Moody's Investors Service says that the poor state of housing affordability in Auckland -- despite a recent improvement driven by rising incomes and low interest rates -- is credit negative for New Zealand covered bonds.

"Rising household incomes and record low interest rates have prevented a deterioration in housing affordability in New Zealand over the past year, including in Auckland, the country's largest city," says Karen Burkhardt, a Moody's Associate Analyst.

"However, high housing prices in Auckland -- which accounts for a large proportion of mortgage loans in New Zealand cover pools -- mean that new home owners in the city are spending on average close to half of their monthly income on mortgage repayments, making it considerably less affordable than any other region in the country," adds Burkhardt.

Moody's conclusions were contained in a just-released report on New Zealand covered bonds, "Auckland Housing Affordability Remains Poor Despite Improvement".