Category: Home Prices

Non-bank assumes 20% default rate for apartments

A non-bank lender has revealed how it stress-tests new residential projects amid fears of oversupply, rising defaults, falling property prices and a significant reduction in foreign buyers; via the Adviser.

Growing fears surrounding the sustainability of Australia’s new apartment market have been growing since China tightened its capital controls, the Australian government introduced new regulations and taxes on foreign buyers and the majors stopped lending to overseas investors.

The latest Foreign Investment Review Board (FIRB) figures show that overseas property investment fell by 65 per cent in FY17.

A BIS Oxford Economics report released this week forecasts that, given the extent of new apartment construction relative to houses, there are likely to be pockets of oversupply of apartments across Melbourne. The city’s median unit price is forecast to fall by a total 2 per cent in three years, or 9 per cent in real terms, according to BIS.

Meanwhile, in Brisbane, the forecast for unit prices in 2018 will be 25 per cent lower than their real peak in 2010.

Late last year, UBS warned that poor-quality projects are “under significant pressure” and that one in five, or 20 per cent, of foreign buyers are failing to settle.

Non-bank lender Qualitas, which funds residential real estate projects on the east coast of Australia, has said that it is “very conservative” about funding new developments.

“The default rates are not substantial,” Qualitas managing director Andrew Schwartz said.

“To the extent that a developer is left with some residual stock, it is generally their profit in the development. Or it is an amount that allows them to take out a residual stock loan. That is why you are not reading stories about buildings being sold by receivers.”

Qualitas calculates a decent fall over rate when funding property developers and is well aware of some of the fears surrounding the Australian apartment market.

“We already assume defaults. We assume the property market comes down in value,” Mr Schwartz said.

“What you generally find in the developments that we do is, if you start with one times pre-sale, that means if you give someone a $100 loan, they have at least got $100 of sales in their development. So long as you start on one times, what you will find is you can withstand about a 20 per cent decline in property value and a 20 per cent default on those that committed to you and you will still earn your full rate of return of interest.”

To date, the group has funded 109 projects and earned full returns on all of them.

Non-bank lenders like Qualitas have grown in recent years after the majors reduced their appetite for apartment funding, foreign buyers and mezzanine debt.

Rail access improves liveability, but all regional centres are not equal

From The Conversation.

Our research on the liveability of regional cities in Victoria has identified an important element: liveability in these areas requires fast, reliable and frequent rail connections to capital cities.

Previous research has established that we need better models of early transport delivery in growth areas of Melbourne. Public transport, in particular, is an essential ingredient for a liveable community. Less attention has been paid to transport in regional areas, particularly regional areas with growing populations.

People living in regional areas still need access to capital cities. The reasons include employment, education, medical services, shopping, arts, culture and visits to family and friends.

Regional Victorians who lack access to reliable rail services remain deprived of non-car travel options. This forces them to drive and that adds to traffic congestion in our capital cities. Car dependency is costly for health and wealth.

Regional rail is important both to meet the needs arising from predicted population increases across regional areas and to manage the rapid population growth and sprawl of our capital cities. Australia’s population is predicted to increase by 45 million by 2100 and our cities are already expanding rapidly. We need to start thinking about where these extra people are going to live.

At present, most people (more than 80%) in Australia live in capital cities. However, as populations grow, more people will start moving to regional areas. This means we need to pay more attention to the liveability of regional Australia as well as capital cities.

Wherever they live, people need transport to get to employment, education, shops and services, and to socialise with friends, family and community members. Furthermore, our research has found that having close access to a range of these things is associated with better health and well-being. Good access to frequent, reliable and fast transport is not a luxury. It is a critical factor influencing liveability and is described as a social determinant of health – one of the conditions (where we live, learn, work and play) that influence our health.

Liveable places promote health and well-being among the people who live there. However, they also require transport options, including public transport such as trains, buses, trams as well as walking and cycling. In regional areas expansive distances make it hard to get by without a private vehicle.

A good example of this is Mitchell Shire. It begins at the northern edge of metropolitan Melbourne and extends to the regional town of Seymour in northeastern Victoria.

The population is booming in this non-metropolitan shire. The small town of Beveridge is expecting to accommodate at least 150,000 people in new urban development over the next 30 years. To put that into context, the town had a population of just over 2,300 people in 2016.

To understand the current regional rail services (and liveability) for areas like Beveridge we produced the summary map below.

