Rising interest rates and surging home prices have seen Australian housing affordability crash to its lowest levels in decades, according to a new report.
A household earning the median income of $105,000 can now only comfortably afford 13% of homes on the market, the lowest share since the relevant data was first collected in 1995, according to property data company PropTrack.
Three years ago, the median income household could afford almost 40% of homes – which includes houses and units – for sale.
“It has been an enormous paradigm shift,” said Paul Ryan, senior economist at PropTrack.
PropTrack’s Housing Affordability Report assumes that a house is affordable if a median household does not need to spend more than 25% on mortgage payments after putting down a 20% deposit.
In New South Wales a median income household can only do that for 7% of home sales in 2022-23. In Victoria it’s 9%, Queensland 16%, South Australia 13%, Western Australia 22%, Tasmania 5%, the Northern Territory 46% and ACT 13%.
A median income household now needs to spend about one-third of its income on mortgage repayments to buy a median-priced home – the highest level since 1990.
Ryan said: “Throughout the pandemic, when interest rates decreased, it was a great time for housing affordability and saw record numbers of first time buyers entering the market since 2008.
“Since interest rates have increased and home prices have gone up, the data shows us how few homes are affordable. It’s quite astounding.”
The time it takes to save for a deposit is also at near record highs. If a household on the median income saved 20% of their earnings, it would take almost six years to gather enough money for a 20% deposit on a median priced home.
Low- and middle-income households were facing “incredibly stretched” conditions, the report says. A household earning $64,000 a year could now afford only 3% of homes on the market.
The rapid fall in the ability of Australians to buy a home comes alongside a crisis in rental affordability, where the proportion of income needed for lease payments is at its highest since June 2014.
Since the affordability crash, Ryan said most home purchases were coming from buyers already in the market using the increased value of their homes to upgrade. Figures released yesterday by CoreLogic showed house prices increasing for the sixth consecutive month.
“Something has to change,” Ryan said. “If the Australian dream is moving into home ownership then the way we can push prices down is by building more homes, rather than asking how we can throw money at first home buyers in the short term.”
Maiy Azize, a spokesperson for Everybody’s Home, a coalition of housing, homelessness and welfare organisations, said Australia was becoming a country where “only the most wealthy can avoid housing stress”.
For families on lower incomes, the small percentage of homes they could technically afford – such as one bedroom units – were likely unsuitable, she said.
And although one million homes have been built in the last 10 years – outstripping population growth – she said governments had played almost no role in making those homes affordable, with tax settings favouring investors, rather than people looking to buy a house to live in.
Earlier this week, the Real Estate Institute of Australia (REA) said new ABS figures showing a 17-month low in inflation suggested the RBA should not need to further raise interest rates.
But the REA president, Hayden Groves, said there remained sustained pressures in the real estate market.
“New dwelling prices rose 5.9% in the 12 months to July, reflecting stubbornly high labour and material costs,” he said.
“However, the rate of price growth is easing due to a softening in new demand and improvements in the supply of materials.
“Rent prices edged up to 7.6% in the 12 months to July 2023, up from 7.3% in June, reflecting increasing demand for rental properties and tight rental markets across the nation.”
