The gap is widening!

We have increasingly heard a lot about housing affordability over the past few years.

Well, how bad – or good – is it?

Amid an environment of rising interest rates, cost of living and now property prices, it is not hard to accept that housing affordability has declined. The latest ANZ CoreLogic Housing Affordability Report, which looks at affordability of home ownership in Australia over the past 12 months, has confirmed that this is the case.

Here are the main take-aways from the report.

• In the year to September, the time to save a 20 per cent deposit has climbed to 10 years nationally, and to 12.6 years in Sydney.

• Sydney requires a record 58.1 per cent of income to service a new loan.

• The Sydney-Melbourne divide widened through 2023, most likely due to more supply in the southern city.

• 2023 also saw a further departure in affordability between house and unit values. Prior to the pandemic, the decade average difference between house and unit values nationally was 7.3%. As of September, the difference was a whopping 28.6%.

• Advertised rent values increased 8.1% in the year to October, and have risen 28.4% since the onset of the pandemic.

• As of September, the portion of income required to service a new lease at the median income level was 31.0%, up from 29.4% the year prior, and 26.7% at the onset of the pandemic.

• Despite increases in the cost of debt, and reduced borrowing capacity, home values have increased 7.2% nationally since January.

• The portion of income required to service a new loan on the median dwelling value in Australia rose from 40.3% in September last year to 46.2% as of September 2023.

• The time to save a 20% deposit has only shifted by around 2 months nationally for units since the onset of COVID-19, while for houses the time to save has blown out by almost 2 years.

So how is it looking for 2024?

We know that the supply / demand equation governs economic conditions. Property prices have risen despite conventional opposing factors such as rising interest rates and increased cost of living. Simply put, supply has not kept up with demand as migration bounced back and construction of new dwellings slumped.

Although listing numbers have risen slightly towards the back end of the year, it hasn’t been enough to address buyer demand so it is unlikely we will see a significant easing of prices in the short term.

And the news is not much better for renters.

One of the biggest hurdles for first home buyers is raising the deposit to purchase a new home. As interest rates have risen and borrowing capacity has fallen, it has become even more prohibitive to raise the necessary amount to successfully apply for a mortgage. This has left even more people in the rental sector who have to compete for the relative scarcity of available homes.

And this cycle does not look to end soon.

There are a variety of thoughts on interest rates and what the RBA intends to do. Some think they will stay on hold, some think they will rise again and some think they may come down slightly. However, even a modest decline in interest rates will help to ease mortgage serviceability, but it would take a substantial reduction in mortgage rates to bring the portion of mortgage payments to household income down to comfortable levels so this still looks like some time away.