The PropTrack Housing Affordability Index: a better way to measure affordability

Paul Ryan
Paul Ryan

The PropTrack Housing Affordability Index is a new state-of-the-art measure of Australian housing affordability.

The index tracks the proportion of home sales Australian households have been able to afford to buy, since 1995, when records begin.

Read the results from the PropTrack Housing Affordability Report - 2023

Unlike other measures, the index captures affordability for households across the full income distribution to provide a more comprehensive measure of affordability. This matters because housing affordability is dramatically different depending on how much you earn, where you live, and how old you are.

Previous measures of affordability have been simple comparisons between home prices or mortgage repayments and incomes, and are calculated only for an "average" household. These measures are commonly used because they are easy to calculate with a small amount of data.

One of the innovations of the new PropTrack Housing Affordability Index is to incorporate detailed data on household incomes across the income distribution and detailed data on the sale prices of all homes to present the most comprehensive measure of housing affordability available.

The PropTrack Affordability Index is built by comparing incomes, home prices, and interest rates over time to track what proportion of home sales in the past year households of all income deciles could have afforded. For instance, a median-income household can currently afford only 13% of all homes sold over the past year – a record low.

The headline index then combines these shares by income into a single number. Higher values, closer to 1, represent better affordability, in which households could afford homes commensurate with their incomes; for instance, if a household at the 80th income percentile could afford 80% of homes, and so on throughout the distributions.

Crucially, the index is comparable both across regions and across time, despite changing incomes, interest rates and home prices.

Technical details and data sources

The PropTrack Housing Affordability Index summarises the share of home sales that households across the income distribution can afford at prevailing mortgage assessment rates.

  • Share of homes that are affordable: the share of home sales across each financial year that fall below the price at which the household spending 25% of their gross income on mortgage repayments, with a 80% loan-to-valuation ratio.
  • Assessment mortgage rate: the average new mortgage rate for owner occupiers on variable rate loans prevailing at the end of the financial year, published by the Reserve Bank of Australia (RBA). Prior to 2019, this rate is backcast using the RBA’s indicator lending rate for owner-occupier variable rate loans. A constant buffer of 2.5 percentage points is added to this mortgage rate to estimate borrowing capacities for households across the income distribution.
  • Household income: uses gross household income at the top of each income decile, published by the Australian Bureau of Statistics (ABS) in the ‘Household Income and Wealth, Australia’ release, collected as part of the Survey of Income and Housing. Incomes are linearly interpolated between survey years and extrapolated using changes in gross household income from the annual ABS Australian National Accounts and the ABS Wage Price Index.

To calculate the PropTrack Housing Affordability index, we take the share of home sales in each financial year that are affordable for each household income decile. The shares at each decile are then aggregated into the summary index measure for each financial year using the formula:

where X is the income decile (e.g. 10) and Y is the share of home sales that are affordable for that income decile.

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