Australians have for a long time wanted to own their own little bit of the continent but this is becoming an unachievable dream as home affordability has deteriorated to levels not seen previously. The gap between those that own their own property and those that don’t is growing and is getting larger. This gap is also forecast to grow in the years ahead. PropTrack has released their latest Housing Affordability Index which demonstrates how large the problem of affordability and accessibility is, with first-home buyers disproportionately affected by current market conditions. The report shows that New South Wales continues to rank as the least affordable state with the median home price exceeding one million dollars in Sydney.
Highlighting the alarming state of housing affordability at current interest rates, a household earning the median (or typical) income in Australia can now afford just 13% of homes sold across the country. This is the lowest share since records began in 1995. Even high-income households, earning $200,000 a year — i.e. earning more than 80% of Australians — are facing strained affordability. These households could afford loan repayments on only about half of homes that were sold over the past year.
Homebuyers in New South Wales face the toughest housing affordability of any state, according to the PropTrack Housing Affordability Index, a situation that has been true for most of the past three decades. While buying a home in New South Wales has always been challenging for
low-to-middle income households, the rapid increase in interest rates since early 2022 has made it especially so. A median income household in New South Wales could afford just 7% of
home sales in 2022-23. A low-income household with income at the 20th percentile could afford effectively no homes across the state at current interest rates and home prices. Repayments for a median priced property in New South Wales would cost a household on the median wage 40% of this, this is the highest in any state in Australia. As discussed in a previous article it is not the rate of interest that is the problem it is more the amount of the loan that is the issue here.
The deposit for a property in New South Wales is a very large barrier to entry for first home buyers. At the median house price of just over one million dollars a first home buyer would need to save 20% of their income for five and a half years. With the forecast increase of house prices by Domain of between 6% and 9% over the coming financial year then saving a deposit will continue to be a struggle for most first home buyers.
Another driver of increasing house prices is the level of immigration to Australia. Domain has reported that new entrants to Australia have typically rented but given the tight rental market they are resorting to buying and competing with first home buyers.
The National Cabinet agreed in August 2023 to build 1.2 million houses in well located areas over a five year period but the issue experts say is this will not be enough to address the shortage. Will this target be met given the ongoing issues with supply chains and the number of builders that are going into liquidation. The other issue is that when governments get involved in doing these types of projects it always appears to take longer and the costs blow out to unbelievable levels.
Sources: Proptrack Affordability Report 2023
Domain Forecast Report Financial Year 2023/24
