Affordable Housing
So an affordable housing system needs diversity. It needs collaboration through common ownership. It needs different design.
It might start under one roof, on one patch of dirt, in one corner of the planet, but it can’t end there.
We can’t all fit under one roof. We might need to fake it for a while, but eventually, if this is for everybody, we’re going to need more houses.
More Good Homes, owned by more good people.
If making housing affordable means buying property together, the long-term picture also means living together. And your average median-priced house isn’t going to work out for a group of people all moving through the same stages of life at the same time.
The system requires diversity to work.
To start with, this is going to mean housing that can accomodate different types of people.
Multiple generations under the same roof (or at least with the same letterbox) it’s almost like we’ve been here before…
If housing affordability means we need to buy property together, we’re also likely to live together for longer. I suspect most of the median-priced housing stock won’t go the distance. To small and/or to low quality.
We need a bigger, better boat.
And by better, I mean a Good Home: Warm, dry, low-energy, efficient design, simple.
And by bigger, I mean rooms for kids.
Can we make it affordable?
It’s time for a thought experiment:
Let’s take three friends each earning the median income. Some have children, or will have children while living together, but we’ll assume part of the picture is supporting parents to stay at home full-time, so we’ll stick with three incomes.
A person on the current median annual income can afford around $210,000 of property. So our three people can afford a $630,000 home.
For our better boat, we’ll assume a build price of $3000 per square meter.
For our bigger boat, let’s assume we can get a five-bedroom house with space for 4-5 adults and a few children into 130 square meters. A little on the small side, so we’ll need some simple(r) living practices.
The affordable Good Home costs $390,000, leaving $240,000 for a section.
Not a slam-dunk by any means, but potentially, we might be able to have Good, Affordable homes if we’re willing to share them.
There’s a couple of different measures of housing affordability:
Ratio of price to income (i.e. house price divided by income before tax).
Percentage of income (before tax) required to own a house.
The target for these two measures are generally:
A ratio of less than 3.0 is a good target for “affordable”
Spending 20% - 30% of gross income on home ownership is “affordable”
So what does this look like in New Zealand?
In 2017, the median personal income from wages and salaries was $45,883 (before tax). The median household income from wages and salaries was $79,000 (before tax).
Using the target of a 3:1 ratio of house price to income, a house costing more than about $280,000 isn’t affordable for 50% of households.*
Using a target of 30% of income going to housing costs and making some simplifying assumptions about costs and equity** 50% of individuals cannot afford a house costing more than $212,500.***
So with a national median house price of $549,000, and just over $850,000 in Auckland (our largest city), how can we buy houses?
Try looking at it this way:
A 20% deposit on a $550,000 house is $110,000, leaving $440,000 to be financed.
An individual earning the median income of around $46,000 can afford a mortgage of $170,000 (using the same assumptions as earlier**).
That means 3 individuals can afford to buy a house. You’ll need 4 in Auckland.
That’s how we do affordable housing: Together
*For an individual income the price would be around $138,000.
**Assuming mortgage has a 7% interest rate, 25 year term with bi-weekly payments, ignoring rates, insurance and maintenance costs etc, and assuming a 20% deposit is required.
*** For a household the price would be just over $370,000.
