Home ownership now 8.2 times household income

“The supply side alone will not get us here, especially in the current environment where construction costs are so high,” said Eliza Owen, head of Australian research at Cotality.

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“Rather than cooling the demand side, we have seen several examples where the demand side has been stimulated in the form of HomeBuilder and more recently the unlimited expansion of the 5% Deposit Scheme.”

Affordability was not at its highest in all cities. Melbourne has been hit hard by a significant supply of new housing and an increase in taxes on second homes, as well as population loss during the lockdown years.

“I don’t think it’s completely fixed [in Melbourne]” said Owen. “You still have a pretty high home value-to-income ratio.”

Sydney’s house value to income ratio has fallen slightly from its peak but remains the highest in the country.

Owen questioned why property prices are so high if housing is so unaffordable.

It found that there was an almost $300,000 difference between what a typical household could spend on a home and what a typical home costs.

He found that the typical home seller makes a profit of just over $300,000 on paper, and said home sellers’ recent capital gains can be reinvested into the housing market.

“If you can buy in this market, it’s probably because you’re selling in this market,” he said, adding that others may also be accessing home equity to help children buy or pass on their inheritance.

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For renters, Owen said a household in the capital with an average income would need to spend 31.7 per cent of its income on rent, while a low-income household would need 53.8 per cent.

“It doesn’t work and that’s where your low-income households need social and affordable housing support, they need Commonwealth Rental Benefit, and they’re more at risk.”

Owen said it’s no longer enough for households to move to a cheaper location.

“This just spreads the problem further,” he said. “The strongest growth rate has been in the lowest-value segment of the market, and this is because relatively high- and average-income households have gravitated towards the lower end of the market.

“They have more purchasing power, and that spreads to the next most affordable, and the next most affordable, until the next least affordable.

“So the solution needs to be built out of market housing in a very deliberate way, to protect people on low incomes and to ensure that key workers have reasonable access to the areas they serve.”

A separate report from SQM Research predicts property prices will rise next year; The baseline scenario sees an increase of 6 percent to 10 percent in capital cities.

SQM chief executive Louis Christopher expects the economy to be stable but sluggish, with one to two rate cuts expected from the middle of next year.

In this scenario, house prices in Sydney would rise by 3 to 6 percent, Melbourne by 4 to 7 percent, Brisbane by 10 to 15 percent and Perth by 12 to 16 percent.

AMP chief economist Shane Oliver said the shortage of housing relative to demand, along with the long-term decline in interest rates, the concentration of the population in a few major cities and the reduction in capital gains, were making affordability worse.

“Supply is not keeping up with demand. We should have been building 230,000, 240,000 homes a year for the last few years. We’re starting at 170,000,” he said.

“We can fix it. We have so much land in Australia but we don’t have the will to do it and we spend too much time arguing about what to do.”