Wait times between 6am and 9pm for regional train routes with a daily service on weekdays. Calculated using Public Transit Victoria data from April 12 to June 10, 2018. Author provided

Developers’ signs in the Beveridge area are advertising “40 minutes to the city” along the Hume Highway. Perhaps they are including a helicopter in their house and land packages. Based on current regional rail options, residents must drive to their nearest station 10-15 minutes away, wait for a train – services depart at intervals of 34-105 minutes – and then travel up to an hour to the city during peak hour.

Alternatively, these developments might be encouraging car use as the main means of transport. In that case, Google Maps suggests peak-hour travel from Beveridge to the Melbourne central business district takes between one and two hours on a weekday. Again, as well as being associated with poor health outcomes, long commutes by car will increase traffic congestion along the route and in the city.

Regional rail services are highly uneven

The map above also suggests that some areas of regional Victoria are doing better than others in terms of regional rail connections to Melbourne.

Consider the examples of Bendigo and Shepparton in central and north-eastern Victoria. Shepparton is a large regional centre, with an economy established in health services and agriculture. Its population is projected to grow to 315,000 people by 2046.

Shepparton Council planning is guided by a liveability framework, a 30-year plan and has recently completed a liveability assessment. However, Shepparton’s economic and social development is restricted by only four train services to Melbourne per day compared to Bendigo’s 27 services.

Similarly, Geelong has a projected population increase of 56% to 445,000 people by 2046. However, duplication and electrification of the overcrowded line remains an unfunded long-term project.

Car dependency, transport planning and urban design are critical social determinants of health that also need to be considered in creating liveable, well-connected communities in regional areas. We need to act now if we are to learn from the liveability lessons of our capital cities and avoid repeating the mistakes.

Authors: Melanie Davern, Senior Research Fellow, Healthy Liveable Cities Group, Centre for Urban Research, RMIT University; Carl Higgs, Research Officer, Centre for Urban Research, RMIT University; Claire Boulange, Postdoctoral Research Fellow, Centre for Urban Research, RMIT University
Jonathan Arundel; Senior Research Fellow, Healthy Liveable Cities Group, Centre for Urban Research, RMIT University; Lucy Gunn, Research Fellow, Centre for Urban Research, RMIT University; Rebecca Roberts, GIS Analyst, Centre for Urban Studies, RMIT University

Household Debt Is The Biggest Risk – RBNZ

The New Zealand Reserve Bank has issued their latest financial stability report.  They say that New Zealand’s financial system remains sound. Household debt is firmly in the frame as the biggest potential risk!

The banking system holds sufficient capital and liquidity buffers, guided by our prudential regulatory requirements. These buffers reduce New Zealand banks’ exposure to adverse shocks.An ongoing driver of financial soundness is the conduct and culture of banks and insurance companies. These features are being jointly reviewed by the Financial Markets Authority and ourselves, and we will report our findings over coming months. The financial system vulnerabilities are much the same as we discussed in our previous Financial Stability Report.

Household mortgage debt remains high. However, financial risk has lessened with both lending and house price growth slowing in the last 12 months – in part due to our imposition of loan-to-value (LVR) ratio restrictions. This more subdued lending growth needs to be further sustained before we gain sufficient confidence to again ease the LVR restrictions.

However, the banks says the high level and concentration of household sector debt in New Zealand is the largest single vulnerability of the financial system. Some households are vulnerable to developments that reduce their debt servicing capacity, such as higher interest rates or a change in financial circumstances. Households with severe debt servicing problems could default on their loans, creating losses for lenders. If debt servicing problems were widespread, weaker consumption and investment could reduce incomes and contribute to an economic downturn. This could threaten financial stability by causing households and businesses to default, and by reducing the value of assets against which banks have lent, such as houses.

The high level and concentration of household sector debt in New Zealand is the largest single vulnerability of the financial system. Some households are vulnerable to developments that reduce their debt servicing capacity, such as higher interest rates or a change in financial circumstances. Households with severe debt servicing problems could default on their loans, creating losses for lenders. If debt servicing problems were widespread, weaker consumption and investment could reduce incomes and contribute to an economic downturn. This could threaten financial stability by causing households and businesses to default, and by reducing the value of assets against which banks have lent, such as houses.

