Average wage can’t buy Otara house

April 25, 2007

The average house in Otara, Auckland’s poorest suburb, is now just out of reach of someone on the national average wage.

Calculations for the Herald by Mortgage Brokers Association chairman Geoff Bawden show it would take $49,000 a year to service a $234,000, 30-year mortgage at current interest rates on the median-priced house sold in Otara last month – $259,000.

That is just above the average wage of $44,495 a year.

A median-priced house in Te Atatu South, costing $367,000, would need an income of $64,000 a year. A house in Glenfield East/Marlborough, priced at $453,000, would need $75,000 a year.

The calculations confirm scepticism expressed yesterday by Andrew King of the Auckland Property Investors Association after a consultant’s report said that households with an income of $70,000 a year were being locked out of home ownership in Auckland.

“People should spend less money on coffee and brand new cars and overseas trips. It’s up to them to save more,” Mr King said. “It might not be the house that you want to live in long-term, but you could buy a $350,000 house in Te Atatu, Glenfield, Panmure or Pukekohe.”

Mr Bawden’s calculations show that households on $70,000 could indeed buy a house in Te Atatu or in Glenfield West, where the median house price last month was $379,000. But they could not afford to buy in slightly pricier Glenfield East/Marlborough.

Households that depended on a single average wage could not buy a median-priced house anywhere in the region. They would be confined to a below-average house in a poor suburb such as Otara.

Home ownership rates in the region have plunged from 72.7 per cent in 1991 to just 59.3 per cent last year.

However, Mr Bawden’s affordability calculations are complicated. He recommends that a couple should buy a house only when they have a net “surplus” of at least $1300 a month after paying taxes, the mortgage and any other commitments such as hire purchase or payments on a car.

The minimum recommended surplus goes up by $125 a month for every dependent child. He assumes a deposit of 10 per cent of the purchase price.

“Most first-home buyers struggle to get that together,” he says.

A 30-year mortgage at a current fixed interest rate of 8.8 per cent would cost $1850 a month for the median house in Otara, $2608 a month for Te Atatu South and $3208 a month for Glenfield East.

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