Despite the Reserve Bank’s cash rate remaining at a record low of 1.5%, housing affordability has generally worsened over the June quarter, according to the latest data from CoreLogic.
The national dwelling price to household income ratio has recorded significant quarterly gains, with a ratio of 6.8 in June 2017. A higher ratio was recorded for houses (7.0) compared with units (6.3).
Utilising median household income data modelled by the Australian National University Centre for Social Research and Methods (ANU) and its own median dwelling price data, CoreLogic was able to determine the ratio of dwelling prices to household income over time.
“For example, a dwelling price to income ratio of 5 implies that the typical household will spend five times their annual gross income to purchase the typical dwelling outright within the same region,” said Cameron Kusher, head of research at CoreLogic.
“The ratio increased over the quarter for houses and units; however, 15 years ago the ratios were much lower at 4.5 for houses and 5.1 for units,” Kusher said. “The measure for houses is currently at an historic high, while for units it has moderated slightly from a high of 6.5 in early 2015.”
Similarly, the number of years of gross annual household income required for a 20% deposit has risen. A 20% deposit was equivalent to 1.36 years of gross household income at the end of June 2017, with the figure recorded at 1.40 years for houses and 1.26 years for units. During the same quarter in 2002, it took 0.92 years to save for a 20% deposit; 0.89 years for houses and 1.02 years for units.
“As the cost of housing has increased and household income growth has slowed it has become increasingly challenging for some segments of the market to raise a 20% deposit which has required a longer period of savings in order to enter the housing market,” Kusher said.
When analysed using the dwelling price to household income ratio, it’s clear that much of the deterioration in housing affordability is occurring in Sydney and Melbourne.
“Five years ago Sydney's ratio was 6.7 times and Melbourne's was 6.5 times, fast forward to June 2017 and the ratios sit at 9.1 times and 7.5 times respectively,” Kusher said. “Over the past five years, median dwelling prices in Sydney have increased by 59.6% and Melbourne prices are 29.9% higher.”
The other capitals have seen very little change in affordability over the past five to 10 years based on this metric.
“This highlights that while deteriorating housing affordability is viewed as a national problem, Sydney and Melbourne (where 40% of the population live) is very much the focal point.”
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