Depth of housing affordability crisis revealed

The chasm between average incomes and average home prices in Australia continues to widen, according to a new report from PowerHousing Australia and CoreLogic.

The Australian Affordable Housing Environmental Scan 2017-18 examines the key metrics for housing affordability across Australia. The report also highlights the urgent need to implement new measures, such as those announced in the recent federal and NSW state budgets, to improve access to the housing market, especially for people on lower incomes, such as first-home buyers, key workers, seniors, and tenants of social housing. 

“The report shines a light on just how acute the housing market participation challenge is for low-income earners, for both renters and those looking to become homeowners. The situation for first-home buyers is particularly dire today,” said Nicholas Proud, CEO of PowerHousing Australia.

“First-home buyer rates have continued their two-decade-long downward trend. Over the past five years, the average loan they take out has increased by less than $9,000, while the average dwelling price has gone up by $120,000 nationally and $317,300 in Sydney over this period.”

Tim Lawless, CoreLogic’s head of research, said the report also shows that there are some encouraging indicators on the affordability front, even though risk factors remain.

“Low interest rates, strong lending finance, a surge in building approvals and subsequent record-high dwelling commencements and completions are all positive signs for affordability,” Lawless said. “Australia has never built as many homes as the number being built today; however, there needs to be a sustained level of building over and above the 10-year average rates for there to be a consistent and meaningful improvement in housing affordability, particularly in Sydney.”

While incomes in Sydney are on average higher than in other parts of Australia, dwelling prices are more than eight times the median income in Greater Sydney, with up to 45% of annual gross household income required to service a loan with an 80% loan-to-value ratio (LVR).

“As values have increased over recent years, the supply of housing at lower price points has decreased substantially. In Sydney only 3.5 per cent of houses sold over the 12 months to February 2017 transacted for less than $400,000 – this figure was 25.8 per cent of all annual home sales in Sydney five years ago,” Lawless said.

“Population growth, driven by high net overseas migration and the ongoing strength of household formation rates has created strong demand for housing, which attracts the risk of continued house price increases, despite the record levels of dwelling delivery.”    

Policy levers have a significant impact

Despite all this sobering data, the report claims all hope isn’t lost. “What is equally clear from this analysis of the data is that policy levers available to governments at all levels can and do have a significant impact,” Proud said.

The federal budget measures for housing, which were announced in May, promise to provide some respite for those experiencing rental stress, or are struggling at the higher end of the mortgage-to-income ratio scale.

“It is clear [from past regulatory measures] that housing policy can influence and drive activity into areas of the housing market and boost the provision of  housing,” Proud said.