Housing affordability – land cost

We have looked at housing affordability in terms of building costs. However, whereas building costs have increased slowly but surely over the years, land costs have skyrocketed. This has been extreme in my country of New Zealand but is also happening in Australia, Canada, the USA, the UK, Europe and elsewhere.

A common formula economists use for measuring housing affordability is called the Median Multiple. This is the median house price divided by the median household income in a particular country, region or city. It is generally accepted that the median multiple should be no more than around 3.0 for housing to be considered affordable.

In April 2021, the median house price in New Zealand was $810,000. In June 2020 the median single income was approximately $52,000 and the median for a household with two earners was approximately $104,000. This equates to a current median multiple of approximately 7.8. This is described as ‘severely unaffordable’ by the International Housing Affordability Survey. Also, these figures are for the whole of New Zealand, some places, like Auckland, have much higher median prices as the country as a whole.

Reasons for low housing affordability

Some of the reasons for such high un-affordability in New Zealand are outlined below. These reasons are likely to be the same or similar in other countries.

1. Not enough houses

In New Zealand there simply aren’t enough houses. High demand and low supply increases prices. However, there are different reasons that the supply of new houses cannot keep pace with demand including not enough land supply, restrictions on housing density and insufficient funding of infrastructure as described below.

2. Not enough land supply

Land is expensive because there is not enough that can be used for housing. A lot of land that could potentially be used in higher density housing is tied up in restrictive planning rules that won’t allow it. New open fields development are also stymied by restrictions and regulations.

3. Infrastructure funding

Land for building new houses needs infrastructure. The roads, drains, water mains, sewerage and powerlines needed for new homes are expensive.

Neo-liberal economic reforms that started in the late 1980s (called Rogernomics in New Zealand), included privatising public assets, meaning councils lost sources of income they previously had and subsequently are less able to fund infrastructure. 

Councils in New Zealand have underfunded infrastructure for decades and are reluctant to borrow money to pay for it because that is political suicide.

4. Deregulation of banking

Neo-liberal reforms also changed the housing market in other ways. For instance, the banking system which was highly regulated before the reforms became significantly deregulated and people could borrow money much more easily. Before the 2008 financial crisis 5-10% deposits were quite common and in some cases people could borrow 100% of the value of the house. With lower entry costs, more people could afford to buy a house, which drove up house prices. When there is a correction such as happened in the 2008 Global Financial Crisis the people who lost the most were the ones who couldn’t afford to lose anything. (Since the global financial crisis deposits were required to be raised to 20% of the value of the house.)

5. Speculation

Because of the massive capital gains available, speculators will buy houses and leave them empty because it is easier for them not to have tenants. According to the 2018 Census, there were a record 39,393 empty houses in Auckland. These so-called ‘ghost’ houses make up about 7.6% of the total number of houses in Auckland. In contrast, it was recently reported there are over 7,000 people on the public-housing waiting list in Auckland, which is also a record.

Owning a house that you live in is not an investment, it is a cost. However, owning a second house in order to make money from it, is an investment. In New Zealand, especially as house prices have risen, more and more people who could afford it have bought more than one house, which in turn increases house prices more. An unfortunate consequence of this is that rents have also risen.

6. Political resistance

Attempts to change planning rules to free up more land and increase housing density have often met with political resistance. People who already have houses are resistant to changes that would make houses cheaper.


So, the facts are clear, housing affordability has dramatically decreased, it is harder to buy a house now than at any other time in the last 70 years. The reasons are complex and the solutions are not easy to swallow. In a nutshell some of the solutions are:

  • More investment in infrastructure
  • Changes in rules to allow higher density housing
  • Regulation of speculation in private housing
  • Community housing projects that allow for rent-to-own

Overall, the consensus needs to change so a new generation can participate in the well-being and security of owning a home.