Data drills down on affordability

This Issue This is a part of the Making housing affordable feature

By - , Build 177

Having the right information is critical to understanding the housing needs of New Zealanders. The housing affordability measure uses the rich vein of data available to find trends and causes of changes in housing affordability in different areas.

New affordable housing development under construction
New affordable housing development under construction
177 48
New affordable housing development under construction

THE MINISTRY OF HOUSING and Urban Development (HUD), formed a year ago, has responsibility for the leadership and performance of the housing and urban development system. It is critical for HUD to have an evidence-based understanding of housing affordability.

Old approach a blunt tool

Housing affordability is usually understood by comparing household incomes with house prices at regional levels. Analysts and commentators have usually used the median house price for an area (a country or a region) compared to the average household income. The result is tracked over time to understand affordability.

This approach has some benefits. It’s simple and easy to understand and to a certain degree allows for international comparison, but it’s also blunt. For example, using medians can hide a lot of what is being experienced by the varied groups from renters to aspiring owners and retirees.

As we investigate the issues, we’re aware of the limits of the previous understanding of housing affordability. Traditionally, house-hold incomes have come from household sample surveys, limiting how precisely we can measure the affordability of areas smaller than the main regions.

177 48
New affordable housing development under construction

Rich data used to develop HAM

In New Zealand, we are lucky to have the ability to use the Integrated Data Infrastructure (IDI) to combine anonymised household-level income data from tax and benefit records, with tenancy bond data and property sales and valuation data for individual properties.

As research and analysis requires a curious approach, the IDI data is ideal as it allows us to test and understand the factors and issues.

Using this rich data source, the housing affordability measure (HAM) was developed by the Ministry of Business, Innovation and Employment and has been released every 6 months since 2016. It became the responsibility of HUD with its establishment in October 2018.

HAM improves understanding

The HAM measures housing affordability for both renters and first-home buyers. There are several attributes to the HAM, but there are two recently settled headline measures:

  • The proportion of renters who are spending more than 30% of their household income on their rent – known as the ‘housing percent rent’ measure.
  • The proportion of first-home buyers who would be spending more than 30% of their household income on housing costs if they were to buy a lower-quartile priced house in their area – the ‘housing percent buy’ measure.

The HAM headline measures themselves are a valuable resource for policy makers and researchers, because they can track quarterly housing affordability according to internationally comparable definitions dating back to 2003.

The HAM allows HUD to publish regional data nationally for 66 territorial authorities and 13 Auckland wards.

Finding causes behind the measures

For understanding affordability, the real value of the HAM data lies in its ability to illustrate what’s driving those headline measures. For example, we can analyse whether rental affordability is improving in an area because rents are lowering or because the price of home ownership is keeping households renting for longer, bringing up the average incomes of the renting pool. Or is the high price of renting driving those lower on the household income scale into homelessness?

These are the kinds of questions we can answer with the data in the IDI used to produce the HAM. HUD has a programme of work to do that, and we will release the analysis that sits alongside and supports the HAM measures shortly.

HUD’s purpose is thriving communities where everyone has a place to call home. As New Zealand creates urban communities, we require smarter localised understanding of factors like housing affordability.

Download the PDF

More articles about these topics

Articles are correct at the time of publication but may have since become outdated.

New affordable housing development under construction
New affordable housing development under construction
177 48
New affordable housing development under construction

Advertisement

Advertisement