Australia’s housing is at the most affordable now than in the past 12 years, according to the Housing Industry Association.
Record low interest rates and the slowing of home price increases have helped drive the HIA-CBA
Housing Affordability Index to its most favourable level in 12 years during the March 2014 quarter, the association’s senior economist Shane Garrett said.
“Increases in home prices over the past year have been significant. However, the impact of lower interest rates and continued earnings growth has ensured that home purchase affordability has improved over the past year for existing home owners and those on the cusp of entering the market in the short term.”
The index improved by 2.1% during the first quarter of this year and affordability is now 10.8% more favourable than a year ago.
But the HIA new house affordability index declined to -2.3 for the March quarter, indicating that the affordability of new houses continues to be somewhat less favourable than existing houses.
However, HIA predicts a recovery in new home building is underway, and forecast that with 180,000 dwelling commencements across the country in 2014, this would represent an annual increase of 8.2% on 2013 levels.
“Beyond 2014 activity is expected to remain at elevated levels relative to recent history, however sustaining the high level of activity we now expect to see in 2014 appears unlikely,” the association said.
The Reserve Bank of Australia has signalled that interest rates are set to remain low for some time.
As home price pressures ease off, home owner affordability will remain reasonably favourable for the foreseeable future, HIA predicted.
“The key policy challenge exists well beyond this cyclical improvement in home owner affordability,” said Garrett.
“Ensuring adequate and affordable housing for those harbouring aspirations to one day enter the home ownership market and for the large number of rental households in Australia requires a concerted policy focus on boosting new housing supply. That needs to be a key policy priority for all levels of government.”
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