Sunday, February 17, 2013
Mike Butler: Any worker can own a home
Any worker can own a home, according to the NZ Property Investors’ Federation, which has released a Home Affordability Planning Calculator. Federation president Andrew King said "housing has been deemed unaffordable so often that it is now considered a fact". King criticised the ratio of house prices to incomes, which currently stands at 5.4, with 3 being the proposed ideal level, as a crude measure of housing affordability as it doesn’t take account of historic low interest rates and does not include Government subsidies and grants.
The calculator, at http://www.nzpif.org.nz/afford-a-home, gives the example of a household with an income of $30,000 a year, which is based on an hourly rate of $14.42, not far above the $13.50 minimum wage. After paying tax of $4270, this household would qualify for tax credits and supplements of $19,864, giving a net annual income of $45,594.
After rent of $350 a week, or $18,200 a year, and other costs of $22,594 ($434 a week), that household would be able to save 10 percent of their take-home, or $88.40, towards a deposit. It would take 6.5 years to save $30,000 for a deposit to which a Kiwisaver grant of $10,000 and a Kiwisaver employer contribution of $5873.
This would provide a 21 percent deposit of $45,873 on a $220,000 house. A total of 350 properties worth $220,000 or less were listed on Trade Me on January 31, 2013.
At an average interest rate of 7.5 percent, this household could pay off their $174,127 mortgage in 23.6 years.
I have noticed that whenever I have tried to go through such figures, most people glaze over, lacking the ability or determination to get on top of the numbers. Moreover, many Gen-Yers are bogged down with consumer debt on cars, clothing, and digital toys.
Home-buyers should be mindful of where housing “unaffordability” propaganda comes from. Chief proponents are the Labour and Green parties, who use it to gain political advantage. Also, there are those in the business of providing social housing who push housing “unaffordability”, to get the government of the day to send more money their way because they live off government grants.
at 11:38 AM