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How has recent house price growth affected affordability?

It has long been the quintessential Australian dream to own your own home however; a combination of factors has lead to a sharp deterioration in the affordability measure for several Australian capital cities.

Strong population growth over the past decade has also put pressure on the availability of housing and this is likely to continue. So, what does this mean for affordability?

Housing price movements

The decline in housing prices between mid-2017 and mid-2019 helped to ease affordability constraints observed in some markets; particularly Sydney and Melbourne however, these gains are rapidly deteriorating with prices again rising sharply over the 3rd quarter of 2019.

Interest rates and wage growth

Lower interest rates and easier access to credit are supporting the outlook for housing prices, but the problem of persistently low wage growth remains.

Household spending

According to Core Logic [1], the typical Sydney household is now spending 8.2 times their gross annual household income in order to purchase the median value dwelling; up from 6.6 ten years ago and Melbourne households are spending 7.2 times their annual income, up from 6.4 in 2009).

Source: Core Logic [1].

Income servicing mortgage

At the same time, the percentage of household income to required to service a mortgage has risen sharply. In December 2019, households in Sydney, Melbourne and Hobart are dedicating a larger proportion of their income towards servicing a new mortgage, in comparison to 2009.

Will you be able to break into the housing market?

With recent growth in house prices, concerns of younger Australian’s being priced out of the market are growing louder. Housing affordability remains a hot topic in parliament and is likely to sit atop of the agenda for policy makers for the foreseeable future.

The challenge ahead is to develop stronger land release and town planning policies to maintain pace with population growth.

At the same time, it is important to ensure that infrastructure projects support sustainable population growth, particular in areas where the entry price point is more achievable for new entrants to the property market.

For a more in depth breakdown of the main drivers of housing affordability, please click on the link below to view the ANZ Housing Affordability Report.

Bradley Wearne - General Manager at Meridian Australia

P: (02) 9939 3249


[1] CoreLogic, ANU Centre for Social Research and Methods.


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