Low income 'not linked' to high cost of housing

One of the authors of an international housing study which showed housing here was among the world's most expensive has challenged claims that low incomes are to blame.

Christchurch-based Hugh Pavletich wrote the Demographia survey of housing affordability with Wendell Cox of the United States and said economists were wrong to blame low incomes for the housing crisis.

When the survey was released last week, Anthony Byett, of ASB Bank, said people's low earnings were one of the reasons housing was unaffordable.

He said the market would come back into balance when house prices stabilised and incomes rose.

Darren Gibbs, chief economist of Deutsche Bank, asked if the report was meaningful or had predictive merits.

Robin Clements, chief economist at UBS New Zealand, said the report had a valid point to make on regulatory controls and land supply.

Pavletich challenged Gibbs' views and said territorial authorities' restrictive land zoning policies were to blame for the crisis, not low incomes. Factors "other than land and housing supply" as an explanation were "seriously wide of the mark", he said.

"Byett would need to explain why housing in New Zealand and Australia was affordable or near affordable 10 and 20 years ago when people's incomes were much lower. To suggest that rising incomes will solve this is an extraordinary comment."

The survey used median house prices in 100 cities in six countries and divided it by the median household income to establish the number of years needed to pay off a house.

Most markets were historically affordable when house prices were median multiples of three or below but Britain and New Zealand's was 5.9 and Australia's was 6.2.

"Within this year's survey, we explain ... why supply is the key determinant of urban property market performance and how any constraint on this drives prices higher," Pavletich said.