Housing costs crippling for poorest households
New data from Statistics New Zealand, for the year ending June 2021, shows that the burden of housing costs among the poorest households is almost twice the average for all households.
As the graph below shows, in the year ending June 2021, households in the lowest income quintile (the poorest 20 percent) paid, on average, 41 percent of their disposable income on housing costs. By contrast, the housing cost burden averaged across households in all income quintiles was 22 percent. Households in the highest income quintile paid, on average, just 13 percent of their disposable income on housing.
In other words, the housing cost burden in the poorest households was almost double that for all households, and more than three times that for the highest income households.
The housing cost burden for the poorest households eased between 2020 and 2021, but it was still extremely high.
The graph also shows that the housing cost burden for the poorest households eased a little between 2020 and 2021, as it did for all income groups, but it was still extremely high.
The burden of housing costs for the average household in 2021 was only a little lower than it was a decade before.
The next graph shows how the burden of housing costs, averaged for all households in New Zealand, has changed over time. It indicates that housing costs, as a share of disposable income, peaked at 27 percent in 2015. They fell gradually to 23 percent by 2021, but this was only a little lower than in 2011.
This implies that material standards of living have not improved significantly, at least in terms of housing costs.
Bearing in mind that the data used here was for years ending June, questions arising are: What has happened since the middle of 2021? And what is likely to happen by the middle of this year.
Since June 2021, house prices have increased dramatically, and this implies that the housing cost burden for households that have taken on new mortgages is likely to have risen. And as we showed in another of our recent articles rent and food prices surge rents have increased more rapidly than incomes. In other words, it seems likely that the overall housing cost burden will have increased.
It is likely that the housing cost burden by the middle of 2022 will be higher than it was in 2021.
As to the rest of the year ending in June 2022, income growth might start to accelerate, as workers press for larger wage and salary increases in response to the elevated levels of consumer price inflation. However, these increases might take some time to feed through. In the meantime, rents still appear to be increasing faster than incomes and housing costs for people taking on new mortgages, or re-fixing their existing mortgages, are likely to be higher because lending rates are increasing.
Overall, therefore, it is likely that the housing cost burden by the middle of 2022 will be higher than it was in 2021.
Technical notes:
The data on which this article is based was derived from Statistics New Zealand’s Household Economic Survey (HES).
The HES covers households with all types of housing tenure, including renting, owning with mortgage and owning mortgage-free.
Disposable income is gross income, less tax and transfers (e.g. Child Support and Student Loan repayments). It is the equivalent of ‘take home pay’.
Statistics New Zealand uses the concept of equivalised household incomes to allow for the fact that households in different quintiles differ in size and composition.