HIA Affordability Report Dec Qtr 2022

December 2022 Quarter

INTEREST RATE HIKES CONTINUE TO MAKE HOUSING LESS AFFORDABLE

HIGHLIGHTS:

 The RBA continues to drive down housing affordability.

 Further hikes to come, combined with tight rental markets, low unemployment and the return of overseas arrivals, threaten to worsen the affordability situation.

 This is being compounded by Australia’s regulators making it unattractive to lend to first home buyers and those with deposits of less than 20 per cent

The HIA Affordability index measures the extent to which average weekly earnings can repay and service a mortgage for a median-priced dwelling. The index is calculated based on prevailing mortgage interest rates, average weekly earnings and median home prices. The concept of affordability essentially explores the proportion of earnings absorbed by servicing costs on a 25 year mortgage with a 90 per cent Loan-to-Valuation-Ratio at inception An index reading of 100 indicates the threshold for ‘affordable’ market whereby mortgage repayments account for exactly 30 per cent of average earnings under current market conditions. An index level above 100 indicates an affordable market and an index level below 100 indicates an unaffordable market. When the index level is rising affordability is considered to be improving while a decline in the index indicates a deterioration in affordability.

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This is the least affordable Australian housing has been in over a decade. It now requires very nearly 1.6 average incomes to affordably service a mortgage on a median-priced home in Australia’s capitals, and more than 1.4 incomes in Australia’s regions.

The regions led the decline in the most recent quarter, down by 2.8 per cent, while the capitals declined by 1.9 per cent. Every capital and region deteriorated in the December 2022 Quarter, with only one exception – Brisbane.

Even with house prices having come down, the pace of the RBA’s hiking cycle has more than offset this – and ongoing wage gains – worsening affordability overall.

Unfortunately, with further rate hikes flagged as likely by the RBA, further deterioration in affordability is likely. This is especially true if wage growth remains lacklustre and dwelling prices are supported by tight rental markets, low unemployment rates and the rapid return of overseas migrants, students and tourists.

Not only does this put the building industry through the boom and bust cycles it also jeopardises the Australian government’s goal of a million new homes built between 2024 and 2028. This will undermine housing affordability for years to come, pushing the dream of homeownership out of reach of more and more Australians.

These challenges are being compounded by Australia’s regulators seeking to create an “unquestionably strong” financial sector, at the cost of making it increasingly costly to lend to first home buyers and those with deposits of less than 20 per cent. For as long as it can take more than decade to save a sufficient deposit, housing will not be accessible for a great number of Australians

HIA HOUSING AFFORDABILITY INDEX, AUSTRALIA

HIA

INDEX FOR AUSTRALIA'S EIGHT CAPITAL CITIES

Interpreting the Affordability Index

For homeowners, an index reading of 100 indicates the threshold for an ‘affordable’ market whereby mortgage repayments account for exactly 30 per cent of average earnings under current market conditions. An index level above 100 indicates an affordable market and an index level below 100 indicates an unaffordable market. When the index level is rising affordability is considered to be improving while a decline in the index indicates a deterioration in affordability

Methodology note:

The dwelling price data in this report are based on the monthly simple median price data and hedonic price series in each of the relevant markets as compiled by CoreLogic. It is also important to note that earnings data are only available every six months, currently up to November 2022. Accordingly, earnings data for the quarters in between these statistical releases are based on HIA estimates and may be subject to revision on publication of subsequent data by the ABS

HIA Affordability Index by Market

Brisbane was the only capital city or region that saw affordability improve in the December 2022 Quarter, with the HIA Affordability Index increasing by 0.4 per cent. Hobart saw a decline, but a relatively modest one, of 0.8 per cent.

In the middle of the pack, markets saw affordability decline by between 1.5 per cent and 2.6 per cent in the December 2022 Quarter. These markets included Sydney and regional New South Wales, Melbourne and regional Victoria, regional Queensland, and Canberra.

The markets that saw the worst deterioration in affordability in the December 2022 Quarter were in Western Australia, South Australia, the Northern Territory and Tasmania. Perth, Adelaide and Darwin all saw declines of between 4.5 per cent and 4.8 per cent. Regional Northern Territory and regional Tasmania saw declines of 4.2 per cent and 4.4 per cent, respectively. While regional Western Australia and regional South Australia saw declines of 6.6 per cent and 7.2 per cent, respectively.

Despite having among the biggest declines in affordability most recently, Perth and Darwin remain the most affordable capital cities in Australia, following the price declines of their respective mining downturns. Though neither are considered ‘affordable’ any more, with both falling below the ‘100’ threshold for the HIA Affordability Index, meaning more than one average income is now required in both cities to service the mortgage on a median priced dwelling. This is the first time since 2016 and 2017 respectively that Perth and Darwin have been ‘unaffordable’.

Adelaide, also seeing a significant decline in affordability in the latest quarter, is now the third least affordable capital city in Australia, recently overtaking both Brisbane and Canberra. This follows significant price gains during the pandemic for Adelaide, making the city much less affordable than it has averaged over the last 20 years.

Hobart has also seen significant price gains and deteriorating affordability over the pandemic but remains the third most affordable capital city in Australia.

Sydney remains the least affordable capital city in Australia, requiring more than two average incomes to service the mortgage on a median priced dwelling. This is distantly followed by Melbourne and Adelaide, closely ranked together as second and third least affordable of the capitals.

Homeowners: HIA Affordability Index, Decmber 2022 quarter

FIRST HOME BUYERS: YEARS WAIT TO SAVE FOR A DEPOSIT, AUSTRALIA

First Homebuyers: Wait time in years to save for a deposit on typical home, December 2022 quarter

Affordability by State and Territory

HIA

HIA

Dwelling Prices

The changes in dwelling prices applied in this publication are changes in the Hedonic Price Index for each capital city market and the regions as published monthly by CoreLogic.

The Hedonic Price Index produced by CoreLogic seeks to control for differences in the mix from one period to the next and provides a better indication of price changes. For the December Quarter 2022, the price growth rates as captured by the Hedonic Price Index are summarised for each of the markets in the table opposite.

CoreLogic’s dwelling price data are subject to ongoing revision and this may result in small changes to previous results of the HIA Affordability Index

Note: Calculation of the HIA Housing Affordability Index relies on data published within the Australian Bureau of Statistics’ quarterly Average Weekly Earnings (AWE) publication. Since mid-2012, the quarterly publication of this report has been discontinued and it is now only published on a semi-annual basis. As a result, the AWE figures for the March and September quarters each year are estimated as the averages of the adjacent quarters. In cases where data for the most recent quarters are not yet available, the earnings data are estimated based on latest annual growth rates applied to most recent data