Affordability in Sydney? You're dreaming

by Julia Corderoy28 Apr 2015
Sydney households are forking out more than a third of their pay cheques to afford home loan repayments, according to a new report, and it is likely to get more expensive.

The report from risk analysis and ratings agency Moody’s revealed that Sydney households spent, on average, 35.1% of their income on repayments as of 31 March 2015. This is higher than the 10-year average for the city and up from 32.8% in 2014. 

On an overall national level, Australian households with a home loan needed just over a quarter (27%) of their income, on average, to make such repayments.

However, as Moody’s assumes a household has two income earners, if the household has only one income earner, Sydney's affordability measure would be above 70%. 

Natsumi Matsuda, a Moody's analyst, says using 70% of income to service monthly mortgage repayments is not sustainable, but affordability is likely to get worse in Sydney.

“Furthermore, stress testing in four scenarios also shows that Sydney's market is most at risk of a further deterioration in housing affordability.”

The results of stress-test scenarios performed by Moody’s showed that if median dwelling prices increased by 10%, Sydney's affordability would deteriorate by 3.5 percentage points, compared with the national deterioration of 2.7 percentage points. Stress-testing also revealed that same would happen if interest rates were increased by 100 basis points.

Further, if post-tax income – instead of pre-tax – was used to calculate monthly average household income, the Moody's Housing Affordability Measure would be six percentage points higher on a national basis. Affordability in Sydney would deteriorate the most (7.8 percentage points), while affordability in Adelaide would deteriorate the least (4.6 percentage points).

However, if mortgage interest rates declined by 25 basis points in the second quarter of 2015, which is in line with Moody’s expectation, the housing affordability measure would improve by 0.6 percentage point on a national basis, all else being equal.