Utilising quarterly household income data from the Australian National University, CoreLogic has developed quarterly measurements of the ratio of property prices to annual household income. This data is extremely valuable when looking to measure housing affordability. The measure is available at a number of different geographies from SA2 regions (generally about the size of a suburb or group of suburbs) all the way up to GCCSA (capital city and rest of state) regions. When looking at the analysis it is important to note that a higher ratio means housing is less affordable and a lower ratio indicates better affordability.
With property prices varying greatly between each of the capital cities it is interesting to note that the variation in household incomes in nowhere near as large. In March 2016, Hobart had the lowest median dwelling price at $337,250 and Sydney had the highest median price at $775,000. Meanwhile, household incomes range from as low as $1,175/week in Hobart to $2,118/week in Darwin. Obviously the differences in property prices and incomes impact on housing affordability, so let’s take a look at each of the capital cities and the ratio of prices to income over time.Outside of Sydney, Melbourne and Canberra housing affordability is improving with each capital city having a current ratio which indicates affordability has been worst in the past. The problem is that almost 2 out of every 5 Australians live in either Sydney or Melbourne and these two cities have also been the epicentres of employment and economic growth over recent years. Deteriorating housing affordability in Sydney and Melbourne impacts on significantly more people than deteriorating housing affordability elsewhere around the country.
This measure of affordability provides a high level overview of the relative housing affordability across the capital cities, but it is important to remember that geographically across each city the affordability story can be dramatically different. Furthermore, this analysis does not take into consideration interest rates which can make housing affordability more affordable. While interest rates are undoubtedly a consideration for buyers, they must also consider that interest rates can fluctuate dramatically over the life of a mortgage.
