Housing affordability improves but FHB struggle

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By Leith van Onselen

The Adelaide Bank/Real Estate Institute of Australia (REIA) has today released its quarterly affordability report, which revealed an ongoing improvement in both home buyer and rental affordability over the December quarter of 2012, although the number of first home buyers (FHBs) has dropped markedly. According to the Media Release:

“The December quarter 2012 recorded an improvement in housing affordability with the proportion of income required to meet loan repayments decreasing 1.4 percentage points to 30.4%.”

“Largely due to a higher average income, the Australian Capital Territory remained the most affordable state or territory in which to buy a home, with the proportion of income required to meet loan repayments at 18.7%. Though the proportion of income required to meet loan repayments decreased to 36.0%, New South Wales remained the least affordable state or territory in which to buy a home.”

Mr Bushby says, “Compared to the 2011 December quarter, all states and territories recorded improvements in housing affordability, the largest in Queensland and South Australia”…

“In the rental market, improvements in rental affordability were recorded throughout the country with the exception of Tasmania and the Northern Territory,” concluded Mr Bushby.

Below are some key charts from the report, showing housing affordability over time.

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First, the proportion of median family incomes required to meet mortgage repayments has improved to 30.4% nationally from 33.6% in December 2011, with Sydney the most expensive capital and the ACT the most affordable (see below graphic).

Affordability nationally is tracking near decade lows, but still poor relative to the 1990s (see next chart).

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Rental affordability, too, is improving but remains well above pre-2005 levels (see next chart).

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The situation facing FHBs remains difficult however, with the report noting that:

Over the December 2012 quarter, the number of new finance commitments to first home buyers decreased 9.1% and by a total of 17.4% over the year. First home buyers made up 16.5% of the market, which is the lowest level since the March quarter 2005.

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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.