I did some work looking housing affordability trajectories in New Zealand’s regions. All very techy, but essentially evidencing how 4 clustered regions have converged in their affordability. Plus, given the long period of low-interest rates, the irrelevance of interest rates in economic modelling. Interest rates matter though, granted.
Here is an excerpt of the article and link to the open-source paper.
“To identify trajectories of regional house price affordability, we apply Nagin’s (2005) trajectory regression approach to identify regions that followed similar paths of affordability over time. It is then possible to identify whether groups of regions were affected asymmetrically by mortgage interest rate adjustments and if the global financial crisis affected house price affordability differentially between groups of regions.
We reveal that the cycles of housing affordability are experienced to different extents across New Zealand with Auckland’s trajectory group (group 1) experiencing, in relative terms, a relatively flat downwards trajectory, but this should be understood in context because a reduction in affordability from 0.10 to 0.09 is associated with a reduction in affordability from an average house price that falls from 10 times its regional average salary to 11 times its regional average salary.
Group 4 (Southland only) experienced the greatest fall in affordability over this period. Southland experienced the sharpest fall in affordability before the global financial crisis from a starting position where annual regional wages were over 50% of the average house price in 2000. Although affordability fell in Southland substantially, annual wages remain greater than 20% of the average house price. House prices in this area converged towards other groups in the early 2000s (Figure 1), probably because house prices in Southland rose at a faster percentage rate than in other groups.
The results reveal commonalities across the four groupings immediately after the global financial crisis, with greater similarity in the slopes of the trajectories and even a slight improvement in affordability; during this period wages were growing faster than house prices. After these improvements in house price affordability, affordability began to drop first in the most unaffordable region (group 1) and last in the least affordable region (group 4). After their respective turning points on Figure 4, affordability continued to decline across all regions up to the end of the period under scrutiny.”