Dwelling price to income ratio affects affordability

Tim Lawless, head of research for CoreLogic, noted in the report that the “obvious divergence” between rising house prices (up 19 per cent over the last five years) and household income estimates (up by just 9.2 per cent) had occurred against “a backdrop of lower mortgage rates, the lowest wages growth on record and disparate economic conditions across the states and territories”.

The report also found that while multiple indicators showed “improved affordability” resulting in a reduction to the costs associated with servicing mortgages, the “deposit hurdle has increased”, leading the proportion of household income required for a 20 per cent deposit to create a financial barrier for new entrants to the market.

Mr Lawless’ research revealed that as Sydney and Melbourne accounted for almost 40 per cent of the Australia’s population, the deteriorating affordability in these cities would “impact a large proportion of the overall population”.

The report noted that median dwellings across Sydney costed 8.4 times the median annual household income (up 1.4 per cent from 7 per cent five years ago), requiring a $157,000 deposit on a $785,000 dwelling, while median dwellings across Melbourne costed 7.1 times the median household income (up by just 0.2 per cent from 6.9), requiring a $113,200 deposit on a $566,000 dwelling.

Across the rest of the country, however, median dwelling price to income ratios fell, with Brisbane dropping to 5.7 per cent, Adelaide dropping to 6.2 per cent, Tasmania dropping to 5.5 per cent and Perth figures falling the furthest to 5.5 per cent, where the median priced dwelling is now valued at $499,000.

“Australians demonstrate a high elasticity of demand for housing, with lower mortgage rates driving high levels of demand in certain dwelling markets which has contributed towards pushing housing values higher,” said Mr Lawless, who added that another factor in driving housing demand in certain cities were high transaction costs.

“Stamp duty costs on the median priced dwelling are now more than $30,000 across both Sydney and Melbourne, which is adding to the savings challenge for prospective buyers looking to participate in home ownership,” he said.

Mr Lawless added that addressing the issue of housing affordability was a “complex task” which required the co-operation of local, state and federal governments as well as the private sector.

“What is particularly required is a co-ordinated housing policy coupled with a strategy that blends land release, zoning changes, infrastructure development and decentralising employment opportunities where housing costs are substantially lower,” he concluded.

[Related: Capital cities see second busiest auction week of the year]