Housing affordability hits new low since global financial crisis

The Australian housing market is facing a crisis of affordability, with new data revealing that housing costs have reached their lowest point since the global financial crisis in 2008. According to the Real Estate Institute of Australia (REIA) Housing Affordability Report (HAR), housing affordability has declined by almost 14% over a 20-year period and 12.4% over the past decade.

The Reserve Bank of Australia (RBA) has been steadily increasing interest rates, with a four-percentage-point hike since May 2022, bringing the rate to 4.10%. While the RBA paused further hikes in early September, it hinted that more tightening may be required to keep inflation in check. This monetary policy has had a direct impact on housing affordability, as the proportion of income required to meet the average loan repayment has risen to 45.9%.

The REIA report also showed that the median income to home loan ratio declined in all states and territories except Victoria. Mortgage unaffordability was most pronounced in New South Wales, where 56% of median income is required for loan repayments, followed by Victoria at 46.5%, Tasmania at 43.5%, Queensland at 42.4%, South Australia at 42.1%, Western Australia at 35%, the ACT at 34.8%, and the Northern Territory at 34.4%.

Interestingly, the ACT saw the smallest decline in affordability, with the proportion of income required for loan repayments increasing by just 0.1 percentage points. In contrast, the Northern Territory had the highest decline, with the proportion of income required increasing by 1.6 percentage points. Victoria was the only state where housing affordability improved, albeit marginally, as the proportion of income required for loan repayments decreased by 0.1 percentage points.

First home buyers (FHB) are also feeling the pinch, despite a 17.1% rise in their numbers during the June quarter compared to the previous period. This increase is down 15% compared to the June quarter of 2022. The average loan size for FHBs has risen to $492,587, up 2.6% over the quarter and 2.7% over the past 12 months.

Rental affordability is another area of concern. The proportion of income required to meet median rent nationally has increased by 0.3 percentage points to 23.3%. While rental affordability has declined in larger states like New South Wales, Victoria, Queensland, and Western Australia, it has improved in other states. Tasmania remains the most unaffordable state for renters, with a rent-to-income ratio of 27.3%, followed by New South Wales at 27%, and the Northern Territory at 25.5%.

REIA president Hayden Groves noted that there has been a “chaotic campaign” to introduce rent freezes and rent controls by political stakeholders. However, the National Cabinet has decided against such dramatic market interventions, citing economic arguments. Groves emphasised that the challenging times for renters are mostly due to a fundamental lack of rental availability.

Groves also stressed the importance of putting the current housing conditions into context, especially when considering policy responses. He pointed out that for Australian households on median incomes, housing affordability has declined significantly over both a 20-year and a 10-year period. In comparison, rental affordability has declined by a much smaller margin over the same periods.

As Australia grapples with these affordability challenges, the data serves as a wake-up call for both policymakers and the public. With interest rates on the rise and incomes failing to keep pace with housing costs, the dream of homeownership is becoming increasingly out of reach for many Australians.