The rapidly shrinking pool of affordable housing
Rising home values across most capital city regions has meant that it’s now becoming even more difficult to find capital city homes under $400,000.
Across the combined capital cities, 28% of homes sold over the 12 months to June 2014 were priced below $400,000. In regional areas, the figure was a much higher at 63.9%. Over the past decade, the property market experienced a substantial reduction in housing under $400,000. 10 years ago, 69.3% of capital city home sales and 86.4% of regional home sales were below $400,000.
Over the three months to June 2014, the combined capital city median house price was $550,000 while the median unit price was $475,000. Given the median is the middle sale price over the period, this indicates that over the three month period, an equal number of homes sold above this figure.
A rise in capital city home values of 10.1% over the 12 months to June 2014 indicates the difficulty being experienced by price-sensitive purchasers looking to enter the housing market - this is most felt in Sydney and Melbourne where home values have increased by 15.4% and 9.4% respectively over the year to June.
And while properties in Australia’s regional areas may be more affordable, the downside is a lack of employment. Recent employment data from Australian Bureau of Statistics (ABS) confirmed that across most states, unemployment is lower in the capital cities than in regional markets. The exceptions are Queensland where the unemployment rate is 6.4% in both Brisbane and regional Queensland, and in SA where Adelaide’s unemployment rate is 6.8% compared to 6.4% in regional SA. Although housing might be much more affordable outside of capital cities, job prospects are not as strong.
If we consider the growth in home values and the selling prices of homes, it indicates a shortening supply of more affordable homes.
Looking at the proportion of capital city homes selling below $400,000 over the 12 months to June 1999, in each city the vast majority of homes sold within that price point.
Five years on, the June 2004 results show a decline in home sales under $400,000. Despite the decline, Sydney houses were the only city and property type with less than half of all sales occurring under $400,000. According to the RP Data Home Value Index, combined capital city home values increased by a total of 87.9% over the five years to June 2004.
Between June 2004 - 2009, combined capital city home values increased by a total of 27.4%. Although overall value growth was much more moderate than the previous five years, a sharp decline in sales of homes under $400,000 was recorded by June 2009. Less than half of all house sales in Sydney, Brisbane, Perth, Darwin and Canberra were below $400,000 over the year. In each city a majority of unit sales were under $400,000.
Over the 12 months to June 2014, Hobart was the only city with a majority of house sales under $400,000. Within the unit market, a majority of sales in Brisbane, Adelaide and Hobart were below $400,000. According to the RP Data July Home Value Index results, combined capital city home values increased by a total of 22.1% over the five years to June 2014.
Although home value growth has moderated over each of the past two five year periods, the supply of homes selling at lower price points (i.e. less than $400,000) has also fallen.
Housing is Australia’s single largest asset class and for most people, it’s where they store the majority of their wealth. For those who don’t own their home, it’s a very different story.
In a rising market where home values are increasing, all this is great news for those that own a home but makes entering the housing market more difficult for those that don’t.
Affordable housing is the way that most first time buyers enter the market. With the supply of affordable homes within capital cities shortening significantly, the prospects for first home buyers entering the market are also diminishing. Based on these conditions, we’re expecting the typical age of first home buyers to increase and first home buyer purchasing to remain at below average levels.
