The barriers to entry in Australia's housing market keep rising. Affordability pressures are intensifying Down Under with rising property values further stretching borrowing capacity and putting homeownership out of reach for many.
New data from research firm Cotality found that in Perth, would-be homeowners need an additional $16,500 in annual income as of May — when compared with only five months earlier in January — to secure a mortgage, according to Cotality's Housing Chart Pack. Brisbane shoppers need an extra $17,000 jump over the same period.
"Borrowers can't purchase an established property, because they need $35,000, plus another 5% deposit for a $750,000 property or more. And if they don't have any parents to guarantee them or any other immediate family to help them out, then they need a $70,000 or $80,000 deposit to buy an established property, which could take them years and years to come up with those savings," Niti Bhargava, founder and principal broker at Melbourne-based GB Financiials, told Australian Broker. "So serviceability is definitely a hot topic right now. Like, how do we afford this?"
Matthew Posselt, owner and senior broker at Perth-based Elite Finance Australia, has also noticed a squeeze on borrowing power.
"Servicing has dropped. It's really hard," he said. "Clients need a lot more income now than they did four or five years ago to get into the market. A lot of times now families really need two people to work.
"Pretty much everyone's impacted because of the interest rates and the buffers that the banks have on the rates," Posselt added.
The result is a rapidly rising income threshold for homeownership, with would-be buyers needing to earn more and save longer just to keep pace. Some experts estimate that it could take seven to eight years to save for a deposit.
"Ten years ago, the average house was $300,000. Now it's like $700,000 or $800,000," said Phil Rice, financial specialist and broker. "So it's a bigger noose over the necks of people; the commitment is a lot bigger."
Nationally, the median dwelling value is around $940,000, according to National Australia Bank (NAB), up 8.8%, year-over-year. But the market is not uniform. In Sydney, median prices are nearly $1.3 million. On the other end of the spectrum, buyers in Melbourne can potentially purchase a home with $70,000 less in annual income, according to Cotality.
Still, the combination of factors has made buying increasingly difficult. Higher interest rates are adding another layer of complexity by limiting borrowing capacity, while a persistent national housing shortage is intensifying competition for the limited stock available and pushing prices higher. At the same time, speculation about potential price declines has prompted some would-be sellers to stay put, further tightening supply.
As a result, many people are shifting to purchasing apartments, or building their own homes. Rent-vesting — or buying an investment property is a more affordable area, renting it out and then living in a preferred area — has also emerged as an option.
"There are a lot of sacrifices," Posselt said. "Mainly, people are looking to get a smaller house, something with less bedrooms, whatever they can get their fingers on basically just to try and get into the market. A lot of them are realizing they've got to pay off debts and car loans and credit cards, as well."
The broker added that setting realistic targets early is key.
"Talk to borrowers about expectations and suggest maybe they need to lower their expectations," Posselt said. "Maybe they don't get the dream home straight away. But just get into the market so that later, when there is a dream home, they can be in the right position to buy."
