Home affordability problem will remain for at least a decade

Home affordability in Australia has progressively declined over the past decade.  Home prices today are “severely unaffordable”, and it will take 10 years of flat-lined prices to rectify this situation.

The AMP.NATSEM Income and Wealth Report has found that over the past decade median house prices increased  by approximately 147% , while after-tax incomes went up by only 50%. Although we have seen some significant home price falls over the past 6 months or so, average median values are still more than 7.3 times larger than after-tax incomes.

Sydney has reclaimed its position as the least affordable capital city in Australia, followed by Melbourne, Adelaide and Perth. Affordability issues have also spread beyond capital cities, with affordability levels in Wollongong, Newcastle, Mandurah and the Gold and Sunshine Coast now on par with the large capital cities.

Lack of home affordability has contributed to a growing number of Australians experiencing housing stress. The above study defines housing stress as devoting more than 30% of after-tax income to mortgage or rent payments. This has contributed to a significant number of people defaulting on their home loans or being in arrears with their other loans.

“Housing stress is most severe for those purchasing a home, with 31% stressed, or those renting, with 30% stressed. Nearly one in 10 home buyers spend at least half their after-tax income on their home loans. This families very little money to live on. Certainly escalating home loan repayments due to increasing interest rates does not help in this matter.

The report has predicted it will take at least 10 years of flat house prices coupled with income growth to return housing to an affordable level.

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