Housing affordability affecting new home buyers and low income earners the most

The Australian Bureau of Statistics this week released a fascinating set of data; Housing Occupancy and Costs, 2011-12 (see the release here). 

The release provides a very thorough overview about housing costs across different regions and age groups, income levels, tenure types and a wide range of other factors.

The average (mean) cost of housing (weekly) across each state and nationally, as estimated by the ABS is provided below:

Mean housing costs

One of the headline findings from the release is that housing costs as a proportion of gross household incomes have remained broadly unchanged since the 2003/04 financial year at about 14% (see graph below).

National housing costs as a pc of ghi

For the purposes of this study, “housing costs are the recurrent outlays by household members in providing for their shelter for themselves. The data collected on housing outlays in the SIH [Survey of Income and Housing] are limited to major outlays on housing, that is, mortgage repayments, rent, property and water rates as well as body corporate fees”.

So… the costs don’t include expenses such as maintenance, repairs or insurance.   Adding these costs into the scenario would likely more than double the cost of housing for those home owners who fully own their home (ie they have no mortgage repayments) and add about 13% to the cost of housing for those individuals paying down a mortgage.

The scenario for renters of course wouldn’t change as these costs are covered by the landlord.  Additionally, mortgage costs include both interest and principal payments; realistically the principal payment component should be considered as savings.

The proportion of household income dedicated to housing costs is demonstrably higher across lower income households and the proportion is rising over time highlighting that financial stress is likely to be higher across these cohorts.

Based on the most recent data for 2011/12 the lowest income quintile is dedicating 26% of their gross household income to housing costs compared with 22% over the 1995/95 financial year.

Housing costs as a proportion of gross household income has drifted higher across all income quintiles, however the lowest earners have seen the largest increase in costs as a proportion of income.

Housing costs as a pc of ghi by quntile

Across the different types of housing tenure, the lowest proportion of gross household income being dedicated to housing costs is evident for home owners without a mortgage at about 3%t based on the most recent data – no surprises there.

This group doesn’t have the burden of mortgage repayments or rent to pay.   Households paying down a mortgage showed the second lowest ratio of income to housing costs at about 18% of their gross household income, while renters are on average dedicating about 20% of the gross household income to housing costs.

Housing costs a pc of ghi, national by tenure type

There’s not a great deal of difference in the proportion of gross household income dedicated to housing costs across the states.  Proportionally, housing costs are the highest in the Northern Territory at 16% of household income and lowest in Tasmania (where housing prices and rents tend to be much more affordable) at 13%.

Houses costs as a pc of ghi, states and territories

The thing that strikes me about this release from the ABS is the low proportion of household income being dedicated to housing costs by those households paying down a mortgage.

At just 14% of gross household income, it appears that the average home owner with a mortgage has a substantial buffer before they suffer mortgage stress.

The old rule of thumb was that if a household is dedicating more than 30% of their gross income towards servicing a mortgage they were considered to be in ‘stress’.

Based on the data, nationally, about 18% of households are dedicating more than 30% of their gross household income towards housing costs (this is across the board, not just for those home owners with a mortgage) and 5.6% are dedicating at least half of their income to housing costs.

Hoiusing costs as a pc of ghi, national by pc segments

Clearly this 18% is where the focus needs to be from a social and affordable housing policy perspective.  As can be seen in the graph below, those households dedicating 30% of their gross income or more towards housing are very much concentrated within specific lifecycle groups – particularly lone persons aged under 35, single parents and young families.

The results also suggest that it isn’t so much those people that have had a mortgage for some time that find it challenging to repay mortgages, rather it is those recent first time buyers.

This also potentially goes some way to explaining why first home buyer activity is currently so low at a time when mortgage rates are at virtual record low levels.

Proportion of housing costs by lifecycle cohort

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Want more of this type of information?


Tim Lawless

About

Tim heads up the Core Logic RP Data research and analytics team, analysing real estate markets, demographics and economic trends across Australia. Visit www.corelogic.com.au


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