Report on household incomes in New Zealand

Jul 25, 2017 | Research

This are pages 21 to 24 of ” The material wellbeing of NZ households: overview and key findings from the 2017 Household Incomes Report and the companion report using non-income measures (the 2017 NIMs Report)

Prepared by Bryan Perry

Ministry of Social Development


July 2017

Housing costs and housing quality

Ongoing housing costs relative to income

·High outgoings for housing costs relative to income are often associated with financial stress for low- to middle-income households. Low-income households especially can be left with insufficient income to meet other basic needs such as food, clothing, basic household operations, transport, medical care and education for household members.

·Housing affordability can be measured in a number of ways. From the perspective of potential homeowners, the simplest measure is the ratio of average house price to annual household disposable income, which in effect gives the number of years needed to cover the purchase price of a house (on average). Other more sophisticated measures incorporate the cost of financing as well (eg Massey University’s Home Affordability Index). The recently released Housing Affordability Measure from the Ministry of Building Innovation and Employment uses a mix of administrative and survey data and covers both renters and aspiring first-home buyers. It is based on the notion of ‘residual income’ for households, very similar to this report’s income after deducting housing costs (AHC) measures.

·This section on housing affordability takes the perspective of households already in their own homes or renting, and uses a measure which is relevant to both homeowners and renters. The ratio used is that of gross housing costs to household disposable income, in much the same way that home-loan lenders do for assessing risk. Housing costs are taken as rates, mortgage and rent. The ratio is called OTI for short (outgoings-to-income ratio).

Proportion of households with high OTIs

·On average over HES 2015 and 2016 29% of households had high OTIs – that is, housing costs of more than 30% of their disposable (after tax) income. There has been little change in this rate since HES 2009.

·For the bottom two income quintiles (Q1 and Q2), the proportions were 41% and 38% respectively in HES 2015 and 2016. While these are considerably higher than a decade earlier (34% and 27% respectively), the Q1 rate has plateaued and the Q2 rise has slowed.

·Within the group of low-income (Q1) households spending more than 30% of their income on housing, there are many spending considerably more than 30%. For example, around one in four (24%) Q1 households spend more than half of their income on housing.This group makes up 60% of all those Q1 households with OTIs greater than 30%.

·From 2007 to 2016, around 15% of all households had an OTI of more than 40% up from 5% in the late 1980s.

·The figures above are national averages. There are regional differences that a relatively small sample survey like the HES cannot reliably report on when breaking down by both region and income quintile.

Average housing costs as a proportion of average income for different income quintiles

·[img src=”file:///C:UsersCHA2LA~1AppDataLocalTempmsohtmlclip11clip_image006.jpg” width=”251″ hspace=”12″ height=”163″ align=”left”>

oup from 14% in the late 1980s to 21% in HES 2015 and 2016 for under 65s overall [1]

oup from 29% to 51% on average for the bottom quintile, and 19% to 32% for Q2.

Using MSD administrative data

·In February 2016, 44% of Accommodation Supplement (AS) recipients were receiving the maximum payment, up from 25% in February 2007.

·In June 2016, almost all renters receiving the AS spent more than 30% of their income on housing costs, three in four spent more than 40% and half spent more than 50% (see Table below).

·These figures were all up on what they were in June 2007 (90%, 67%, 40% respectively).

Housing stress for AS recipients using three OTI thresholds (30%,40% and 50%)


This group as a proportion of all who receive AS

housing costs as a proportion of income






























Single adult









2 parent with dependent children









One parent with one child









One parent with 2+ children


















Source: MSD Information Analysis Platform, iMSD

·The provisions in the 2017 Budget package (higher incomes across most low to middle income households and higher AS rates and area changes) can be expected to improve these figures for the 2020 Incomes Report.

Housing quality

·Major problems with dampness and mould, difficulty with keeping the house warm, and overcrowding are all issues with housing quality that have impacts on health and wellbeing, especially for children.

·Lack of contents insurance significantly reduces the ability for people to bounce back after a fire, flood, earthquake or other misfortune, and increases economic vulnerability.

Dampness and heating issues for private dwellings

·In the HES surveys, starting with HES 2013, respondents are asked whether their accommodation had no problem, a minor problem or a major problem with (i) dampness or mould, and (ii) keeping it warm / heating it in winter.

·On average over the three surveys from 2012-13 to 2014-15:

o7% reported a major problem with dampness or mould

o9% reported a major problem with heating it / keeping it warm in winter

ofor children (aged 0-17 yrs), the figures for their households were:

-10% for a major problem with dampness and mould (~110,000 children)

-13% for a major problem with heating / keeping it warm in winter (~140,000)

-7% reporting both issues (~75,000) .

