Housing affordability: the ten-year overview

by Madison Utley25 Nov 2019

Housing affordability has slightly improved across most regions of Australia over the past ten years, according to CoreLogic data.

While national dwelling values have risen around the same rate as household incomes over the past decade, mortgage rates have fallen to generational lows, leading to an improvement in loan serviceability with households dedicating less of their income to their home loan.

Nationally, the ratio of dwelling values to household incomes has moved about over the past decade, swinging from a low of 6.1 in late 2012 to a recent high of 7.0 in early 2018. However, in June 2019, the ratio settled at 6.5 – the equivalent to where it was ten years ago.

The 6.5 figure means the average Australian household is spending 6.5 times their gross annual income to purchase a typical dwelling.

While the national reading is the same as it was ten years ago, five of the eight capital cities and four of the seven non-capital city regions have recorded an improvement in the ratio between dwelling values and household incomes.

The lowest is in Darwin, with the typical household only spending 3.4 times their gross annual household income to purchase a dwelling – down from 5.6 ten years ago.

“While most areas have seen housing values become more affordable relative to incomes, some areas have seen affordability worsen,” explained CoreLogic research director Tim Lawless.

“Sydney, Melbourne and Hobart have seen housing values rise at a faster rate than household incomes which has eroded affordability.”

Sydney is at 8.2, up from 6.6 ten years ago. Melbourne is at 7.2, up from 6.4 in 2009. Hobart is at 6.5, up from 5.9.

“It’s a similar story with mortgage serviceability,” said Lawless.

“Despite mortgage rates falling to the lowest level since at least the 1950s, households in Sydney, Melbourne and Hobart are generally dedicating a larger proportion of their incomes towards servicing a new mortgage than they were in 2009.”

For example, based on the proportion of household income required to service a new 80% LVR mortgage, Sydney households are now dedicating 43.7% of their gross annual household income on mortgage repayments compared with 37.7% ten years ago.

“Although housing affordability has worsened relative to ten years ago in Sydney and Melbourne, the decline in home values together with a subtle rise in household incomes and lower mortgage rates has seen affordability and serviceability record a temporary improvement in these areas,” said Lawless.

“[However], since June, dwelling values have surged higher while income growth has remained sluggish, implying that the improvement in housing affordability that has been delivered via a fall in home values is now being eroded.”