Median-income households struggle to enter the housing market
Housing affordability in Australia has fallen to its lowest level on record, driven by rising mortgage rates and increasing home prices, according to a new report from PropTrack.
The annual PropTrack Housing Affordability Report, released by REA Group’s data business, measures affordability using the PropTrack Housing Affordability Index. The index evaluates the share of homes affordable to households across various income levels, locations, and tenure types, offering a comprehensive view of affordability nationwide.
Key findings from the report reveal that a median-income household, earning approximately $112,000, could afford just 14% of homes sold during the 2023-24 financial year. This marks a significant decline from 43% just three years ago, and the smallest share of homes affordable since records began in 1995.
Affordability is most strained in New South Wales, Tasmania, and Victoria. In New South Wales, a median-income household could afford just 10% of homes sold, with mortgage costs higher than in any other state. South Australia saw the largest drop in affordability, with a median-income household able to afford only 16% of homes sold in 2023-24, down from nearly half (49%) in 2020-21.
The report also highlighted that renting households are facing even greater challenges. A median-income renting household could afford just 11% of homes sold in the past year, compared to 34% for households with a mortgage.
PropTrack said mortgage costs are now as high as they were in 2008, nearing the peaks seen in 1989-1990. To purchase a median-priced home, an average-income household would need to allocate a third of their income to mortgage repayments.
Low-income households are effectively locked out of the current housing market. A household earning $50,000 annually could afford just 3% of homes. Additionally, saving for a deposit remains a significant hurdle, particularly in New South Wales, where it takes a median-income household around 6.5 years to save for a 20% deposit.
Western Australia ranked as the most affordable state, with a median-income household able to afford 26% of homes for sale. However, this relative affordability has contributed to rapid price growth in the state over the past year.
First-home buyers in Queensland face the longest time on record to save for a deposit, with the average time now at 5.4 years due to the rapid pace of home price growth outstripping income increases.
“Above-average increases in home prices, combined with the highest interest rates in a decade, have created the worst affordability conditions we’ve ever recorded,” said Paul Ryan (pictured above), senior economist at PropTrack. “First-home buyers and renters looking to enter the market are facing immense challenges, with borrowing capacities reduced by up to 30% and repayments for existing borrowers up as much as 50% over the past two years.”
Ryan noted that national home prices have risen for 20 consecutive months, increasing by 6.6% over the 2023-24 financial year, equivalent to a $50,000 rise in the national median price. He suggested that affordability could improve when interest rates start to fall, which may happen within the next six months. However, he emphasised that long-term improvements would require significant efforts to boost housing supply.
“Housing affordability is expected to ease when interest rates fall, but a meaningful return to where a typical household could afford half of homes requires broader changes to increase housing stock across the country,” Ryan said.
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