Affordability Report

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Updated: November 20, 2018

Easing house price pressures continue to provide some affordability relief for home buyers.

Following a number of years of strong growth that had eroded affordability for home buyers, price growth is levelling off and in some markets, prices are declining. National dwelling prices were unchanged over the June 2018 quarter and up by just1.9 per cent over the year.

The house price cycle has played an important role in signalling changing levels of demand to the building industry. Namely the strong price increase of recent years was met by an unprecedented level of building, which is now starting to come online. This is helping to reduce the price pressures in key markets and ultimately improving affordability for home buyers and renters. By the same token with prices now coming off the boil, so too has the level of new home building.

The demand side of the price cycle is also a key element of affordability. The strong upswing in dwelling prices was underscored by very strong population growth – additional heads requiring additional roofs. The more recent slowdown in population growth is an integral part of the downturn in dwelling prices and therefore improvements in housing affordability.

This edition of the Affordability Report revisits analysis of dwelling prices in relation to rents so as to assess the degree of balance in housing supply and demand in each capital city housing market and how this has evolved over recent months. The balance or otherwise of a housing market is a fundamental driver of dwelling prices and consequently, affordability.

The analysis shows most markets are evenly balanced. In Sydney and Melbourne in particular, the current downturn in prices is unlikely to be prolonged or severe given what previous cycles have demonstrated and that there is an underlying balance in these markets. But in the meantime declining prices will continue to drive improvements in affordability for home buyers in these markets that have been historically among the least affordable.

Perth and Darwin are the outliers where both rents and dwelling prices are falling amid the ongoing fallout from the resources boom and bust cycles. While this improves affordability for both home buyers and renters, it is symptomatic of wider economic problems and in particular slowing population growth. The weak economic conditions in both of these cities are seeing more people leave for interstate than are arriving.

SUMMARY OF HIA AFFORDABILITY REPORT RESULTS – JUNE 2018 The HIA Affordability Index registered 74.9, up by 0.4 per cent over the quarter and up by 0.8 per cent compared with the June 2017 quarter, when affordability had reached its poorest level in nearly six years.

At $555,323, the estimated national median dwelling price gives rise to a monthly mortgage repayment of $2752, given current interest rate settings. Such a repayment would account for 40.1 per cent of an average wage. This is well above the 30 per cent threshold, what is typically considered a share of income that is affordable. For a household to meet that affordable threshold, it would require 1.4 average earnings to do so.

To summarise the overall results in affordability across the states; over the year to June 2018, five of the eight capital cities saw improved affordability. The greatest improvement was in Darwin (+7.4 per cent) followed by Sydney (+6.8 per cent) and Perth (+6.2 per cent). There were minor improvements in both Brisbane (+2.1 per cent) and Canberra (+1.0 per cent).

The largest deterioration in affordability over the last 12 months occurred in Hobart (-10.5 per cent). Affordability also moved backwards in Adelaide (-1.7 per cent) and Melbourne (-1.3 per cent).