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Sluggish growth in household earnings and a surge in dwelling price growth have contributed to a weakening in affordability during the September quarter, according to a new report.
The latest Housing Industry Association (HIA) Affordability Index showed that housing affordability worsened by 4.0 per cent over the quarter – 2.1 per cent less favourable than the same period last year.
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Affordability in the capital cities is 3.6 per cent less favourable compared to a year ago, with the report noting that housing developments in the capitals were more detrimental from an affordability perspective, experiencing a 4.1 per cent fall on the previous quarter.
HIA senior economist Shane Garrett said affordability is now at its least favourable since the final quarter of 2014.
“Sluggish earnings growth and the strong pace of dwelling price growth in the two key markets means that home purchase moved beyond the reach of a greater number of Australian households, he said.
Mr Garret said the Reserve Bank’s cash rate cuts in February and May provided a temporary respite from the perspective of affordability, but the surge in dwelling prices in Sydney and Melbourne, along with near stagnant earnings growth, means that “the pendulum has since swung backwards to the detriment of affordability”.
“Over 210,000 new dwellings were commenced during the 2014-15 financial year – an all-time high,” he added. “This remarkable pipeline of supply has helped soothe affordability pains in some markets.
“Were it not for the exceptional level of new home building, Australia’s affordability challenge would be even more severe.”
Mr Garrett said the odds are still stacked far too heavily against the goal of more affordable housing.
“The burden of taxation on new housing is huge, which is exacerbated by chronic shortages of new residential land in key markets. This effect flows through to the existing housing stock in a way that puts potential buyers at a disadvantage,” he said.
“The unilateral increase in variable mortgage rates over the past month is further aggravating the situation.”
