Dire housing affordability widening the wealth divide
Housing affordability has fallen to record lows, worsening the divide between Australia’s rich and poor.
In the annual Housing Affordability Report published by real estate data company Cotality on Tuesday, it was stated that home values have increased by 47.3 percent since March 2020, increasing the average home value from $280,000 to $872,500.
During the same period, median annual household income increased only 15 percent to $104,390.
Three quarters of Cotality’s affordability metrics – price-to-income ratio, years required to save a deposit and share of income required for rent – have reached record levels.
As a result of the central bank’s three rate cuts since February, the share of income needed to pay a new mortgage has fallen slightly from a record high to 45 percent of household income.
“The metrics for first home buyers are quite disappointing,” said Eliza Owen, head of research at Cotality.
“There’s a real disparity between where incomes are and where property prices are, which is showing a kind of structural shift in who can access the market.”
The five-year price rise has been driven by a mix of factors boosting demand, including pandemic-era stimulus, low interest rates, government incentives for first home buyers and a rapid recovery in net overseas migration following the lifting of border closures.
Meanwhile, housing supply has lagged behind. This hasn’t been helped by construction industry bankruptcies, rising material costs and changing preferences for larger homes and smaller household sizes.
The result, according to the report, is a mismatch of more than one million new households created in the past five years compared to 880,000 new homes completed.
As property prices rose, homeowners and investors were able to reinvest large windfalls of capital gains back into the housing market, creating a larger gap for first home buyers and those without parental assistance to enter the market.
“There is an extraordinary disparity between property prices and income,” Ms Owen said.
“This certainly points to a widening divide between the haves and have-nots when it comes to the real estate market.”
It will take the average wage earner in Sydney’s eastern suburbs 35 years to save a 20 per cent deposit on an average house.
Even if they could somehow overcome this hurdle, the mortgage payment would still take one and a half times their income.
Canberra, Hobart and Melbourne showed relief.
Canberra’s relatively high rate of new apartments entering the market and slower rate of internal migration have made rent affordability easier in the ACT.
Meanwhile, increased taxes on investment properties in Melbourne have kept house values structurally lower across the city; median house value was 7.1 times higher than income, compared to multiples of 10 in Sydney.
Ms Owen said Melbourne could provide a good example of how to target housing demand and reduce prices at a time when supply is strained.
“It may take some time to understand exactly what impact the increased investment tax is having, but it is fair to say that it has at least helped ease some of the tension in the market, and many people are now looking to Melbourne as a relatively affordable buying option.”
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