Biggest capital city markets improve on affordability index

The HIA index is calculated by the ratio of the average full time wage to the qualifying income of a buyer. According to HIA, the index is based to 100, which means that when the index equals 100, an individual earning an average income could service a mortgage on a median priced property with mortgage costs taking up 30 per cent of their income.

Sydney’s housing affordability is improving better than other major capital cities, the data shows.

“While it remains the least affordable market in the country – by quite a margin – the index is 9.0 per cent higher than a year earlier which is a significant positive step. The improvement in affordability has primarily been driven by the declining trend in home prices over the last year,” Mr Murray said.

“The analysis also shows improved affordability in Melbourne, albeit to a lesser degree than in Sydney.”

Mr Murray added the current downturn is expected to continue, with potential for wage growth to improve housing affordability as the cycle continues.

“Affordability has been deteriorating over a number of decades and it will take many decades of concerned effort by governments at all levels to reduce the constraints and punitive taxes on housing that have led to the creation of the affordability challenge,” he said.

The problem of financing

However, while property became more affordable over the quarter, finance to investors is also diminishing in value, according to ABS data.

Over August, ABS finance figures show the value of investor loans have slipped by 1.1 per cent, which Mr Murray said is the lowest point since the middle of 2013 – the beginning of the current property cycle.

This translates to a drop of 20.5 per cent compared to this time last year.

“Variations in investor lending have had a significant impact on home prices throughout the cycle. The timing of APRA’s interventions in the home lending market were decisive turning points for investor lending activity and these turning points coincided with the turning points in home prices,” Mr Murray said.

“At the time when APRA announced these measures both investor credit and home prices were growing rapidly and the interventions were effective in slowing both.

“The concern is that APRA’s interventions, which were effective in taking the heat out of the market at the high point of the housing cycle, now represent a risk as the market retreats.”