Property Affordability Continues to Deteriorate

The April statistics are in, and capital growth, rent performance and sales volumes can be seen in Table 1 below.

Aside from Sydney, housing markets are performing quite poorly.

It appeared that growth in the Melbourne market was starting to follow Sydney’s  last month, however April figures tell a different story.

Growth for the quarter ending April in median Melbourne house prices has dropped to just 0.15 per cent, as opposed to 3.11 per cent for the quarter ending March.

This followed a contraction of the Melbourne housing market in April.

Table 1 – Summary of Results for Major Cities as at April 2015

The trend data for Melbourne is particularly revealing – see Graph 1

Graph 1 – Melbourne Property Market Trend Data

The smoothed out growth rates reveal that monthly housing growth seems to have peaked at an average of just under 1 per cent.

To put this into perspective, the Australia-wide growth trend for houses and units was 0.51 per cent and 0.28 per cent respectively in April.

This diversity between sluggish dwelling growth across Australia, and the enormous growth in the anomaly that is Sydney, made interest rate deliberations difficult for the Reserve Bank of Australia for the first few months of 2015.

Despite a record low cash rate, mortgage repayments in Sydney as a percentage of income are at an all-time high

Reportedly, mortgage repayments represent 35 per cent of income in Sydney, and 27 per cent of income nationally.

However, if we dissect the measurement of income, we can see the extent of mortgage repayments are potentially more damaging.

If we were to get as accurate an idea of incomes as possible, what is week to week affordability like for home buyers in each state?

I used an analysis of the median value property and median incomes to find an answer.

Income figures are commonly sourced from the Australian Bureau of Statistics (ABS), and do not take into account deductions for tax, superannuation contributions, health insurance, salary sacrifice or any other automatic deductions.

This means that ABS figures are a good representation of overall wealth, but do not reflect the amount of money in your pocket after mortgage repayments in day to day life.

Furthermore, the income measurements available from the ABS are in the form of two main indicators: average weekly earnings data and the median household income.

The median household income is flawed because it was last computed in 2011, and it is only released with Census data.

Indexing this figure by inflation to 2014 is useful, but it is not an accurate measure of actual income growth.

The other income indicator – average weekly earnings, is collected biannually.

Therefore it provides a more accurate measure of income growth.

However, the average does not provide an accurate measure of central tendency, particularly when it comes to the standards of living.

This is because low income earners in part-time and casual work may be dependents and receive non-financial compensation from parents or guardians.

Therefore, the median household income should be indexed by the increase in average weekly earnings increases from 2011 to 2014 in each state, to reflect how household income could grow.

saveUnfortunately, Average Weekly Earnings (AWE) data is only disaggregated as far as the state level, so income increases may be higher or lower in the city metropolitan areas.

Furthermore, the data is only to November 2014, so it not reflect recent declines in income that have resulted from falling commodity prices.

Unlike typical measures of income that look only at full time earnings, the AWE index used here is for all income earners, including those in part-time/casual positions.

Part-time and casual work makes up approximately 30 per cent of Australia’s workforce, according to the latest labour force survey data.

This means it is an important consideration when looking at the growth of incomes.

After looking at the median income figures indexed by the growth in AWE for all workers at a state level, I then deducted tax and superannuation according to the tax bracket the respective incomes fell into.

Assuming the median household is buying the median home, I set to work finding out how much a household would spend on mortgage repayments for the property and how much income they would have left over.

The mortgage repayments shown in Table 2 assume a 20 per cent deposit on the median value property, with a home loan rate of 4.98 per cent over 25 years on a loan that is 80 per cent of the median value.

The results are a tad ridiculous

Table 2 – Income vs. Affordability

While it might be feasible for other states, these figures suggest that if the median household in Sydney were to purchase the median value house, they would be spending over 90% of their net income.

This is obviously can’t be the case, but if it is, I hope we all have some large black market operations supplementing our income that simply can’t be recorded by the ATO should they shut down our illegal activity.

What we can reasonably infer from the numbers is what we have suspected for a long time – that the median household in Sydney cannot afford to purchase the median house in Sydney.

This could explain why dwelling approvals for units have consistently outweighed housing demand in the last few months of seasonally adjusted ABS approval

It also points to why more first time buyers are choosing to invest in more affordable areas while renting in Sydney in areas that offer the lifestyle they desire.

According to the latest rent figures in Sydney, households would spend less than 60 per cent of their net income on the median house, and less than 50 per cent of their net income on the median unit.

Either way, this high unaffordability could see lower income earners driven out of Sydney all together.

If this is the case, I anticipate much higher median household earnings in the next release of Census data in 2016.


Want more of this type of information?

Eliza Owen


Eliza Owen is the Market Analyst for

'Property Affordability Continues to Deteriorate' have 2 comments

  1. May 29, 2015 @ 7:19 am Marissa

    Hello Michael, I have been receiving your daily property updates for some time now and diligently read them while enjoying my morning coffee. Your articles offer great advice, I have read your books from cover to cover, and am applying your suggestions to my investment decisions.
    BUT, the digg deep floating share bar is driving me bonkers. It has ADHD and keeps jumping around the page covering the text I’m trying to read. I’m just wondering if anyone else has found this a problem and if anything and if anything can be done to ‘modify it’s behaviour’ (Ritalin, maybe?)


  2. May 30, 2015 @ 7:30 pm Bruce

    Hi M,
    i am one of the lucky ones who has a 20 yr mortgage and therefore 200k mortgage, so I’m sure you’ll agree, the majority of mortgage holders (and our own investment houses), will have a much higher loan ratio than this above, say 500k average? which means all the ‘recent’ home owners are “not’ part of this “average” lender stats, ,
    So its fair to say, the avergae does ‘not’ compare to these unfortunate buyers that have risked their wages and future to the hilt, and good on them for having a go. but I’m concerned for them. a good read, keep em coming, Bruce


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