The rise in household debt since 2012 has coincided with a sharp rise in house prices, particularly in Auckland (figure 2.2). The simultaneous rise in household debt and house prices could partly reflect a self-reinforcing cycle, where bank lending has boosted house prices and, in turn, higher house prices have supported more bank lending, by increasing the value of homeowners’ collateral. But this cycle can also operate in reverse, driving down bank lending and house prices. This negative interaction can amplify the financial stability impact of a household income shock, by lowering collateral values and reducing households’ ability to service their existing debts by increasing their borrowing.

In the past two years, concerns about vulnerabilities in the household sector have caused a tightening in bank lending standards to the sector. This is partly the result of the Reserve Bank tightening its restrictions on new mortgage lending, particularly to investors, at high loan-tovalue ratios (LVRs) in October 2016.1 It also reflects actions by banks to tighten lending standards, such as the use of higher household living cost assumptions when assessing borrowers’ ability to service loans. As a result, a lower proportion of banks’ new mortgage loans have high risk characteristics than in 2016.

However, the share of new lending with high risk characteristics is still concerning. The proportion of new mortgage lending to borrowers with debt-to-income ratios above five is high compared to international peers, such as the UK. Households with this level of indebtedness are
particularly vulnerable to even modest changes in income or interest rates.

The tightening in lending standards has contributed to the annual growth rate of household credit slowing to 6 percent, slightly above the rate of income growth (figure 2.4). This has coincided with a slowdown in national house price growth, to 4 percent in the year to April. The
decline in house price inflation partly reflects the announcement and implementation of government policies (such as KiwiBuild, the extension of the bright-line test and plans for ‘loss ring-fencing’). But low mortgage rates and high net migration continue to support house prices.

The growth rates of household debt and house prices have been fairly stable over the past six months. Combined with tighter bank lending standards, this suggests the financial system’s vulnerability to household debt has not changed materially since the previous Report.

Ultimately, continued stabilisation, or a further reduction, in the growth rates of household debt and house prices, will be required before the risk to the financial system is normalised. Bank lending standards will have an influence over both. Currently, banks expect to keep their lending standards relatively tight for the rest of 2018.

In a similar vein, the dairy farming sector remains highly indebted. Most dairy farms are currently cash-flow positive, but remain vulnerable to any possible downturn in dairy prices and agriculture shocks. Reducing this bank lending concentration risk requires more prudent lending practices.

The high dairy-farm indebtedness, and the fact that LVRs were necessary, reflects that banks’ allocative efficiency – eg deciding how much to lend to whom – can be impaired due to the pursuit of short-term, rather than longer-term, profits.

The report also commented on the Australia Economy:

The Australian economy is growing steadily. But vulnerabilities have risen in recent years, particularly in the household sector, which carries a relatively high level of debt. House prices also appear stretched in some cities. Regulators have responded in a number of ways, including by requiring banks to conduct more rigorous loan serviceability assessments. These changes, coupled with a broader improvement in lending standards and an easing in housing market conditions, have improved the outlook for risks in the Australian household sector. But the Australian financial system remains vulnerable to developments that could weaken households’ ability to service their debts.

More Go Negative On Housing

In Australia, lending conditions are tightening  and we are already seeing the housing market slow in major cities. It is tricky to determine the extent of any fall ahead, and most predictions will of course be wrong. But the more significant factor in play is the significant change in the atmospherics around the housing sector. More are going negative. And when the largest lender in Australia signals they expect a fall, even mild, this is significant.

Recently Morgan Stanley said it is predicting property prices could fall by about 8% in 2018, and lending by more than a third.

Morgan Stanley suggests there’ll not only be further price weakness in the months ahead, but also the likelihood of renewed softening in building approvals. It says these two factors will likely weigh on household consumption and building activity, seeing Australian economic growth decelerate, rather than accelerate, this year.

CBA has also gone negative on housing, now forecasting a mild correction. Gareth Aird, senior economist at CBA says that Australian residential property prices have fallen over the past six months. Additional declines appear likely over the next 1½ years due to a further tightening in lending standards, a continued lift in supply, potentially higher mortgage rates and more rational price expectations from would-be buyers. But he says a hard landing, however, looks unlikely and “is not our central scenario”.

Stepping through the argument he posits first dwelling prices go through both long-run super cycles as well as shorter-term cyclical trends.  The recent evidence suggests that Australia’s latest residential property short-run cycle has come to an end.  After a little over five years of incredibly strong property price growth, driven by Sydney and Melbourne, dwelling prices have been deflating.