·The issues are much more prevalent in lower-income households than in middle and higher income households, and are especially concentrated in households with low MWI scores (bottom quintile) – these are households experiencing multiple deprivation across a range of basics:

oa third of these bottom MWI quintile households report “a major problem”

oaround 65-70% of those reporting “major problems” are in this lowest material wellbeing quintile, 75-80% for children (0-17 years).

·The issues are much more prevalent in rental accommodation than in owner-occupied dwellings:

o70% of those reporting a major problem with either issue were in rental accommodation, 45% in private rental and 25% in HNZC homes

oin HNZC homes one in three are reported to be hard to heat or keep warm in winter.

·In a related question, respondents were asked to what degree they had put up with feeling cold in the last 12 months as a result of being forced to keep costs down to pay for other basics. The options were “not at all”, “a little”, or “a lot”.

oOverall, 7% reported a serious problem on this issue (response = “a lot’).

oThe rates were particularly high for sole parent and beneficiary-with-children homes (22% and 30% respectively), 10% for children in all households, and 4% those aged 65+.

oThe rate for working families with children overall was only 6%, but controlling to some degree for income by looking only at the bottom income quintile (Q1), the rate is 15% for this group.

oAs there are many more low-income working families than there are beneficiary families (overall and in Q1), the numbers reporting having to put up with the cold “a lot” are fairly similar for each group. This touches on a finding that comes up several times in the reports: there is good evidence of a group of “working poor” that is about the same size as the “beneficiary poor” group.


·Living in a crowded house greatly increases the risk of transmission and experience of communicable diseases and respiratory infection. It can also mean severely reduced personal space and privacy, inadequate space for children to do homework or study, and increases the chances of relational stress.

·There is no internationally agreed measure of household crowding, but the Canadian index is used widely in New Zealand. This index uses a set of rules for determining who should and should not share a bedroom, with a crowded household being one that requires one or more extra bedrooms.A severe crowding measure uses a threshold of a need for two or more extra bedrooms.

·The Census data shows a decline in household crowding from 13% in 1986 to 10% in 2001 (using the 1+ measure). The rate has plateaued at this level in the Censuses for 2006 and 2013.

·Those of Pacific ethnicity report the highest crowding rate in 2013 (39%) though this was down from 50% in 1986. The rate for Maori declined from 35% to 19% in the same period.

·Crowding is an issue for a good number of children:

othe rate in the 2013 Census was 16% (~130,000) for the less severe measure (1 or more extra bedrooms needed) , and 5% (~40,000) using the more severe 2+ measure

o80% of those in crowded households are in households with children

o38% of children in HNZC homes live in crowded accommodation (1+ needed).

·Crowding often goes hand-in-hand with other material hardships. Around half of those reporting crowding are in the bottom MWI quintile – this figure applies to children and the population overall.

·The 2016 HES reports that around 4% of children aged 6-17 years (~30,000) did not have separate beds – the bulk of these children (80%) live in households with MWI scores in the bottom quintile (20%).

Contents insurance

·Lack of contents insurance significantly reduces the ability for people to bounce back after a fire, flood, earthquake or other misfortune. It increases economic vulnerability.

·The top line on the chart shows that the proportion of people in households without contents insurance rose from 24% in 2007 to 2011 to almost 30% in 2014 to 2016 (two-year rolling average trend-line).

·In low-income households (the bottom AHC quintile (20%)), 51% of those aged under 65 lived in households that had no contents insurance in 2007 and 2008 – this had risen to 58% in 2015 and 2016.

·At first look, there appear to be grounds for attributing the rise in the numbers without contents insurance to a temporary response to tighter household budgets for some in the GFC and associated downturn, and that the next few surveys may show a decline. This explanation does not fit well however with the information in the bottom line which shows that there is an almost flat trend for those who say that they have no contents insurance “because of the cost” and the need to have money for other basics.

·For older New Zealanders (aged 65+), the straight “no-insurance” rate (as in the top line) has been steady at 14-16% through the period. The change is occurring among those under 65.

·The report will monitor and report trends over the next few surveys.

[1] Statistics New Zealand reports that housing costs took up 16% of household income on average in the 2015 HES. The difference in the numbers occurs because (i) Statistics New Zealand uses gross (before tax) income whereas the Incomes Report uses income after tax and transfers, and (ii) the Statistics New Zealand figure is for all ages, rather thanthe under 65s as above. Both these factors lead to the Statistics New Zealand figure being lower than what is reported here.

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