Australia faces worst housing affordability crisis in 30 Years

Housing affordability in Australia has deteriorated over the past year to reach its worst level since records began, according to new data from REA Group’s PropTrack.

The latest PropTrack Housing Affordability Report paints a grim picture for ordinary Australians, particularly first homebuyers, who aspire to own their own property.

The Details

PropTrack says high mortgage rates and increasing home prices mean housing affordability in Australia has never been worse since it started keeping records in 1994-95.

It says median-income Australian households (with a total annual income of $112,000) could afford only 14% of homes sold in the 2023-24 financial year, with first-home buyers “facing even greater affordability challenges”

Just three years ago, PropTrack said a median-income household could afford 43% of homes.

“This marks a rapid deterioration since the onset of the pandemic and noticeably worse than recorded just a year ago,” the report written by economists Paul Ryan and Angus Moore says.

Home affordability slowly improved in the decade following the Global Financial Crisis and was markedly higher in 2020 and 2021, when interest rates fell to record lows during the pandemic.

“But the sharpest increase in interest rates in history from mid-2022 has had a drastic impact on housing affordability, which, along with higher prices, now means buying a home is harder than ever.”

To calculate “affordability,” Paul Ryan and Angus Moore assume that a household would spend 25% of their pre-tax income on mortgage repayments.

They also assume the household has already saved a 20% deposit and can also cover purchasing costs (such as stamp duty).

However, they say higher interest rates have reduced borrowing capacities by as much as 30% for new borrowers in less than two years.

“At the same time, repayments for existing borrowers have increased as much as 50% over the same short period.”

At the same time, home prices have continued to grow.

PropTrack calculates that during the 2023-24 financial year, prices increased 6.6%, which is equivalent to around a $50,000 increase on the national median home price. 

“This rate of growth remains above the average rate of growth seen over the past few decades, highlighting the challenging balance of supply and demand across the market despite record low levels of housing affordability.”

To cover mortgage repayments on a median-priced home, the economists say a median income household would have to spend about a third of their pre-tax income on mortgage repayments.

However, it appears many owner-occupier households with existing mortgages are already paying a lot more than that.

The Real Estate Institute of Australia recently estimated the average mortgage repayment in the June quarter of 2024 now amounts to 48.1% of a median family income.

In other words, nearly half the money coming into a median family home with a mortgage in Australia is going straight back out the door in the form of repayments to the bank.

Tougher for some

PropTrack says housing affordability is tougher for first-home buyers, with median-income renters able to afford just 11% of homes (and just 9% of houses) sold over the past year, compared to 34% for households who already have a mortgage. 

“These results highlight how important existing wealth is for participating in home ownership – with so few homes affordable to typical-income renters, many are relying on family help to crack into the market,” the authors say.

They also point out that “low-income households have effectively been excluded from home ownership, as a family at the 20th income percentile (earning just under $50,000 per year) could afford to buy just 3% of homes.”

Affordability also depends on where you live.

New South Wales has the worst housing affordability of any state, with a median-income household able to afford just 10% of homes sold across the state.

Mortgage costs are also higher than any other state, and repayments for a median-priced home are just under 40% of average incomes.

Higher property prices mean the time it takes to save a 20% deposit is longer in New South Wales than in any other state at 6.5 years.

Despite prices being flat or easing slightly in Melbourne and Regional Victoria over the past year, affordability in Victoria is not much better, with median households able to afford just 12% of homes sold last financial year across the state.

PropTrack says mortgage repayments on a typical new loan also hit 35% of the average household income.

Affordability is dire in Tasmania, where a median-income household could afford just 9%

of homes sold over the past year – the lowest of any state - although mortgage repayments are lower than in New South Wales at 35% of household income. 

Queensland (15% affordability for median income households) and South Australia (16%) fare better, but PropTrack says Western Australia is by far the most affordable state in the land.

“This is reflected in how many homes a median-income household can afford: 26%, which is ten percentage points higher than in any other state,” the report says.

“The time it takes a first-home buyer to save a deposit in Western Australia is much lower than any other part of Australia, at just 3.8 years.”

Paul Ryan and Angus Moore say while mortgage costs have increased markedly over the last two years, “at just 22.5% of average household income, they remain very low relative to other states.” 

“The status Western Australia holds as the most affordable housing market in the country will continue to attract both those looking to move and buy their first home, as well as interstate investors,” the two economists conclude.