Housing affordability is already on the decline across the country, on the verge of being ‘wiped out’
Housing affordability is on the decline again across Australia and could be “wiped out” by soaring house prices, according to a new report.
Quickly rising house prices and larger home loans saw a deterioration in housing affordability in the last quarter, according to the latest Housing Affordability Report from the Australian Real Estate Institute (REIA), released on Wednesday.
Nationally, the report’s measure of housing affordability – the proportion of income needed to repay loans – increased 0.9 percentage points to 34.8% in the December quarter, a few just months after the country entered its first recession in nearly 30 years.
Although housing affordability is consistently better year over year (by 0.7 percentage point nationally), it has deteriorated in New South Wales, Queensland, Tasmania , in the Northern Territory and the Australian Capital Territory in 2020.
The housing market has defied expectations, said REIA President Adrian Kelly, with house prices rising across the country – in large part thanks to demand from first-time homebuyers, which has increased. their market share of 50.4% during the year.
“Seeing this trend of home conversion is great news given the challenges many tenants and investors faced during the pandemic, but soaring house prices could see housing affordability disappear unless measures to improve the offer are implemented. This particularly applies to parts of Australia, ”said Kelly.
New South Wales saw the biggest drop in affordability, with the proportion of revenue spent on refunds increasing 2.3 percentage points in the quarter to 44.6%. It was followed by Tasmania and the Australian Capital Territory with jumps of 2.2 and 1.6 percentage points.
Rent affordability has also declined, Kelly said, with the proportion of income spent on rent rising to 24%, up 0.4 percentage points on the year. Tasmania was the least affordable state, with renters required to spend 29.5% of average family income on the median rent for a three-bedroom house.
Mr Kelly said housing affordability will only come under more pressure as investors return to the market and immigration eventually resumes when borders reopen.
“We certainly don’t expect affordability to improve and that’s just because we don’t have enough homes to sell and that’s because we haven’t built enough homes over the course of the year. the past two decades, “he said.
The shift to regional areas of large cities, accelerated by the coronavirus pandemic, had exacerbated accessibility constraints in regional markets with limited housing supply – particularly in regional cities and centers along the east coast , he added.
“You have longtime locals who lived in those areas, who maybe paid $ 250 a week in rent and it’s now costing $ 400 and it happened pretty much overnight.”
A national housing strategy was needed to ensure an adequate housing supply, Kelly said, as was a reduction in the cost and time required for housing approval. The government was also to consider zoning reform, land release programs and an extension of the first-time home loan deposit program, among other measures, to support supply, he said.
Interest rate cuts have helped make mortgage payments more affordable – and ultimately spurred increased demand from buyers – but rates are expected to rise significantly before cooling the market, he added.
The Reserve Bank of Australia, which left the spot rate at an all-time high of 0.1% on Tuesday, would likely not use the rate to try to curb price increases, chief economist Sarah Hunter said by BIS Oxford Economics.
Instead, he was likely to work with the Australian Prudential Regulation Authority (APRA) to roll out macro-prudential measures if necessary, she said, but headwinds expected – such as the apartment sector in delay and lack of migration – to put an end to the rapid rise in prices before it gets there.
Dr Hunter said affordability had consistently been better year-on-year in the last quarter, despite price hikes, as rate cuts created an improved affordability window for repayments before house prices reacted. to change. Now that prices were rising, affordability was down but still better than the previous peak.
“We have had four years of growing income and falling interest rates… [but rising prices] gonna chew that at some point, so if [the current growth] continued, we would see an intervention, ”she said.
“Basically, in the long run, what impacts the price of real estate is supply and demand… if you want to permanently lower the price… you have to shift that balance in favor of supply” , she added.
Professor Peter Phibbs, director of the Henry Halloran Trust at the University of Sydney, said the supply should be increased – especially the supply of social and affordable housing – but that would not address housing affordability, noting that the new supply in the capitals was often limited. to new apartments or houses “in the middle of nowhere” that were already in low demand.
The new offer also takes time to deliver, so rate hikes or tighter macro-prudential measures would have more of an impact on property prices in the short term. The planned end of HomeBuilder and the reduction of other market incentives would also help reduce the heat of the market, he said.
“People react the way they always do when rates go down, the price isn’t the sticker on their house, it’s the repayments coming out of their paycheck… because that amount has gone down, people can get in on the market that haven’t been in the market before, or they can upgrade, ”he said.