Affordability the toughest for lower-income households and FHBs
Housing affordability is now at its worst level in at least three decades, with affordability in New South Wales, Victoria, and Tasmania the toughest, according to the latest PropTrack report.
The PropTrack Housing Affordability Index, which analyses affordability and accessibility across different household income distributions, locations, and ages, found that households earning the median income can afford just 13% of homes sold in the past year – the smallest share of homes since 1995 when records began.
“Surging home prices throughout the pandemic and rapidly rising interest rates over the past year have brought housing affordability to its worst level in at least three decades,” said Angus Moore (pictured above). PropTrack senior economist and report co-author. “The situation is especially challenging for lower-income households and first-home buyers.”
In NSW, a typical-income household can afford just 7% of sold homes. For households earning $64,000 per year, they can only afford 3% of homes.
Moore said the extremely rapid increases in mortgage interest rates from the record lows in 2020, after the Reserve Bank rate hikes that began in May 2022, have resulted in the sharpest increase in mortgage rates since the mid-1980s and has reduced borrowing capacities by as much as 30%.
In order to buy a median priced home, a household earning an average income would have to fork out a third on mortgage repayments.
For existing borrowers, which make up around a third of Australian households, the sharp increases in mortgage repayments have seen a typical recent borrower facing repayments as much as 50% higher than in early 2022.
“In August, home prices rose for the eighth consecutive month,” Moore said. “This means there are now far fewer homes for which mortgage repayments are affordable than was the case over the past few years.
“Household incomes have risen since the pandemic and improved labour market conditions have drawn more people into employment and boosted wages growth. However, this has been insufficient to offset higher home prices and, critically, the surge in mortgage rates.”
Below are some additional findings from the PropTrack report:
- Affordability has decreased for all households, but incredibly more so for 25–34-year-olds who can afford fewer than 30% of homes.
- Housing accessibility – how long it takes new buyers to save a deposit – has become even more challenging than pre-pandemic due to sharp home price growth and has become a substantially larger hurdle today than it was in previous decades.
- Saving a 20% deposit on a median-priced home would require the average household to save 20% of their income for more than five-and-a-half-years.
- Queensland and Western Australia remain the most affordable states, which may continue to drive demand for homes.