Housing affordability slumps to lowest on record since GFC

The Real Estate Institute of Australia (REIA) Housing Affordability Report (HAR) has found that housing affordability declined over the June quarter 2023.

With mortgagors continuing to face mounting challenges as interest rates rise, housing affordability has hit the lowest on record since the global finance crisis in 2008.

The Reserve Bank of Australia (RBA) has increased interest rates by four percentage points since May 2022 to 4.10 per cent.

It paused hikes at its last monetary policy board decision meeting in early September but hinted that further monetary policy tightening may be required to ensure that inflation returns to target in a reasonable time frame.

However, the board added that this would depend on the data and the evolving assessment of risks.

The proportion of income required to meet the average loan repayment increased to 45.9 per cent, while the median income to home loan ratio declined in all states and territories except Victoria, the REIA report showed.

Mortgage unaffordability was most pronounced in NSW (56.0 per cent), followed by Victoria (46.5 per cent), Tasmania (43.5 per cent), Queensland (42.4 per cent), South Australia (42.1 per cent), Western Australia (35 per cent), ACT (34.8 per cent) and the Northern Territory (34.4 per cent).

The ACT had the smallest decline, with the proportion of income increasing 0.1 percentage points, while the Northern Territory had the highest decline with the proportion of income increasing by 1.6 percentage points, the report said.

On the other hand, housing affordability improved in Victoria, as the proportion of income decreased by 0.1 percentage points.

Green shoots emerged for first home buyers (FHB) in the June quarter compared with the previous period, with the number increasing to 2,4768 nationally, a 17.1 per cent rise during the quarter.

However, this was down 15.0 per cent compared to the June quarter 2022.

The average loan size nationally to FHBs increased to $492,587, up 2.6 per cent over the quarter and 2.7 per cent over the past 12 months.

Rental affordability declined, with the proportion of income required to meet median rent nationally rising by 0.3 percentage points to 23.3 per cent.

While rental affordability declined in the larger states such as NSW, Victoria, Queensland, and Western Australia, it improved in other states, according to the report.

Tasmania remains the most unaffordable state to rent at with the rent-to-income ratio sitting at 27.3 per cent, followed by NSW (27.0 per cent), the Northern Territory (25.5 per cent), South Australia (23.5 per cent), Queensland (21.5 per cent), Western Australia (22.0 per cent), Victoria, (20.1 per cent) and the ACT (19.7 per cent).

REIA president Hayden Groves said that since the previous HAR, there has been a “chaotic campaign” to introduce rent freezes and rent controls by political stakeholders.

“The National Cabinet, to their credit, have listened to the economic arguments and decided against overly dramatic market intervention,” he said.

“It is no doubt a challenging time for renters – mostly driven to a fundamental lack of rental availability, but it is important to note that rental affordability didn’t further worsen significantly over the June quarter.”

Commenting on the housing market, Mr Groves said that it is critical to put current conditions into context, particularly when determining policy responses.

“When Australians are suffering under cost-of-living pressures, looking back provides a sound basis to assess the extent of how historical trends are impacting us today,” he said.

“The reality is that for Australian households on median incomes, housing affordability has declined 13.6 per cent over a 20-year period and 12.4 per cent over the past 10 years. In comparison, rental affordability has declined a paltry 1.3 per cent over a 20-year period, 0.9 per cent over a 10-year period and 0.5 per cent over the past five years.”

He concluded: “This will vary market by market, but it is critically important when considering measured policy responses in the current environment.”

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