It is our view that prices will to continue to deflate over the next 1½ years.  Credit standards are likely to be further tightened, supply will continue to lift, mortgage rates are more likely to go up than down and buyer expectations have adjusted downwards from exuberance to more rational levels.  We do not expect a hard landing, however.  Population growth, driven by net immigration, is expected to remain strong.  And rental growth is still positive, which ensures yields look reasonable in a low interest rate world.  We also expect the unemployment rate to gradually drift lower, which means that the risk of default is low.

Author and economist Harry Dent thinks property prices could fall even more. Harry is the editor of Harry Dent Daily and has been recently touring around Australia.

And, as he told Australian Property Investor recently, ‘the real estate bubble is like a popcorn popper with different markets frothing over and peaking at different times, but all will burst ultimately.’

We can consider ourselves lucky if the property market corrects by only 10–20%. He has consistently been negative on Australian property.

“Your problem is you’ve got the second highest real estate costs compared to income in the world. I see Australia as the best house in a bad neighbourhood, but you can’t escape a global crisis.

“I think this time your real estate will come back 20, 30, 40, 50 per cent. That’s good. When young people have to pay 12 times their incomes for a house, that’s not good, so this is where the reset needs to come. I think you will have a recession this time.”

House prices in Melbourne and Sydney tipped to fall

From The Real Estate Conversation.

Housing prices are tipped to fall by as much as four per cent, a major reversal of the previously rosy forecast, according to SQM Research.

The Sydney and Melbourne property markets are overvalued by as much as 45 per cent, based on its comparison of nominal aggregate incomes to housing prices.

This overvaluation is expected to wind down over an extended period of time.

According to the managing director of SQM, Louis Christopher, there were several major indicators that caused SQM to revise its forecast.

“Leading indicators such as auction clearance rates, total aggregated property listings and asking prices suggest further deterioration in market conditions in recent weeks,” Mr Christopher said.

The number of property listings in Sydney has risen by 34 per cent this year.

“They are now at similar levels recorded in 2011, a point in time when. Sydney dwelling prices fell three per cent for the year,” he said.

Despite that, Sydney’s auction clearance rates have fallen to the low-to-mid 50 per cent range, Mr Christopher observed.

“The clearance rate may have dropped further to below 50 per cent in late April,” he said.

Home Prices Drifted Lower In April 2018

Corelogic published their hedonic index for April 2018.  Capital city dwelling values record their first annual decline since November 2012 while regional dwelling values continue to edge higher.

National dwelling values nudged 0.1% lower in April, the seventh  consecutive month-on-month fall since values started retreating in October last year.

The declines were concentrated within the largest capitals, while regional dwelling values edged 0.4% higher.

Capital city dwelling values were 0.3% lower over the month, driven by larger falls of -0.4% in Sydney and Melbourne and a smaller decline in Brisbane values (-0.1%). The falls were offset by flat conditions in Perth and subtle rises in Adelaide (+0.1%), Darwin and Canberra (both +0.6%). Hobart was the only city where dwelling values rose by more than 1% in April.

On an annual basis, the combined capitals recorded the first decline in dwelling values since late 2012, with values slipping 0.3% lower, driven by falls in Sydney (-3.4%), Perth (-2.3%) and Darwin (-7.7%). The only capital city to see an improvement in annual growth conditions relative to a year ago is Perth, where the rate of decline has slowed from -3.0% last year to -2.3% over the past twelve months.

Regional areas now outpacing the capital cities The past five years has seen combined capital city dwelling values appreciate at the annual rate of 6.8% which is almost double the annual rate across the combined regional markets at 3.5%. The past twelve months has seen capital city dwelling values fall by 0.3% while regional values are 2.4% higher.

Unit values outperform house values Similarly, capital city detached house values have recorded an average annual growth rate of 7.3% over the past five years, while unit values were up 5.5% per annum over the same period. Mr Lawless said, “Despite the surge in unit construction over recent years, the past twelve months has seen unit values continue to trend higher, up 1.9%, compared with a 1.0% fall in house values.”

More affordable housing stock has been resilient to value falls Across the most expensive quarter of the market, dwelling values have increased at almost twice the pace of the most affordable quarter over the past five years, up 8.2% per annum compared with 4.4% per annum. As conditions have slowed down, it’s been the most affordable end of the housing market where values have remained resilient to falls, trending 1.9% higher over the past twelve months while the most expensive quarter of properties has seen values fall by -1.6%.

