The great Australian squeeze: how home loans are eating up nearly half your income

The Australian dream of owning a home is becoming increasingly elusive for many, as a new report reveals that the average home loan now requires nearly half of an Australian’s median income. According to the Real Estate Institute of Australia’s (REIA) Housing Affordability Report (HAR), maintaining average loan repayments costs the average Australian 46.9% of their earnings.

The report, which covers the three months leading up to June 2023, shows a decline in housing affordability across almost all states and territories. New South Wales tops the list as the worst jurisdiction for mortgage affordability, requiring 56% of the median income for average loan repayments. It is 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%.

Hayden Groves, REIA president, pointed out that the ACT had the smallest decline, with the proportion of income required for loan repayments increasing by just 0.1 percentage point. On the other end of the spectrum, the Northern Territory saw the highest decline at 1.6%. Groves stated that homeowners with a mortgage continue to face challenges due to increased interest rates, adding that Australian housing has reached “the lowest affordability on record since 2008.”

But it’s not just current homeowners who are feeling the pinch. The report also highlighted that first home buyers are regaining confidence in the market, with their numbers rising by 17.1% during the June quarter. While this may seem like a silver lining, it raises questions about the sustainability of such confidence in the face of declining affordability.

Renters are not immune to the national unaffordability crisis either. The proportion of income required to meet median rent has also increased, albeit slightly, by 0.3 percentage points to 23.3%. Groves noted that low supply levels and tight vacancy rates are making it a challenging time for renters. This is mostly due to a fundamental lack of rental availability, although Groves was quick to point out that “rental affordability didn’t worsen significantly over the June quarter.”

In terms of rental affordability, Tasmania was identified as the nation’s most unaffordable rental market, with a rent-to-income ratio of 27.3%. It was followed by New South Wales at 27% and the Northern Territory at 25.5%. In contrast, the ACT had the most affordable rental market with a rent-to-income ratio of 19.7%.

Groves emphasised the importance of context when discussing the current market conditions. He revealed that housing affordability for Australian households on median incomes has declined by 13.6% over a 20-year period and 12.4% over the past 10 years. In comparison, rental affordability has only declined by 1.3% over 20 years, 0.9% over 10 years, and 0.5% over the past five years.

While the figures vary across different Australian markets, the overarching theme is clear: both homeowners and renters are grappling with a tightening cost-of-living squeeze. As policymakers consider their next steps, these statistics offer a sobering look at the challenges facing Australians in their quest for affordable housing.