- 16 Dec, 2020

Did COVID-19 restore housing affordability?

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According to HIA, housing is more affordable now than ever before in over 20 years. Despite this, evidence suggests it may not necessarily be any easier to get a house.


The HIA Affordability Report for the June quarter, 2020 showed housing is currently the most affordable it’s been since 1999. The report revealed a 5.6% jump in the HIA-Housing Affordability Index for capital cities (83.4%).

“This improvement in affordability means that it now requires less than 1.2 average incomes to service a mortgage on a median priced dwelling in Australia’s capitals,” the report stated.

“This is a rapid improvement from just three years ago when it required more than 1.4 times the average income to service the same mortgage.”

HIA found a combination of lower interest rates, slow house price growth and steady wage growth was responsible for improved affordability.

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AMP Capital chief economist and head of investment strategy and economics, Dr Shane Oliver believes the Coronavirus might have been the push Australia needed to improve housing affordability.

He believes the downturn in property prices combined with unemployment, sustained low levels of immigration and a shift to working from home will all impact housing affordability, even as Australia begins to recover.

“We are still fighting the war against coronavirus but it’s likely, as we have seen with various shocks in the past, we will get over it, and go back to something more normal,” Dr Oliver said in his analysis.

“But not everything will go back to normal. A lasting impact could be more affordable housing in Australia.

“It’s not our base case that this will come in the form of a property crash … but it could come in the form of much softer property price gains over time (after the initial hit into next year).”

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Property values recovering but supply short

While COVID-19 did dampen house prices, new data from CoreLogic suggests home values are recovering.

The property data and analytics company recorded a 0.4% rise in its home value index. It was the first overall price rise since the start of the pandemic.

Growth was recorded overall, with Melbourne the only capital city not to experience a rise in property values.

CoreLogic Home Values Index October
Source: CoreLogic

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The Home Value Index report also found low stock levels compared to buyer demand.

“The number of new listings added to the Australian housing market over the past four weeks rose by 25.2%, while total stock levels grew by less than 1%,” the report said.

“Persistently low total stock levels in the face of surging new listing numbers point to a strong rate of absorption, as buyer demand exceeds advertised supply levels.”

Gold Coast based buyer’s agent for LID Property Group, Caleb Gray, has seen the impact of low stock levels firsthand.

“There has been an overwhelming demand for property nationwide and here on the Gold Coast,” he told eChoice.

“Good properties have been going under offer within a few days and many interstate investors are buying sight unseen. This is majorly due to record low stock levels across the nation.”

Sunshine Coast based buyer’s agent Jo Yates says high demand is making it hard for both first home buyers as well as those looking to get into the rental market.

Overhead view Sunshine Coast Property

“I’m on the Sunshine Coast and it is pretty much impossible to get a rental now,” she told eChoice.

“First time buyers are struggling up against people migrating from Sydney & Melbourne.”

Despite supply issues, AMP’s Dr Oliver believes there’s potential for oversupply to become a future issue – which would have an impact on the housing market.

He told the ABC that annually, around 150,000 properties are added to the housing supply. At the same time, he said lower migration has reduced the demand for dwellings to 80,000.

“So there’s potential oversupply, and that’s what ultimately could unwind the property market,” Dr Oliver said.

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Buying could be cheaper than renting

Drawing in favour of increased housing affordability, in some parts of Australia data suggests it could be cheaper to buy than rent.

A new report by Aussie and CoreLogic found in just over half of Australian suburbs, the cost of servicing a home loan could be less than paying rent.

“Right now, 8 million Australians rent their home – and they’re renting for longer. Today’s low rates coupled with generous first home buyer incentives, could be the key that allows aspiring homeowners to break out of the rent cycle and into their own home,” said Aussie CEO James Symond in the report’s forward.

“No more ‘dead’ rent money, no more restrictions on what they can or can’t do to the place, and no more stress about what happens when the lease ends.”

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Based on a three-year fixed rate scenario for houses, Aussie found it was cheaper to buy than rent in 52.2% of Australian suburbs. This was up from 39.9% a year ago and 0.4% of suburbs a decade ago.

For units, results were even more in favour of prospective buyers. Almost 60% of Australian suburbs recorded it was cheaper to buy than rent (59.1%). This was an increase on the figure’s 45.6% one year ago and 0.1% ten years ago.

The results were based on a 2.35% p.a. fixed rate mortgage with principal and interest repayments.

In capital city markets, 34.7% of capital city suburbs recorded lower monthly mortgage fees when paying via a three-year fixed rate mortgage, though the results varied across capitals.

Under the fixed rate scenario, it was cheaper to buy than rent in 5.3% of Sydney suburbs. In Melbourne this was 1% of suburbs. Under a 3.65% discounted variable rate scenario this applied to no Sydney or Melbourne suburbs.

In Darwin, the report found it was cheaper to service a mortgage in all suburbs under the fixed rate scenario. Under a 3.65% p.a. discounted variable rate, this was found to be true for 82.6% of Darwin suburbs.

Brisbane, Adelaide, Perth, and Hobart markets were all found to have cheaper loan servicing fees in over 50% of suburbs.

Compared to capitals, a larger proportion of regional areas were found to be cheaper to buy than rent a home. Under the fixed rate scenario, it was cheaper to buy a house in 79.8% of regional suburbs. Under a 3.65% discounted variable rate, this represented 58% of suburbs.

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Words by Kathryn Lee

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