How Affordable Is Australia’s Housing?

For anyone who has a passing interest in economic matters it is no real surprise that Australia ranks so highly in unaffordability for the homebuyer.

As a highly urbanised society our housing indeed ranks amongst the most expensive in the world, but just how high?

Utilising survey data from the 11th Annual Demographia International Affordability Survey: 2015 we get a good indication of where we sit compared to other countries.

The Demographia data uses the Median Multiple for evaluating urban investment news june 16

The Median Multiple and other similar price-to-income multiples of housing affordability are used to compare housing affordability between markets.

According to the authors of the survey:

“Historically, the Median Multiple has been remarkably similar in Australia, Canada, Ireland, New Zealand, the United Kingdom and the United States, with median house prices from 2.0 to 3.0 times median household incomes. However, in recent decades, house prices have been decoupled from this relationship in a number of markets, such as Vancouver, Sydney, San Francisco, London, Auckland and others. Without exception, these markets have severe land use restrictions (typically “urban containment” policies) that have been associated with higher land prices and in consequence higher house prices (as basic economics would indicate, other things being equal).”

The Demographia survey found that:

Among all 378 markets, there were 98 affordable markets, 88 in the United States, five in Canada, three in Ireland and, for the first time, there were affordable markets in Australia (two).

There were 119 moderately unaffordable markets, 97 in the United States, 16 in Canada, three in the United Kingdom and one each in Japan, Ireland and Australia.

There were 76 seriously unaffordable markets and 85 severely unaffordable markets. Australia had 33 severely unaffordable markets, followed by the United States with 25 and the United Kingdom with 16.

New Zealand and Canada each had five severely unaffordable markets, while China’s one market (Hong Kong) was also severely unaffordable (Table ES-3).

housing affordability

housing affordability

Tellingly Australia ranked at the top in the nine countries surveyed in overall unaffordability outweighed by only Hong Kong but just ahead of New Zealand, Singapore and the UK.

Australia was deemed to have 33 severely unaffordable urban markets out of a total of 51 (64%) surveyed in this country compared to 25 out of 242 (~10%) in the United States.

Sydney and Melbourne were ranked in the top 10 for the least affordable major metropolitan markets.

Australia’s Housing Industry Association reports quarterly on housing affordability in this market with their most recent survey The HIA Affordability Index for the June 2015 quarter signalling a deterioration in affordability conditions.

“The positive impact of a second interest rate cut for the year in May was overwhelmed by an increase in the CoreLogic RP Data median dwelling price and the persistence of sluggish earnings growth,” said HIA Chief Economist, Dr Harley Dale. “The net negative impact of these factors saw the national HIA Affordability Index fall by 2.9 per cent to 79.7 in the June 2015 quarter.”

“The national affordability result masks wide variations around the country, an unsurprising finding given the lack of geographical consistency to the current residential cycle,” Harley Dale said.

During the June 2015 quarter, affordability deteriorated by 3.6 per cent in capital city markets, driven by Sydney and Melbourne.Melbourne-vs-Sydney

This was in stark contrast to a 2.7 per cent improvement for regional Australia. Compared with the June quarter last year, capital city affordability worsened by 0.6 per cent, while in regional Australia affordability saw a 5.2 per cent improvement.

“The large differences in the results for the capital city Affordability Index and its regional counterpart, together with the variation in outcomes between capital cities, exposes the folly of sweeping generalisations which refer to an Australian housing boom,” said Dr Dale. “That is simply not what is occurring – in many parts of Australia the extremely low interest rate environment is delivering historically favourable affordability conditions.”

These variations and recent improvement in affordability in some Australian capital cities come down to three main factors affecting affordability.

HIA senior economist Shane Garrett takes up the discussion:

“Affordability over the last five years has actually improved quite considerably. Affordability is determined by dwelling prices on the one hand — and we all know they’ve been going up in most places — but also interest rates and household earnings.
When we talk about affordability we are talking about what proportion of earnings by a traditional household is eaten up by payments of a mortgage.
Over the last few years dwelling prices have gone up but luckily interest rates have been going down to historically low levels and earnings have been creeping up and that has reduced the burden of mortgage repayments because the interest rate effect and the earning effect has outweighed the effect of higher dwelling prices.”

The HIA survey for the June quarter showed Melbourne and Sydney seeing a deterioration in affordability but all other capital cities actually improved — including Perth improving by 6.4% — largely because official interest rates were reduced twice this year.

For those fortunate enough to be buying in those markets affordability has increased.

The latest data on house prices from the HIA to September 2015 shows Sydney house prices year-on-year have increased by 16.7% and Melbourne increased by 14.2%.

The strong price growth in those capitals has not been replicated in the rest of the country however. 

Brisbane only went up by 4.6% in the 12 months.

What would the HIA like to see governments doing more of?

Shane Garrett: “Affordability is a big issue for us. We’d like to see better affordability for all around the country.
In all states housing is the second most heavily taxed area of the economy, incurring a huge accumulation of tax right through the house building process.
Stamp Duty and GST tends to magnify the affect.

“Even without the influence of tax, the price of land is high in Sydney partly due to constraints in the city, other areas of land costs including infrastructure charges and the way in which that is charged and delivered at the most is quite inefficient.

“The number one tax we have issues with is stamp duty because it is very inefficient and has a huge effect on affordability not just for both first homebuyers and second homebuyers but for all home building activity and the industry.

“We’d also like to see speeding up in planning especially of land release and design around housing infrastructure.
Stamp duty has the worst effect on economic activity because it acts as a barrier to people moving home especially into a place such as Victoria which has a high rate of stamp duty.”

Want more of this type of information?

Adam Di Marco


This article was recently featured on Adam is also a director of Brisbane-based investment, management and development firm, Marquette Properties.

'How Affordable Is Australia’s Housing?' have 1 comment

  1. October 10, 2015 @ 2:50 am Rudy Haugeneder

    Everybody and country in the world has debt and mortgages based on very low interest rates that will ultimately and suddenly go up at least three to five percent — either as decreed by central banks or by the global financial industry without central bank and government approvals. And that’s an at least figure. The average person and/or business cannot remotely afford this, meaning collapse — financial and/or psychological — is imminent. As for those holding these trillions upon trillions of debt, mostly made up of fake money nowhere to be found except on software programs that simply added zeros to the amount owed despite nothing to back this action, they will simply erase the zeros two or three at a time until with amount again looks historically normal, and the 1% will continue to rule as they always have with the suddenly poor masses having to revert to weeping because they no longer have to ability to buy, buy, buy, buy on borrowed cash they never really had. No longer will the urge to buy terrorize us.
    Meanwhile, let me wish you an early Happy New Year just as we all, except the 1%, slide into the abyss.


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