After making good progress on housing policy, New Zealand’s Prime Minister, John Key, has taken the retrograde step of claiming that housing affordability is not that big a problem after all. From Interest.co.nz:
Prime Minister John Key has rejected suggestions that housing is much less affordable for first home buyers in Auckland than when he bought his first home, saying interest rates were over 20% when he bought and it was much harder to get a big loan…
The first house we bought was in Wellington. Interest rates then were 22% so if you actually had a look at it, I suspect you’ve got better access to leverage than you did back then.
Key’s comments came in response to the release of a new OECD report, which ranked New Zealand’s housing market as the most expensive in the developed world when measured against incomes and rents (see next table).
While superficially, Key is correct that mortgage rates were much higher in the late-1980s:
His argument loses weight when mortgage rate are adjusted for inflation:
With today’s real mortgage rate of 4.6% tracking above the 50-year average of 3.8%.
He also has failed to mention that the house price-to-income ration (around 5 times currently) is well above the 42-year average of 3.0:
Or explain why the home ownership rate in New Zealand has fallen so dramatically over the past 22 years:
All of which makes one wonder why the Prime Minister didn’t use the OECD report to champion his Government’s reforms to housing supply, rather than make straw man arguments about affordability.
