Income and home price growth disparity to continue, says new report
The gap between average incomes and average home prices in Australia continues to widen, according to a new report by PowerHousing Australia and CoreLogic.
According to the report, The Australian Affordable Housing Environmental Scan 2017-18, the outlook for low-income earners will remain bleak while property prices continue their double-digit growth march while wages can’t keep up.
The report, by PowerHousing Australia and CoreLogic, looks at the key metrics for housing affordability across the country and presses upon the urgency to implement new measures, such as those announced in the recent Federal and NSW state budget to improve access to the housing market. This is especially important for those on lower incomes such as first home buyers, key workers, seniors and social housing tenants.
“The indicators of housing affordability in Australia show that there is an increasing gap between average incomes - particularly those in the lowest two quintiles - and the price of an average home,” PowerHousing Australia CEO Nicholas Proud said.
Even RBA Governor Philip Lowe said earlier this year that the combination of record high household debt to income when wages were growing slowly was a “sobering combination”.
“The report shines a light on just how acute the housing market participation challenge is for low- income earners, for both renters and those looking to become homeowners. The situation for first home buyers is particularly dire today,” said Proud.
First home buyer rates have continued their two-decade-long downward trend. Over the past five years, the average loan they take out has increased by less than $9,000, while the average dwelling price has gone up by $120,000 nationally and $317,300 in Sydney over this period, she added.
However, CoreLogic head of Research Tim Lawless noted some encouraging indicators on the affordability front but said risk factors remain.
“Low interest rates, strong lending finance, a surge in building approvals and subsequent record high dwelling commencements and completions are all positive signs for affordability,” Lawless said.
“Australia has never built as many homes as the number being built today, however there needs to be a sustained level of building over and above the 10-year average rates for there to be a consistent and meaningful improvement in housing affordability, particularly in Sydney.”
Sydney incomes are on average higher than other parts of the country but home prices are more than eight times the median income in Greater Sydney, he said.
For a mortgage with an 80 per cent loan to valuation ratio, families need to set aside 45 per cent of their annual gross household income to service the loan.
In Sydney, only 3.5 per cent of houses sold over the 12 months to February 2017 transacted for less than $400,000 – this figure was 25.8 per cent of all annual home sales in Sydney five years ago.
He attributed strong population growth, driven by high net overseas migration and the ongoing strength of household formation rates has created strong demand for housing which contributes to price rises.
“In Sydney, it is now almost 13 times more likely for a house to sell for more than $1 million than to sell under $400,000 and it is 2.3 times more likely for a unit to sell for more than $1 million than to sell for less than $400,000. For houses, there are also more sales over the past year above $1 million than below $400,000 in Melbourne and Canberra. Sydney has more units selling above $1 million than those below $400,000,” Proud said.
The report indicates that policy levers available to governments can and do have a major impact. The Federal Budget measures for housing announced in May promise to provide some respite for those in rental stress or struggling at the higher percentage end of the mortgage-to-income ratio scale.
“In the late 1990s we saw negative gearing and capital gains tax changes drive investor activity, first home owner grants in 2009 saw first home owners reach 30 per cent of all lending finance and foreign investment changes in countries such as Canada contributed to record levels of foreign investment into countries such as Australia,” said Proud.
“It is clear that housing policy can influence and drive activity into areas of the housing market and boost the provision of housing.”