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.