The real cost of increased living expenses
“Pandemic-era inflation” “Inflation cooling”
These are just some of the many headlines in the news about inflation or as most of us experience it, price increases for the things we buy to live, like food, rent, electricity and petrol.
Most of these headlines are about the Consumer Price Index (CPI) which then influences the Official Cast Rate (OCR) which in turn influences the interest rates paid for borrowing money from the banks, mostly to buy housing.
While the CPI serves as the primary measure for inflation, it does not account for mortgage costs. For numerous households, mortgage payments represent a significant financial commitment. Nor does it look at the distribution of inflation as it is experienced by different demographic groups in New Zealand, like those on a benefit or superannuation.
Instead, the Household Living-Cost Price Index (HLPI) captures these crucial elements in how households experience price increases. The differences between the two are currently quite considerable. In the last quarter (March 2024) while the CPI inflation was 4.0%, for most households, the cost of living was 6.0% more than the year previously.
But the cost of living also differs for different types of households. Māori households face higher living costs due to renting and living rurally or remotely with limited shopping choices, and less price competition. For beneficiaries, the cost of living rose by 5.3%, while for Māori households, it surged by 6.3% (March quarter 2024).
Household Living-Cost Price Index (HLPI) March quarter 2024 (Source Statistics NZ)
In a typical Māori household, the primary expenses usually revolve around food and rent. The decrease in food prices brings some relief to these families. However, the diminishing availability of affordable rental properties for low-income households in Tai Tokerau is concerning.
Expenditure Weights HLPI March quarter 2024 (Source Statistics NZ)
Since 2018, the affordability of a 4-bedroom house has dropped by 12%, a 3-bedroom by 14%, and a 2-bedroom by 18%. With an increasing number of people relying on benefits (300 more than a year ago), there are less affordable housing options in all sizes (2-bed, 3-bed, 4 bed) since 2018.
The current housing policies encourage excessive property investment aimed at resale profits rather than new constructions. This leads to escalating house prices and increased returns for landlords due to significant, recently reintroduced, tax benefits.
The Child Poverty Action Group has also highlighted the disparity in tax incentives, providing tax breaks for high-end rent-to-buy developments while lacking incentives for constructing affordable housing for lower-income families.
Affordability has decreased across all our local government areas:
Far North: from 62% in 2018 to 49% in 2023, a decrease of 13%
Whangarei: from 56% to 42%, a decrease of 14%
Kaipara: from 59% to 40%, a notable decline of 19%
Boosting the availability of affordable housing is crucial in the region to break the cycle of poverty. While interest rates are predicted to drop, making mortgage payments more manageable, renting has remained unaffordable since 2015 and is likely to stay that way.
Acknowledgements: Child Poverty Action Group, Regional Trends in Affordable Rental Supply 2018-2023, Greg Waite July 2024Statistics NZ, CPI and HLPI March 2024 quarter, April 2024, accessed August 2024Ministry of Housing and Urban Development