While expectations continue to mount for the property market to bottom out and dwelling values to begin to rise, a researcher has highlighted an urgent issue that has been left out of the conversation.
CoreLogic’s Hedonic Home Value Index for May 2019 revealed the smallest month-on-month decline in national dwelling values in over a year. However, in explaining the results, CoreLogic head of research Tim Lawless revealed that affordability is the fundamental issue likely to inhibit future property market success.
He explained, “This improvement is primarily being driven by a slower rate of decline in Sydney and Melbourne where housing values were previously falling at the fastest rate of any capital city.
“However, while housing affordability has improved in Sydney and Melbourne, it’s improved from a very, very high level to something that’s still fairly high. Before the marketplace started to downturn, Sydney’s dwelling price to income ratio was getting up to 10 times, meaning a typical household was spending about 10 times their gross annual income to afford the median price dwelling. That’s fallen to a little bit more than 8.5 times now.”
“Affordability has been a major issue in Australia for a very long time. There have been all sorts of things tried, generally unsuccessfully, to improve this,” Lawless added.
He continued to name the “worst example” as stimulatory measures supporting first home buyer demand but neglecting to address the supply side of the equation.
Instead, Lawless sees a great need for improving supply, improving infrastructure, and making affordable housing options more desirable and accessible to first home buyers.
The head of research did note that the combination of lower rates passed on after the RBA’s likely cut later today, APRA relaxing its serviceability floor, and confidence returning post-election would undoubtedly provide some market stimulus.
“But, to qualify that, I don’t think the stimulus is going to be as effective as what we’ve seen over periods of previous rate cuts, simply because we still have a fairly stiff set of credit policies in place,” he concluded.