Do you need an annual income of NZ$300,000 to comfortably buy a home in Auckland? The truth about the world’s most ‘liveable’ city!

This also marks the EIU’s first release of its global liveability survey results since cancelling the 2020 survey because of the pandemic. Scores for European cities generally fell, while the rankings of cities in New Zealand and Australia attracted global attention. Notably, 6 cities from New Zealand and Australia made the top 10. New Zealand’s second-largest city, Wellington, ranked number 4, making it the world’s number 4 city for liveability. 

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The report noted that although Japan’s pandemic situation remained serious, its capital Tokyo and Osaka maintained their places in the top ten thanks to consistently high scores for social stability. Osaka became the world’s second-most liveable city this year, behind Auckland.

The world’s ten most liveable cities in 2021:

Auckland, New Zealand

Osaka, Japan

Adelaide, Australia

Wellington, New Zealand

Tokyo, Japan

Perth, Australia

Zurich, Switzerland

Geneva, Switzerland

Melbourne, Australia

Brisbane, Australia

 

The same report also identified the world’s least liveable

ten cities:

Damascus, Syria

Lagos, Nigeria

Port Moresby, Papua New Guinea

Dhaka, Bangladesh

Algiers, Algeria

Tripoli, Lebanon

Karachi, Pakistan

Harare, Zimbabwe

Douala, Cameroon

Caracas, Venezuela

 

It is worth noting that the report stated: “Auckland’s effective control of the pandemic allowed society to remain open, earning the city substantial points and lifting it into first place.” Yet those of us living in Auckland have to face a reality: amid the pandemic last year, Auckland recorded the world’s second-highest rate of house price growth. Its average house price also soared from NZ$980,000 last year to around NZ$1,200,000 now. Let’s look at Auckland’s house price and wage indices over recent years. Does seeing them leave you feeling a little cold and lonely?

How much do you need to earn in Auckland to comfortably become a mortgage slave?

To measure the pressure housing costs place on a household, New Zealand and Australia have drawn on data from various sources to develop the concept of a ‘mortgage stress threshold’.

The mortgage stress threshold measures the amount left from wages after monthly mortgage payments are deducted. The industry’s conclusion is that the threshold for mortgage repayments is 30% of pre-tax income—note, pre-tax—to avoid financial danger after buying a home with a mortgage. Using this benchmark, we can calculate the income needed to buy a home without financial stress in each major city.

 

Auckland: an annual household income of $240,000 was needed to buy a home without financial stress in 2018

According to a housing affordability survey by oneroof.co.nz in 2018, taking Auckland’s median house price of NZ$1,200,000 in 2018 as an example, first-home buyers in Auckland needed an income 3 times the median salary to afford a home without financial stress, excluding the 20% deposit. In other words, in 2018, that household’s annual income needed to be 3 times the median salary of NZ$76,232. Assuming a mortgage term of 30 years at an interest rate of 5.79%, they would need an annual income of NZ$241,200 to live a little more comfortably after making their annual mortgage payments.

 

Renting! Housing costs are even higher

Meanwhile, as housing costs continue to rise each year, the pressure on low-income households continues to grow.

Data shows that renters spend 40% or more of their household income on housing, with housing expenditure reaching twice that of homeowners or more. In other words, renting households spend NZ$40 of every NZ$100 of household income on housing, far exceeding the housing expenditure of owner-occupier households. 

So the question is: how much annual household income would you need in 2021 to buy a home in Auckland without financial stress?

 

Auckland: an annual household income of $320,000 is needed to buy a home without financial stress in 2021

Let’s calculate this using the ratio OneRoof estimated in 2018: first-home buyers in Auckland need an income 3 times the median salary to afford a home without financial stress. This year, New Zealand’s annual household income is $107,000 and the median house price is $1,300,000. To buy a property in Auckland without financial stress, Auckland households would therefore need an annual income of around $321,000 before tax—a full NZ$70,000 more than the $240,000 needed in 2018…

Buying a home comfortably here refers to households with an annual income of around $300,000. Yet most couples currently have an annual household income of around NZ$150,000. If they buy a mid-priced home, money is already very tight after mortgage payments and essential living expenses. Ultimately, only those of us who live in Auckland can truly know how liveable it is.