APAC Banks’ Property Risks are Mounting

Banks in Asia-Pacific (APAC) will face heightened property risks over the medium term, given their relatively high exposure to the sector and the susceptibility of heavily indebted household sectors to a rise in interest rates or unemployment, says Fitch Ratings.

Residential property risks are highest for Australian and New Zealand banks, and may remain elevated in the short term as low interest rates and high house prices continue to drive mortgage growth, albeit it a slower rate. Residential property loans accounted for 43% of Australian bank assets in December 2017, up from 39% five years earlier, while in New Zealand the share rose to 46% from 43%. Australian and New Zealand households also have some of the region’s highest debt burdens.

Hong Kong banks’ property risks are increasing, with the territory being one of the few markets where property lending has accelerated over the past year, while intense competition continued to pressure margins. Mortgages account for a relatively low proportion of system assets, but a sharp housing market downturn could hurt sentiment and expose vulnerabilities, as rising prices have boosted private-sector wealth, banks’ reserves and collateral valuations. Banks’ rising exposure to mainland Chinese property is driving real-estate lending growth.

Korea’s high household debt would make its economy less resilient to shocks, including a housing market downturn. Household debt ratios are unlikely to decline over the medium term. However, household assets are also relatively high and banks’ property exposure is healthy overall, with low delinquencies and moderate LTV ratios. The same is also broadly true for Singapore, where we expect a more buoyant property market to support bank lending in 2018.

APAC regulators have actively tightened macro-prudential measures in an effort to strengthen banking-sector resilience to potential property risks. These measures have helped cool property markets in Singapore and Taiwan, while the tight stance has generally bolstered loss-absorption buffers and supported lending standards. Nevertheless, continued rapid lending and a further rise in risk appetite could increase the prospects of negative ratings action in the medium term, particularly in the absence of commensurate reinforcement to buffers.

Household leverage has started to decline in the emerging markets where it is highest – Malaysia and Thailand. We expect some fallout from over-supply in Malaysia, but risks to banks should be manageable as their exposure to the more vulnerable segments has remained small. Strong commercial real-estate lending growth by Thai banks in 2017 reflected an improving operating environment and followed sluggish growth in previous years, although there are still risks associated with consumer lending. Real-estate lending growth has also remained high in the Philippines.

Chinese banks shifted toward retail banking and mortgage lending in 2017, amid pressures in the corporate and financial sectors. However, increases in household leverage have been from a low base and have not reached the levels of most developed economies, suggesting that any near-term risks from China’s household debt burden remain moderate. Bigger risks would emerge if household lending was left unchecked over the medium term.

The risk across APAC of a residential property market downturn that significantly undermines banks’ asset quality is unlikely in 2018, given that economic conditions are likely to remain benign. However, rapid mortgage lending growth, incrementally higher risk-taking and relaxed mortgage pricing amid competitive pressures are likely to have created vulnerabilities that could be tested by a change in economic conditions. Rising interest rates are a potential trigger, despite our view that monetary tightening will be much slower in APAC than in the US.

The Property Imperative 10 Report Released

The latest and updated edition of our flagship report “The Property Imperative” is now available on request with data to April 2018.

This Property Imperative Report is a distillation of our research in the finance and property market, using data from our household surveys and other public data. We provide weekly updates via our blog – the Property Imperative Weekly, but twice a year publish this report.  This is volume 10.

Residential property, and the mortgage industry is currently under the microscope, as never before. The currently running Royal Commission has laid bare a range of worrying and significant issues, and recent reviews by the Productivity Commission and ACCC point to weaknesses in both the regulation of the banks and weak competition in the sector. We believe we are at a significant inflection point and the market risks are rising fast. Portfolio risks are being underestimated.  Many recent studies appear to support this view. There are a number of concerning trends.

Around two thirds of all households have interests in residential property, and about half of these have mortgages. More households are excluded completely and are forced to rent, or live with family or friends.

We have formed the view that credit growth will slow significantly in the months ahead, as lending standards tighten. As a result, home prices will fall. We note that household incomes remain flat in real terms, the size of the average mortgage has grown significantly in the past few years, thanks to rising home prices (in some states), changed lending standards, and consumer appetite for debt. In fact, consumer debt has never been higher in Australia. Household finances are being severely impacted, and more recent changes in underwriting standards are making finance less available for many. But the risk is in those loans made in recent years under looser standards, including interest only loans.

