Polity: The young ones

Written By: - Date published: 7:27 am, May 21st, 2014 - 7 comments
Categories: Economy, housing, national, same old national - Tags: ,

Rob Salmond at Polity looks at what our young have to look forward to in 2019  with National’s hands-off housing screwup.

How an average family would fare under National’s do-nothing approach to the housing crisis? Part deux.

STILL A STOCK PHOTO.

In my last post on housing, we met an average family. To recap:

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 they have two kids, bringing then $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 in New Zealand is currently $432,250. For 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 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 after mortgage costs.

In this post, I want to consider what happens to the median family that buys the median house, but in 2019 instead of 2014. Is the future any brighter for them?

In a word, no. A median income 2019 family faces a much tougher task. Their mortgage payments on a median-priced home are much more expensive than in 2014, both because the house prices continue to soar, and because the mortgage rates climb quickly higher as well. For them, the payments on a standard mortgage in 2019 will be cripplingly high at $42,700 a year, some $16,000 more than the same mortgage on the same median property would cost this year.

At the same time, the 2019 median family income will float up to $74,100 after tax. Once they have paid their mortgage, the would be left with $31,400 to cover their other expenses.

But the price of everything else in their lives is projected to jump by around 10.5% over the same period. $31,400 in 2019 buys about the same amount of stuff that we can buy with $28,400 today. This disposable income is almost $10,000 a year less than an average family in 2014 can spend.

This is really sobering. It says that today’s young couples saving for a deposit will have to save more than today’s buyers, and get either less house or less in the rest of their lives in return. That is not what progress looks like.

7 comments on “Polity: The young ones ”

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  1. Tracey 1
    21 May 2014 at 7:54 am

    i keep seeing a focus on inability to buy a home but the corrollary to not buying a home is renting one. rents in auckland are ridiculous.

    lowering their sights or not owning at all is only a decent alternative if rents are affordable. they are not.

    in any self respecting society the foundation goal must be that people are able to thrive, not just survive. every policy should flow from that basis.

    • Colonial Viper 1.1
      21 May 2014 at 9:52 am

      Yep. There are tens of thousands of families out there trying to find $200 to pay their latest power bill or grocery bill, let alone buy a “median house.”

      This is really sobering. It says that today’s young couples saving for a deposit will have to save more than today’s buyers, and get either less house or less in the rest of their lives in return.

      Face it, “young couples” today able to save up a $70,000 cash deposit to even buy a “median house” or already fucking well off. Focusing on how things are so tough for them is a bit of middle class handwringing.

      That is not what progress looks like.

      I just had to roll my eyeballs at this. Another commentator buying into the modern religion of “progress”. John Michael Greer says it best

      It’s not going too far, I think, to call belief in progress the dominant religion of the modern world. For most people nowadays, what matters about our past is that it’s a story of progress, a vast upward sweep from the brutal squalor of a primitive past to the Promethean splendor of a science-fiction future out among the stars. In the modern imagination, the present is by definition bigger and better than the past, just as the future will by definition be bigger and better than the present. For believers in progress, to call something “new” is to define it as “better,” while what’s old is by definition inadequate.

      The intensity of our faith in progress can be measured by the way we play down the achievements of past peoples in order to make ourselves look better and smarter—for example, popular history books still insist that most of Columbus’ contemporaries believed the world was flat, even though this fable has been disproved countless times. The future is still more subject to distortion in the name of the myth.

      • Tracey 1.1.1
        21 May 2014 at 11:06 am

        exactly, and this is why Labour isn’t the answer, if these are genuinely the questions.

  2. geoff 2
    21 May 2014 at 9:38 am

    And of course how the hell is a family supposed to get a deposit???

    John Key’s line about buying his first home on tv3 news last night, “it was hard for me too”, completely ignores the fact that it’s not just ‘hard’ now, it’s impossible.

    • Colonial Viper 2.1
      21 May 2014 at 9:57 am

      Yes it’s ridiculous – any “young couple” able to save up the $70K or so they need for a deposit but is worrying about how they can manage mortgage repayments is already well ahead of the game.

      Next we’ll have a post on how difficult it is to afford a new bathroom with a spa bath and Italian tiling.

    • lprent 2.2
      21 May 2014 at 7:05 pm

      …“it was hard for me too”, completely ignores the fact that it’s not just ‘hard’ now, it’s impossible.

      Exactly. The problem is largely being dragged from Auckland everywhere else in Nz.

      The reason is that land prices in Auckland are ridiculously high to be building single storey single family dwellings on. We now have a lot of really small apartments (<40 sq metres) in the CBD and a lot of MacMansions on the outskirts (> 200 sq m) that have been built in the last 10 years and bugger all else.

      The affordable 2-3 room multi-story housing that is required for small land footprints has been pretty limited mostly because a pack of dickheads from National and Act screwed up with excessive inspection deregulation in the early 90’s and triggered a ongoing expensive leaky building crisis. So they mostly haven’t been built since 2004-5.

      This has been exacerbated by National since 2007 trying like hell to get the Auckland City Council to allow excessive building in the land banks of the contributors on the transport free and workless outskirts of the city. They’re also dragging their feet on the required upgrades to the public transport systems that make the existing city to even continue to work. It isn’t like there is much space to put in more motorways in the existing city.

      There is a real demand for the types of housing we’re short of. That pushes prices for all housing higher and causes the returns from lending for it to be very high. That in turn forces speculation and cost of living inflation and the reserve bank pushes up interest rates… The cycle feeds on itself.

      Auckland needs affordable housing. Christchurch needs houses. Build the damn houses with the government taking the lead pushing the types that make the best use of the existing brownfield land areas. That fixes the issue…

  3. dave brown 3
    21 May 2014 at 12:57 pm

    National’s deliberate denial of rising housing costs is not bloodymindedness.
    This is normal and necessary to keep their market inflated.
    The NZ economy has always been a speculator’s paradise dependent on maximising rent from the land. That’s why farmers have run governments in the pockets of the banks.
    Constant demand and inflation of land values is what keeps the economy afloat.
    And why the land tax on farmland was left back in the 19th century
    And why NZ has never had a capital gains tax that would hit at the heart of this speculation.
    You could say that NZ has always been inflated by this rent bubble.
    This also explains the NACTs opposition to limiting foreign investment in land.
    The demand from absentee landlords drives the whole property balloon ever upward.
    To impose restrictions would be shutting off the hot air supply to the balloon and the bank balances of the gentry would evaporate over the weekend.