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A new report has indicated that housing affordability is improving, but not for the long-term.
Alternative reports released this week from the June quarter suggested that affordability in Australia was continuing to decline.
However both reports agree it is currently much more affordable to rent than it is to make mortgage repayments.
CoreLogic’s Housing Affordability Report looks at sectors such as rental to ownership, with comprehensive measurement across varying factors including the ratio of home price to household income, the challenge of saving for a deposit, mortgage serviceability and how much household income is required to pay the rent.
National results indicate that as at June 2018 the price to income ratio was measured at 6.81. This was a modest reduction from the March 2018 quarter when the national dwelling price to income ratio reached a record high of 6.84.
Across the broad dwelling types, the ratio of house prices to household incomes was recorded at 7.1 times, down slightly from the March quarter. The unit price to household income ratio was recorded at 6.2, which was well down from its 6.6 times peak in late 2015 through to early 2016.
Commenting on the findings, CoreLogic head of research Tim Lawless said, “Affordability from a ‘share of income required for mortgage payments’ shows improvement.
“In June 2018, the repayment on an 80% LVR mortgage required 36.3% of gross household income (37.6% to service an 80% LVR mortgage on a house and 26.9% for a unit); a substantially lower share compared with ten years ago when households were dedicating an average of 51.0% of their gross income towards paying the mortgage.
“This servicing reduction is partly because discounted variable mortgage rates have almost halved over the past ten years, from 8.85% in June 2008 to 4.50% in June 2018.
“At its peak a decade ago, a repayment on a house required 52.4% of household income and a unit required 48.7% of household income.”
For those wanting to save for a deposit to buy a home, the results say the national average time it takes to save is 9.1 years for the typical household.
Five years ago it took eight and a half years to save a 20% house deposit and 8.3 years for a unit. A decade ago it took 8.8 years and 8.2 years respectively.
For renters, both house and unit rents currently cost 26.9% of gross household income.
In fact, stronger income growth relative to rents has pushed the national ‘rent to income ratio’ to its lowest level since September 2007.
Even at their peak, rents required less than 30% of gross household income.
According to CoreLogic, the relatively healthy rent to household income ratio can be attributed to the low rate of rental price appreciation.
National weekly rents have risen only 2.9% per annum over the past ten years, while household incomes have tracked 3.1% higher per annum over the same period.
Capital city affordability
At a national level, the past ten years has seen worsening housing affordability, fuelled primarily by strong growth in property prices across Sydney, Melbourne, regional NSW and more recently Hobart.
Australia’s two largest cities of Sydney and Melbourne do have a strong influence over the national trends, but outside these markets, property price growth has been limited and in many areas housing affordability has been improving with rising incomes and falling mortgage rates.
Throughout the individual capital cities, on every measure except rental affordability, Sydney is overwhelmingly the least affordable housing market, followed by Melbourne.
Property prices in both cities are now falling, resulting in some moderate improvement in affordability, but both remain significantly less affordable than other capital cities.
Darwin is a much more affordable housing market than all other capital cities due to high incomes and an ongoing decline in property prices. Canberra is also more affordable than most other capital cities again due to high household incomes.
For renters, Hobart is now the most unaffordable market. The past twelve months alone have seen Hobart rents rise by 10% while household incomes only climbed 2%.
At the other end of the rental affordability spectrum is Darwin, where rents have fallen substantially over recent years whilst household incomes have pushed higher.
Regional areas affordability
Regional NSW is much less affordable than all other regional markets due to the strong price growth over recent years.
Regional QLD is the second least affordable Australian regional market, due to relatively high prices in large markets such as the Gold and Sunshine Coasts.
Regional areas of SA and WA are Australia’s most affordable regional markets due to ongoing property price falls since the end of the mining boom.
