Affordable Housing – Just What Is It?
As the Affordable Housing debate continues (to pretty much go around in circles (enough to make you dizzy)) a question came to mind; “What is exactly affordable housing?” For those like myself who keep an eye on main indicator (which irony would have it, it is of those from the Centre-Right that follow the indicator while those of the Centre-Left do not) from Professor Wendell Cox‘s Demographia website, housing affordability is defined as:
The Demographia International Housing Affordability Survey employs the “Median Multiple” (median house price divided by gross [before tax] annual median household income) to rate housing affordability (Table ES-1).
Demographia Housing Affordability Rating Categories
Rating Median Multiple
- Affordable 3.0 & Under
- Moderately Unaffordable 3.1 to 4.0
- Seriously Unaffordable 4.1 to 5.0
- Severely Unaffordable 5.1 & Over
Now according to that same document, Auckland sits at (as of 2011) 6.4 with the National median multiple at 5.2. So basically just using the Demographia Housing Affordability Rating, Auckland is pretty much a joke when it comes to housing affordability. Irony would have it, it was these exact figures that I used to raise the housing affordability issue this time last year in my submission to the Auckland Plan – along with ideas on how to get that median multiple rating back towards 3.0. How far we have come in 12 months – not, with the rating most likely not hitting 6.5 if not 6.8 by now rather than say 5.0 as a mark for progress. Now if medians confuzzle you I’ll present it some dollar figures for you.
The median wage in New Zealand is $50,000 a year for a person working 40 hours a week, 48 weeks in a year. On that if you have a working couple working full-time at the same rates it means the household income stands at $100,000 year. If we follow Demographia and their Housing Affordability Rating methodology, based on a median combined wage of $100,000 for a working couple then the median house price should around the $300,ooo mark. However if the NZ Herald is to be believed with this PDF today, the average asking price is at $611,000 which on that figure alone means (if we were to use it) asking prices for Auckland houses is double where it should in reality be. Hence Demographia rates Auckland as of 2011 at 6.4. So in short, housing affordability in Auckland – YEAH RIGHT!
To use myself and Rebekka as an example (as I did in the Auckland Plan hearings); we purchased our first home by choice in the suburb of our choice called Papakura for $283,000. It is a three bedroom ex-army house that needed a bit of work but at least it does not leak like modern houses have done… At the time of purchase with our combined income, the Demographia rating was at 4.0 (so moderately unaffordable). It meant some financial stress and a tight budget for a while but now eleven months later and with some overtime, renovations and landscaping (which are ongoing); we are well ahead of the mortgage and the Demographia rating is now around 2.8-3.0. The house itself if we were to put it on the market with some slick marketing could mostly get away with an asking price of $350,000. So Rebekka and I were extremely lucky if we were to just be using the figures used so above which most people and institutions do. However as was raised by a counterpart at the Civic Forum; there is more than Demographia’s figures, asking prices and income when it comes to housing affordability.
And this is where the question is raised and I am going to ask. Just what is “Housing Affordability?” I have given the primary method or rather explanation used with one housing aspect of housing affordability. However there are and in my opinion on pondering about it two other legitimate aspects that should be looked at as well:
- Mortgage or rent payments verses total income
- Costs of amenities and transport
Mortgage or rent payments verses total income
The mortgage or rent payments verses total income method for housing affordability measurement is used by the Reserve Bank of New Zealand and some statisticians. As a rule; no more than a third of the household’s total income should be used for mortgage or rent payments. In fact the Demographia system used above can be applied to mortgage and rent payments verses income as well. Auckland I think currently if we were to use Demographia is around the 50-67% mark which means 5.0-6.7 so severely unaffordable despite low-interest rates (which Demographia point out is not that useful in this case). And where do Rebekka and I sit as again another example with the mortgage verses income:
- Renting versus our income: 35%
- When we first took the mortgage: 40%
- As of when I wrote this post using standard payments (so no extra money dumped into the mortgage): 20%
- As of when I wrote this post using standard plus extra payments: 13-18%
So again Rebekka and I are extremely lucky as we pay the mortgage down (although we have had a few capital expenses) at maximum speed.
Cost of amenities and transport
Now this where the question of housing affordability raised at the Civic Forum was raised. Income verses House Purchase Price, and income verses rent or mortgage repayments are measures mainly used to gauge for housing affordability in Auckland. But what is not often measured at great length and was legitimately raised at the Civic Forum is the cost of amenities and transport. Basically you might have your house that you rent or have purchased and you can afford the payments pretty well. But what can chew your income and even quality of life is: the cost of transport to get to work, schools, shops, recreation and family; access to transport (bit of a bugger if you are nowhere near a public transport node and forced to use your car to travel); access to your local town centre with its community facilities (similar to the transport situation if you can not access your local town centre or even a major hub like Manukau); access to passive recreation (parks or even the beach).
So in this case we are looking at things that are non monetary as well as monetary that in all honestly affect housing affordability. You can basically say ‘how can you have an affordable house/home when you have high costs due to lack of access to basic amenities and transport to conduct your lives (in a sane manner ). And this is often what is forgotten in urban planning and development; we can build affordable houses per se, but they are not truly affordable when the cost of transport and access to amenities is too high.
Again using Rebekka and myself as an example; owing to who we work for, where we live, the fact we can afford a car which gives us ready access to Papakura Town Centre and Manukau City Centre (so our local AND our major hub), and the fact we are two minutes away from rural Auckland the cost of amenities and transport does not affect us in a major way. But while it does not affect us, I damn well know it affects others and this is where we need to have the conversation.
The conversation on cost (or cost of access) of amenities and transport is frankly not being talked about enough when it comes to housing affordability and this conversation needs to be held more in-depth than the Civic Forum and Civic On-Line forum. It is a conversation Local Boards with their Councillors and our City Planners need to facilitate with residents, businesses, and interest groups.
My post titled: PAPAKURA SET FOR ‘LARGE’ HOUSING DEVELOPMENT illustrates an example where THIS CONVERSATION needs to be held immediately. Otherwise I am sorry but that 500 “affordable housing” development will be basically a slum area in five years (let alone it is also in my back yard literally).
So let’s have this conversation today starting with Local Board facilitated town hall meetings where our Local Board, the Planners, and our Councillor (Cllr Calum Penrose in my case) are all present and having this conversation with us – the community. On second thoughts this might be running into a series of town hall meetings with the amount of material I am finding that needs to be “discussed.”
And for those interested in a bit of academia, here is a copy of the Demographia report into Affordable Housing.