HIA housing affordability index takes a swan dive

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By Leith van Onselen

Regular readers will know that I am a massive skeptic of the Housing Industry Association’s (HIA) housing affordability index, since it only measures initial mortgage repayments, not likely repayments over the life of a mortgage under reasonable assumptions around mortgage rates, inflation and income growth (see here and here).

Nevertheless, the December quarter HIA housing affordability index reveals that affordability has taken a swan dive, courtesy of rapidly rising home prices:

ScreenHunter_17171 Jan. 31 11.13

“During the December 2016 quarter, housing affordability across Australia worsened by some 7.3 per cent due to the recent uplift in dwelling prices,” explained HIA Senior Economist, Shane Garrett…

“Nationally, housing affordability has managed to move in the wrong direction in many major cities despite the fact that interest rates are at very low levels. The sluggish pace of earnings growth in the economy has been an impediment to better affordability,” Shane Garrett pointed out…

Affordability worsened in six of the eight capital cities during the December 2016 quarter. The biggest deterioration was in Melbourne (-11.6 per cent), followed by Canberra (-10.7 per cent) and Sydney (-7.3 per cent). Affordability has also become more difficult in Darwin (-3.8 per cent), Brisbane (-2.9 per cent) and Adelaide (-2.3 per cent) during the December 2016 quarter. Only Perth (+2.1 per cent) and Hobart (+1.2 per cent) saw affordability improve during the quarter.

Based on the HIA Affordability Index scores for December 2016, affordability conditions are the most challenging in Sydney (54.7), followed by Melbourne (66.0), Canberra (76.6), Brisbane (85.3) and Darwin (85.3). By some margin, Hobart (117.8) is the most affordable capital city. Perth (96.6) is the second most affordable capital, followed by Adelaide (93.0).

Now wait as the Kouk attempts to spin another tale about how housing is just as affordable as it used to be.

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About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.