Our 2011 election manifesto - Labour Party

elatively high level of home ownership compared to other countries, what has become clear
is that the issue of housing affordability in New Zealand is structural not cyclical.
While products that improve access such as those discussed earlier are important, they will
not address the ongoing issue of affordability.
Housing affordability is often measured by comparing household income to house prices.
This is the measurement used by the Demographia annual index which has in recent years
consistently described New Zealand as “severely unaffordable”. While this gives a snapshot
of affordability at the time of purchase, it is not an accurate measure of ongoing ability to
meet mortgage repayments.
For this reason the better measurement of housing affordability is the Debt Service Ratio
(DSR). Internationally a DSR of 30% is deemed to be the upper limit for affordability. Yet
most households go into home ownership with DSR's between 40 and 50%.
Those moving into home ownership should have the security of knowing that the largest
mortgage payment they will ever have to make will be their first. Home ownership used to
bring certainty to household budgets, and an incentive for people to move from renting to
home ownership, but it is now one of the most unpredictable elements of a household
budget.
New Zealand's 2 and 5 year mortgage rates are almost double those in other comparable
countries.
What this means is that if you take a family on $70,000 household income with a $350,000
mortgage, in the UK this would mean annual repayments of $23,112 and a DSR of 33%. In
New Zealand the same family would face annual repayments of $31,860 and a DSR of 46%.
With two year rates the disparity is even worse with New Zealand being at least 77% more
expensive than the UK, USA and Canada.
This is despite the OCR being at historically low levels due to the global financial crisis. As
the OCR is only likely to rise from here, it is clear that current fixed term interest rates are not
going to drop any further if we carry on with business as usual.
If interest rates could be reduced and stabilised a large part of the affordability problem
would be addressed.
Addressing housing affordability sustainably will require a structural change in the way our
economy operates. High fixed mortgage interest rates are driven by our current account
deficit and our need to borrow significantly offshore due to a lack of investment capital
available in New Zealand. Labour's savings and taxation plans are designed to address
these issues and are therefore pivotal in getting us on the path back to housing affordability.
Labour will expand KiwiSaver to provide the basis for a significantly higher private
saving rate and additional security in retirement:
KiwiSaver will be compulsory for every employee aged 18 to 65 from 2014
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