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NZ houses more expensive than UK, USA

18 May 2010 20:21Peter Waring

The scary truth - how overpriced are NZ houses?

Everyone generally accepts that NZ homes are highly unaffordable. But how unaffordable? I set out to find out - and uncovered the shocking truth. Not only do New Zealanders pay more for their homes than their UK/USA counterparts in terms of House-Price-to-Income multiples, but the average NZ house price is actually higher than both the UK and USA when you price these nation's house prices into New Zealand Dollars (at the given exchange rate at the time of writing). This sounds almost unbelievable, but it is true - as the data below shows.

Average NZ House Price  NZD $405,235 (3.9% below the Q4 2007 peak ) - from Quotable Value as at 18th May 2010

Average US House Price USD $258,000 (18% below July 2006 peak) - from US Census Dept

Average UK House Price £167,802 (10% below Oct 2007 peak) - from Nationwide Building Society

Average AUS House Price AUD $499,670 (from Living In Australia data as at Feb 2010).

Current Fx rates as at 18th May 2010

NZD/USD =
0.6976
NZD/GBP =
0.4822
NZD/AUD = 0.8019

Current house prices coverted into NZ dollars:

NZ Avg Price in NZD = $405,235
US Avg Price in NZD = $369,839
UK Avg Price in NZD =
$347,992
OZ Avg Price in NZD = $623,107

Differences in % between NZ house prices and the US/UK/Australia


US House Prices cost 8.73% less than NZ house prices (priced into NZD)
UK House Prices cost 14.12% less than NZ house prices (priced into NZD)
OZ House prices cost 32% more than NZ house prices
(priced into NZD)
 
OK so let's look at average salaries in NZ vs the UK/USA/Australia (OZ)

NZ annual average salary = NZD $43,836 (source Statistics NZ as at June 2009)
US average annual wage =
USD $41,334 (source Social Security Online mid-2008 )
UK median annual salary = £25,428 (source National Statistics Online April 2009)
OZ median annual salary = AUD $64,636(source Australian Bureau of Statistics Feb 2010)

Again let's convert wages in the US and UK and Australia (OZ) into $NZD

NZ average annual wage =
NZD $43,836
US average annual wage = NZD $59,251
UK average annual wage = NZD $52,733

OZ average annual wage = NZD $80,603


And now let's calculate House Price to Income ratios:

NZ House-Price-Income-Multiple = 9.2
US
House-Price-Income-Multiple = 6.2
UK
House-Price-Income-Multiple = 6.6
OZ
House-Price-Income-Multiple = 7.7

Conclusion

Based on the House Price to Annual Average Income ratio, NZ house prices are 48% more expensive than US homes and 39% more expensive than UK homes. The USA has the most affordable housing of the 4 nations. NZ house prices are 19% more expensive than Australian house prices based on house price to earnings multiples.

New Zealand must address this huge imbalance in the economy. Let's hope that the 2010 Budget from the National government goes some way towards restoring some normality into the NZ housing situation. There is an excellent explanation about how NZ house prices became so unaffordable by Rodney Dickens here .

Peter Waring
www.marketsunplugged.com

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