Residz Team 4 min read
In a “pizza” bad news for younger home buyers, PropTrack’s Housing Affordability Index is out and it describes its findings as “alarming.”
PropTrak says housing affordability has “deteriorated to levels not seen before” and is now “at the worst level in at least three decades.”
It also says further home price growth “will continue to pose affordability challenges for current generations and those to come.”
It’s sobering news for first home buyers, especially those in New South Wales, Tasmania, and Victoria, who face the toughest housing affordability. Here’s a summary of the report.
Stark turnaround since 2020/21
If you’re hearing lots of concerned conversations about the cost of buying a home this year especially, it’s for a good reason.
PropTrak’s Housing Affordability index shows that by June 2023, households across the income distribution could afford the smallest share of homes since 1995, when PropTrak’s records began.
It’s a contrast to the relative affordability of homes enjoyed after the Global Financial Crisis, through to the low-interest environment in the post-pandemic years of 2020/21.
Back then, a median income household ($105,000 a year) could afford 40% of homes sold across Australia. Now they could afford only 13% of homes sold in the past year.
Even households earning $200,000 per year can afford only about half of homes that were sold over the past year.
Meanwhile, an average-income household would need to save 20% of their income for more than 5.5 years to save a 20% deposit on a median-priced home.
Pervasive problem of affordability and accessibility
The Housing Affordability Index shows rising interest rates, escalating construction costs, and increasing house prices have created a gap between the home “haves” and “have-nots.”
The current market conditions make buying a home unaffordable and inaccessible, and it’s disproportionately affecting first home buyers, the report says.
“Residential building approvals have hit their lowest level in a decade, while new low-rise apartment blocks are nearly non-existent and medium-density development has not kept pace with Australia’s growth,” says PropTrak.
“At a minimum we need to streamline planning to fast track more medium density housing,” it says.
It also says mortgage interest rates are up so much that a typical recent borrower faces repayments as much as 50% higher than in early 2022.
At the same time, home prices are down only slightly from their post-pandemic highs.
“There are now fewer homes for which mortgage repayments are affordable for a given income than was the case over the past few years. This is a key driver of the deterioration in affordability,” says PropTrak.
Affordability highest for peak working ages
If you’re aged 35 to 54 you have a slightly better chance of being able to afford to buy a home in Australia. That’s because affordability is highest for households in these peak working ages.
PropTrak says the average 35 to 44 year old household can afford just under 40% of homes sold across Australia, while a typical 45 to 54 year old household can afford just over 40%.
However, an average 25 to 34 year old household could afford fewer than 30% of homes sold in 2022 to 2023.
You can see how this is affecting the number of first home buyers entering the market. In the first half of 2023 there were only half as many first-home buyers as there were two years earlier.
“While lending to first home buyers has increased a little in recent months…..strained affordability suggests…..[they] will continue to struggle to break into the market,” says PropTrak.
The worst three for affordability - NSW, Tas, Vic
As we said earlier, New South Wales, Tasmania and Victoria have the lowest housing affordability in the country.
NSW
Of the three, NSW is the worst of all. Mortgage repayments in NSW make up just under 40% of an average income - the highest in any state - and the time to save a deposit is longer too.
VICTORIA
Victoria’s housing affordability has worsened markedly over the past 12 to 18 months. A household earning an average income would need to spend 35% of their income on mortgage repayments to afford a median priced home.
TASMANIA
Meanwhile, Tasmania has moved from being one of Australia’s most affordable states through most of the 2010s to now the second-least affordable state in Australia, according to the index.
It shows that as recently as 2016-17 a median-income household could afford almost half of all homes sold across Tasmania. Today, thanks to surging home prices, they can afford just 5%. The issue is compounded by the fact Tasmania has the lowest average income across states.
Slightly better for affordability (just) - Qld, WA, SA
With rising interest rates and a lift in house prices, fewer and fewer homes around Australia fall into the affordable bucket for most people. However, three states are doing a bit better than NSW, Victoria and Tasmania.
WESTERN AUSTRALIA
Western Australia is Australia’s most affordable state, shows PropTrak, but even its affordability has gotten worse thanks to rising interest rates. Nevertheless, affordability in WA remains better than it has been historically (during the mining investment booms).
Home prices in Perth are up just 24% since 2010, and just 8% in regional WA, compared with 93% nationally.
With high average wages, the time needed to save a 20% deposit for a median-priced home has fallen to under 4 years.
QUEENSLAND
Queensland’s affordability remains more favourable than in the mining boom of 2007-08, though it has deteriorated in the past two years.
While prices have surged in many parts of Qld, it remains more affordable than all other states except Western Australia. A household earning an average income (around $115,000) can spend 31% of their income to afford mortgage repayments on a median-priced home.
SOUTH AUSTRALIA
South Australia’s housing affordability has never been worse, with home prices surging 50% since early 2020 in both Adelaide and regional areas.
Mortgage payments for a median-priced home in South Australia (just under $680,000) have surged to 35% of average household income, the highest on record.
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