Property Investors still make up a significant share of total borrowing, and experience around the world shows it is these households who are more fickle in a downturn. Many use interest only loans, which create risks downstream, and regulators have recently been applying pressure to lenders to curtail their growth.  Already we are seeing a drop in investor loans, and a reduction in interest only loans. A significant proportion will be up for review within tighter lending rules. This may lift servicing costs, at very least and potentially cause some to sell.

We hold the view that home prices are set to ease in coming months, as already foreshadowed in Sydney. We think mortgage rates are more likely to rise than fall as we move on into 2019.

We will continue to track market developments in our Property Imperative weekly video blogs, and publish a further update in about six months’ time.

If you are seeking specific market data from our Core Market Model, reach out, and we will endeavour to assist.

Here is the table of contents.

1	EXECUTIVE SUMMARY
2	TABLE OF CONTENTS
3.	OUR RESEARCH APPROACH
4.	THE DFA SEGMENTATION MODEL
5	PROFILING THE PROPERTY MARKET
5.1	Current Property Prices
5.2	Property Transfer Volumes Are Down
5.3	Clearance Rates Are Easing
5.4	But Can We Believe the Auction Statistics Anyway?
6	MORTGAGE LENDING TRENDS
6.1	Total Housing Credit Is Up
6.2	ADI Lending Trends
6.3	Housing Finance Flows – Bye-Bye Property Investors
6.4	The Rise of the Bank of Mum and Dad
6.5	Lending Standards Are Tightening
6.6	How Low Will Borrowing Power Go?
6.7	The Portfolio Mix Is Changing
6.8	Funding Costs Are Higher
6.9	The Interest Only Loan Problem
7	HOUSEHOLD FINANCES AND RISKS
7.1	Households’ Demand for Property
7.2	Property Active and Inactive Households
7.3	Cross Segment Comparisons
7.4	Property Investors
7.5	How Many Properties Do Investors Have?
7.6	SMSF Property Investors
7.7	First Time Buyers.
7.8	Want to Buys
7.9	Up Traders and Down Traders
7.10	Household Financial Confidence Continues to Fall
7.11	Mortgage Stress Is Still Rising
7.12	But The RBA Is Unperturbed
7.13	Latest Household Debt Figures a Worry
8	THE CURRENT INQUIRIES
8.1	Productivity Commission
8.2	The ACCC Mortgage Pricing Review
8.3	The Royal Commission into Misconduct in Finance Services
8.4	Merge Financial Advice and Mortgage Brokering Regulation
9	AN ALTERNATIVE FINANCIAL NARRATIVE
9.1	Popping The Housing Affordability Myth
9.2	The Chicago Plan
10	FOUR SCENARIOS
11	FINAL OBSERVATIONS
12	ABOUT DFA
13	COPYRIGHT AND TERMS OF USE

Request the free report [85 pages] using the form below. You should get confirmation your message was sent immediately and you will receive an email with the report attached after a short delay.

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HIA Says Affordability Improving in Most Capital Cities (Thanks To Price Falls)

“Affordability improved in most of Australia’s capital cities during the first three months of 2018 as house price pressures eased,” commented Shane Garrett, HIA Senior Economist.

This does not necessarily take account of the now tighter, and becoming even tighter lending standards now in play.  In any case, in most centres, affordability is still well below the long term averages.

HIA’s Affordability Index is calculated for each of the eight capital cities and regional areas on a quarterly basis and takes into account latest dwelling prices, mortgage interest rates and wage developments. The results are published and analysed in the HIA Affordability Report.

“Affordability in Sydney improved by 1.9 per cent as a result of the reduction in dwelling prices over the past six months, while in Melbourne the outcome was largely unchanged as price growth remains solid.

“Across the eight capital cities overall, affordability improved slightly (+0.2 per cent) during the March 2018 quarter. The improvement was held back by strong home price growth in a limited number of markets including Melbourne and Hobart.”

“Current interest rate settings continue to benefit affordability. The RBA’s official cash rate is at a record low and hasn’t been moved in over 20 months – an unprecedented period of stability.

“Even though we have started to move in the right direction, housing affordability remains very challenging in the larger capital cities. The root cause of the problem is that the cost of producing new houses and apartments is still too high.

“Governments need to focus on solutions involving lower land costs, a more nimble planning system and a lighter taxation burden on new home building,” concluded Mr Garrett.