- 10 Dec, 2015

The Facts About Housing Affordability in Australia

Many economists are suggesting that slow growth in household income and a steep increase in property prices has decreased home affordability further. In fact, the current rate of housing affordability is less than it was 12 months ago.

According to the Housing Industry Association (HIA), housing affordability decreased by 4.0% over the last quarter. This is 2.1% less than this time last year.

Housing Affordability is Decreasing in Capital Cities

Housing affordability in capital cities has decreased by 3.6% say the HIA, compared to last years data. Housing developments in capital cities had an even lower rate of affordability with a decrease of 4.1% being recorded when compared to the same time last year.

While the Reserve Bank of Australia (RBA) have kept the official cash rate low this has only given home buyers a temporary respite from reduced home affordability. This is due to home prices continuing to rise and wages not keeping pace.

New Housing Construction and Affordability

During 2014 to 2015, over 200,000 new dwellings began to be constructed in Australia. This was a record amount, which helped to increase housing affordability in some property markets around the nation. However, home loan rate rises made by Australias major banks is said to have added to affordability woes, as many home loan holders now have to find more to meet their mortgage repayments.

In terms of growth, Victoria is said to be the fastest growing state, over taking New South Wales for the first time since 2008. Victoria’s construction boom saw a 9.8% rise occur in building work during the year.

An increase in population is said to be the biggest contributor to Victoria’s increase in building with the population of this state growing by 1.7% over the last 12 months. In comparison, New South Wales recorded a 1.3% growth in population.

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Australian’s Thoughts on Property Affordability

According to a recent survey on housing and the property market, just over 55% of respondents felt that current market conditions represented a good time to buy property. In June, 60% of respondents felt it was a favourable time to buy property. Sydney based respondent were pessimistic about home buying with only 29.7% saying it was a good time to buy. This was attributed to Sydney having some of the most over-inflated home prices in the Australian market.

The number of survey respondents who thought that dwelling prices will rise over the next 6 months is continuing to fall. 49% of respondents said home prices would rise in March, 48% in June and just 40% in September. 70% of respondents thought buying a home was most favourable in the Australian Capital Territory, Adelaide, regional Queensland and Perth.

In terms of price, property values across the nation have stagnated during October. Capital city prices, according to CoreLogic RPData, increased by 0.2% over the month, recording a marginal increase of 1.4% over the quarter.

Sydney prices rose by 0.3% during the month and by 1.5% over the quarter. Melbourne rose 0.6% during the month and by 3.1% over the quarter. Auction clearance rates in Melbourne and Sydney also fell to their lowest levels in the last 12 months. Average clearance rates in Sydney sit around 62% compared to 80% a few months back, and Melbourne sits at 70%.

It is expected that the recent rate rises made by Australia’s major banks will have an impact on buyer confidence during December and in early 2016. Changes to investment lending has also had an impact with investors, being slugged twice with a rate hike over the last 4 months by the majors. In addition, lending standards have tightened and borrowers now require a larger deposit to buy property.

Rental Yields for Investors

Rental yields in Sydney and Melbourne are also lower due to the high price of property in these areas. This is also acting as a further disincentive for investors to buy in these areas. With investors now paying more for their mortgages and rental income being lower, property experts are saying the growth cycle in Sydney and Melbourne has peaked.

The gross rental yields for Melbourne and Sydney for houses and units are the lowest in Australia at 2.9% and 3.1% respectively. Both cities recorded a 4.1% yield in apartment rentals.

Economists are suggesting that both Sydney and Melbourne were entering a soft period that may linger for some time. While interest rate hikes by major banks have slowed buying further, it is highly unlikely that RBA cuts would spur on greater buyer activity. This is due to property price drops being expected to occur throughout 2016 and 2017.

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