Key takeaways
Only 10% of Australian homes are affordable for average-income earners.
Median household incomes have grown by less than 2% annually, lagging behind property price increases.
First-home buyers face loan amounts 30% higher than their income traditionally supports.
Australia's housing market has reached a critical juncture, with only 10% of homes now deemed affordable for the average worker, according to a recent report by ANZ and CoreLogic.
This alarming statistic highlights the growing disparity between income levels and property prices, raising concerns about the nation's economic stability and the future of homeownership for everyday Australians.
A shrinking affordability gap
The ANZ CoreLogic Housing Affordability Report, released in November 2024, underscores a significant decline in housing affordability across major Australian cities.The report reveals that only one in ten homes falls within the financial reach of the average Australian worker, a stark decrease from previous years.
This downturn is attributed to a combination of soaring property prices and wage stagnation, which together exacerbate the affordability crisis.
Key statistics:
- Sydney and Melbourne have seen median house prices surge by over 15% in the past year alone.
- Median household incomes have grown by less than 2% annually, failing to keep pace with the 10% rise in property prices.
- The affordability index has dropped by 25% over the last five years, indicating worsening conditions for prospective buyers.
Dwelling value to income ratio:
Note: Dwelling value to income is the median home value of a region, divided by the annual household income estimate.
Impact on first-home buyers
First-time buyers are bearing the brunt of the housing affordability crisis. The report indicates that the average first-home buyer now faces a loan amount that is 30% higher than their income would traditionally support. This financial strain has led to increased reliance on family support and higher household debt levels, raising concerns about long-term financial stability for these households.
Data highlights:
- The average loan-to-income ratio for first-time buyers has increased from 3.5x to 4.5x over the past three years.
- Household debt levels among first-time buyers have risen by 20%, reaching an average of $250,000 per household.
- Approximately 40% of first-time buyers now require financial assistance from family members to enter the housing market.
Years to save a 20% deposit:
Note: Number of years to save a 20% deposit on the median valued dwelling, assuming a 15% saving on annual income.
Experts warn that the dwindling affordability could result in a generation of Australians struggling to achieve homeownership, a cornerstone of financial security and wealth accumulation. Without significant policy interventions, the gap between property prices and income levels will continue to widen, further entrenching socio-economic disparities.
% of income required to service a new mortgage:
Note: Assumes the owner has borrowed 80% of the median dwelling value and is paying the average discounted variable mortgage rate at that time for a term of 25 years.
Capital cities vs. regional Australia
While major metropolitan areas are grappling with the most severe affordability issues, regional cities are not immune. The report highlights that even in less densely populated areas, housing affordability has declined, albeit at a slower pace. However, the trend suggests that as remote work becomes more prevalent, demand for housing in regional areas may surge, potentially mirroring the challenges faced in urban centres.
Regional insights:
- Regional cities have experienced a 7% increase in median house prices over the past year.
- The affordability ratio in regional areas stands at 15%, compared to 10% in major cities.
- There has been a 12% increase in population moving to regional areas, driven by the rise of remote work opportunities.
The report tracks the migration patterns from metropolitan to regional areas, correlating with increases in regional property prices. This shift could lead to similar affordability challenges outside the major cities.
The report emphasizes the interconnectedness of housing affordability with other aspects of economic health, including education, healthcare, and employment. Ensuring that Australians can afford to buy homes is seen as integral to fostering a stable and prosperous society.
Potential solutions and future outlook
Addressing the affordability crisis requires a multifaceted approach. The report suggests that increasing housing supply is paramount, particularly through the development of high-density housing and the utilisation of underused land. Additionally, policies aimed at boosting wage growth and providing financial support to lower and middle-income households are essential.
Note: Looking ahead, the report projects that without significant intervention, the percentage of affordable homes will continue to decline, potentially reaching as low as 5% within the next five years.
Addressing the issue requires urgent and sustained action, focusing on increasing housing supply, regulating market dynamics, and supporting income growth. As Australia navigates these complex challenges, the future of homeownership—and the economic well-being of its citizens—hangs in the balance.
