This is why housing is more affordable now than in 1990

Is there really a housing affordability crisis?

Now I’m not arguing that it’s hard to get into the housing market – it is, but maybe it’s no harder than before.   Second Property Investment

According to the Property Investment Professionals of Australia (PIPA), those arguing property’s lack of affordability haven’t studied the numbers properly.

In fact their research suggests that mortgages are more affordable now than they were in 1990…

“Many commentators use just two indicators to measure housing affordability – income and house prices,” PIPA Chairman Peter Koulizos said.

“This is a good measure to indicate how expensive housing is, but if you want to analyse affordability, you must also consider mortgage repayments.”

PIPA examined annual figures looking at the average size of a home loan, the standard variable rate, principal and interest loan repayments and the annual average wage from 1990 to today.

YEAR  AVERAGE LOAN SIZE  STANDARD VARIABLE RATE  ANNUAL P & I LOAN REPAYMENTS AVERAGE ANNUAL WAGES  % OF ANNUAL SALARY
 1990  $66,300  17.0%  $11,340  $23,600  48.1%
1995  $90,900  10.5%  $9,972 $28,236 35.3%
2000  $139,700  6.8%  $10,932  $31,928  34.2%
2005  $210,800 7.1% $17,004  $39,728 42.8%
2010  $300,200  5.6%  $20,676  $49,712  41.6%
2011  $304,200  7.4%  $25,272  $51,896  48.7%
2012  $296,100  7.8%  $25,584  $53,820  47.5%
2013  $305,200  6.6%  $23,388  $56,212  41.6%
2014  $316,900  5.5%  $21,588  $57,928  37.3%
2015  $332,900  5.5%  $22,680  $58,708  38.6%
2016  $365,500  5.4%  $24,624  $59,592  41.3%
2017  $363,300  5.1%  $23,676  $60,528  39.1%
 2018  $389,000  5.1%  $25,344  $61,984  40.9%

Sources: ABS, www.tradingeconomics.com, loansense.com.au, NAB

“The key figure to look at is the last column – the percentage of an average person’s income needed to make the mortgage repayments,” Mr Koulizos said. 

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Mr Koulizos said, based on this realistic analysis, home loans are as affordable now as they were in 2010, and actually more affordable than 28 years ago.

“In 2018 figures, you need 40.9 per cent of the average annual salary to pay the mortgage,” he said.

“Compared to 1990 when you needed 48.1 per cent of the average annual salary, property owners are in a better position.”

He said interest rates played a major role in driving affordability, and our current low rate environment was keeping property price-accessible.

Mr Koulizos said in 1990, when home loan interest rates were 17 per cent, it required 48.1 per cent of the average person’s salary to make the mortgage repayments.

Five years later, you only needed 35.3 per cent of the average salary to make the mortgage repayments.

“Why such an improvement in affordability in such a short period of time? It’s due mainly to markedly lower interest rates in 1995 as compared to 1990.” Mortgage Concept By Money House From The Coins,business Finance And Money Concept,saving Money Concept To Buy A House.

Mr Koulizos said rather than the ability to service a loan, it was the initial deposit that seems to stump most potential first buyers.

“There little doubt it can be tough saving for a deposit, although many first timers are using innovative strategies such as rentvesting and buying in more affordable locations as well as buying with family and friends to get a foot on the real estate ladder.”

Mr Koulizos suggests buyers need to ensure they are relying on expert advice from a qualified property investment professional as well as seeking the best possible finance deal.

“Shop around and use a reputable mortgage broker and professional property investment advisor,” he said.

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About

is a Property Strategist with an accounting background and over 30 years’ Commercial Banking experience. She is a passionate property investor who enjoys helping her clients create wealth through property investment using Metropole’s strategic approach.
Visit www.MelbourneBuyersAgent.com.au


'This is why housing is more affordable now than in 1990' have 4 comments

  1. Avatar for Property Update

    May 20, 2018 Graham Revill

    Taxation is another factor often confuses any long term comparisons.
    It might be more relevant to compare median house prices to median after tax family earnings. Its probably not a number that is available.

    Reply

    • Avatar for Property Update

      May 20, 2018 Michael Yardney

      Graham – you make a good point – affordability is related to your disposable income – not your earned income

      Reply

  2. Avatar for Property Update

    May 18, 2018 Chris

    A good comparison of years and affordability, but average income though only tells part of the story. We live in a society with much higher levels of underemployment and insecure income due to contract and casualised labour. That also plays into the perception of affordability and associated risks for buyers.

    There is therefore a greater disparity between high and low income earners. So, I think that a better measure (or at least an interesting comparison) would be the use median income to reflect the predominant income range today. I suspect that might tell a different story. Blunt statistics rarely capture what is really being experienced at a more micro level.

    Reply


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