Housing affordability is now at its worst level in at least three decades, according to the PropTrack Housing Affordability Index, a new comprehensive measure of the share of homes that households can afford to purchase across the whole income distribution.
This deterioration in affordability has been driven by a dramatic rise in mortgage rates, combined with rising home prices over recent years.
At the same time, sharply higher price growth throughout the pandemic has meant housing accessibility — how long it takes new buyers to save a deposit — remains incredibly challenging.
This report quantifies the alarming state of housing affordability across the country, especially for first-home buyers.
Affordability is toughest in New South Wales, Tasmania and Victoria. By contrast, Western Australia is the most affordable state.
Looking ahead, expectations that interest rates are close to their peak, and strong prospects for employment and wages may curb the rapid decline in affordability we’ve witnessed over the past year.
However, further home price growth will continue to pose affordability challenges for current generations and those to come.
Surging home prices throughout the pandemic and rapidly rising interest rates over the past year have brought housing affordability to its lowest level in at least three decades.
The PropTrack Housing Affordability Index shows that, by June 2023, households across the income distribution could afford the smallest share of homes since 1995, when our records begin.
That is a substantial change compared to the past few years.
Affordability slowly improved in the decade following the Global Financial Crisis, and was markedly higher in 2020 and 2021 as interest rates fell to record lows.
Those low rates kept mortgage burdens low and meant that by mid 2020, and even as late as mid 2021, households could afford a higher share of homes nationally than at any time since 2001.
The PropTrack Housing Affordability Index shows that households in New South Wales, Tasmania and Victoria face the toughest housing affordability across the country.
With a median home price exceeding $1 million in Sydney, New South Wales continues to rank as the least affordable state, as it has for most of the past three decades.
Victorian housing affordability remains below the national average and has recorded a significant deterioration over the past 12-18 months as interest rates have increased.
Similarly, Tasmania has seen sharply lower affordability recently. In 2018 and 2019, the PropTrack Housing Affordability Index ranked Tasmania as one of the most affordable states. But since 2019 prices have surged, rising by more than 50% in Hobart, and 70% in regional Tasmania.
The PropTrack Housing Affordability Index shows that housing affordability is highest in Western Australia. That is a marked change from a decade ago, when Western Australia was the least affordable state from 2007-2010 amid the height of the mining investment boom – the only time affordability has been worse in any state other than New South Wales.
Highlighting the alarming state of housing affordability at current interest rates, a household earning the median (or typical) income in Australia can now afford just 13% of homes sold across the country. This is the lowest share since records begin in 1995.
That represents a substantial decline from historically favourable affordability conditions over much of the past decade. These conditions peaked in 2019-20 and 2020-21, when a median-income household could afford just shy of 40% of homes sold across Australia.
Even high-income households, earning $200,000 a year — i.e. earning more than 80% of Australians — are facing strained affordability. These households could afford loan repayments on only about half of homes that were sold over the past year.
Rising household incomes since the pandemic following improved labour market conditions, which has drawn more people into employment and boosted wages growth, has been insufficient to offset higher home prices and, critically, the surge in mortgage rates.
Other measures of housing affordability also show the impact of sharply higher interest rates, and the consequent surge in mortgage repayments.
A household earning the average income would need to spend about a third of their income on mortgage repayments to buy a median-priced home.
That represents the highest level since 1990, exceeding the most recent peak set in 2008.
Read more in the full report: PropTrack Housing Affordability Report - 2023
Alongside challenged home affordability, measured by mortgage serviceability, the high level of home prices means saving a deposit remains a key barrier for first-home buyers.
An average-income household would need to save 20% of their income for more than five and a half years to save a 20% deposit on a median priced home.1
Home price declines throughout 2022 and stronger wages growth have reduced the time it takes to save a home deposit by about half a year from its peak at the end of 2021.
However, the time it takes a typical household to save a home deposit remains higher than it was before the pandemic, continuing the decades-long upward trend. Saving a deposit remains a substantial burden for many first-home buyers.
Written with Paul Ryan