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Housing affordability in Australia has improved over the June quarter, reaching its most favourable levels in 20 years, according to the latest Housing Industry Association (HIA) report.
It found that all eight capital cities of Australia saw an improvement in the affordability index over the quarter, with Darwin seeing the greatest improvement — its index was up by 4.8 per cent.
This was followed by Melbourne (up by 3.0 per cent), Perth (up by 2.6 per cent), Brisbane (up by 2.6 per cent), Sydney (up by 2.4 per cent), Canberra (up by 2.4 per cent), Hobart (up by 2.2 per cent) and Adelaide (up by 1.0 per cent).
HIA’s Affordability Index is calculated for each of the eight capital cities and regional areas on a quarterly basis, taking into account the latest in dwelling prices, mortgage interest rates and wage developments.
HIA senior economist Geordan Murray said the combination of lower home prices, improvements in wage growth and lower interest rates has contributed to the ongoing improvement for the quarter.
“It may be too soon to talk about a recovery in dwelling prices, but the correction that has occurred in the Australian housing market, combined with a rise in incomes and lower interest rates, has delivered a substantial improvement in housing affordability,” he said.
“For a home buyer with an average income purchasing a median-priced dwelling (assuming a 10 per cent deposit), mortgage repayments will consume the smallest proportion of their earnings since 1999.”
The main reason that the HIA Affordability Index today is comparable with the level in 1999, despite house prices rising significantly faster than incomes, is that interest rates are 4.6 per cent today compared with 6.7 per cent in 1999, Mr Murray mentioned.
“Of course, things are a little different now to how they were back in 1999. Back then, the median dwelling price was $190,978 compared to $538,837 now, and the annualised earnings of an adult working full-time has increased from $39,703 in 1999 to an estimated $84,611 today,” he said.
“Average earnings have increased by 113 per cent over the 20 years to 2019 while the median home price has increased by 228 per cent, but the lower interest rates have kept the cost of servicing a loan the same.”
According to Mr Murray, there are also a number of initiatives that do not feed into the index that will assist with first home buyers entering the market.
“The reduction in income tax, the easing of APRA restrictions on mortgage lending and the Australian government’s First Home Loan Deposit Scheme are likely to be important considerations for households,” he said.
“[But] despite a significant improvement in affordability, Sydney remains the least favourable market in the country, requiring 1.8 times the average income to service a mortgage on a typical Sydney home.”
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