kids, bringing them about $4,000 a year in Working for Families as well.
This middle of the road family buys a middle of the road house. The current median house price in New Zealand is $432,250. For about that, you can get this 3 bed, 1 bath “potential do-up” in Otahuhu.
To get that house today, the family would need a $86,500 deposit, and could get a floating mortgage for the rest at around 6% interest. Over a 25 year term, repayments on this mortgage would be $26,720 a year, leaving around $37,800 a year for the rest of the family’s needs. Remember that number: $37,800 left over, after mortgage costs.
What could happen to this average family over the next five years, if National’s do-nothing housing policy is enacted, and the Budget forecasts are accurate?
Most importantly, rising interest rates mean the family’s mortgage payments will jump by over $6,000 a year. That puts a huge hole in the family finances.
At the same time, however, the families income is projected to go up by around a nominal $9,600 after tax, so they would be able to cover the increased mortgage payments, and would be left with $41,300 to cover the family’s other expenses.
But the price of everything else in their lives is projected to jump by around 10.5% over the same period. $41,300 in 2019 buys about the same amount of stuff that we can buy with $37,400 today. Which is less than this same median family earns today ($37,800 – did you remember the number?).
This family – the median New Zealand family – is projected by Treasury to have their disposable income go backwards over the next five “rock star” years. That is a disgrace.
The most galling part about this is that this five year period is forecast to see strong growth across the economy. If we can tolerate a growing economy that doesn’t deliver for absolutely middle of the road families, even in good times, and which even makes them go backwards – then we are not the caring, considerate nation I thought we were.
We need action on housing supply and on mortgage rates now. Labour has a plan; National doesn’t.
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