Canstar: Housing affordability worse over decade

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By Leith van Onselen

While the Housing Industry Association (HIA) claims that Australian housing is near its most affordable level in a decade (see below chart), analysis released by Canstar claims that average home loan repayments over the past ten years have outpaced both incomes and inflation, resulting in worsening housing affordability.

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Australians are putting much larger chunks of their budgets towards meeting their home loan costs than they were 10 years ago – some states have seen repayments climb by up to 152 per cent.

Wages rose by 54.5 per cent and inflation has climbed by 31.4 per cent.

Australian Bureau of Statistics data and figures compiled by financial services company Canstar compared average home loans over 25 years, based on the average interest of today’s big four banks at 6.42 per cent…

Canstar analyst Mitchell Watson said Australians had felt the impacts of rising property prices on their repayments.”Housing prices have increased and we’ve seen a direct impact on the amount which people need to borrow to purchase those homes which in turn has dramatically increased their loan repayments,” he said…
”Wages haven’t increased as much as property prices have which means a property you may have purchased back in 2002 may be out of your reach.”

NT experienced the biggest spike in loan monthly repayment sizes rising from $896 to $1366 (152 per cent) over 10 years, followed by Tasmania (130 per cent), ACT (119 per cent), WA (115 per cent), SA (100 per cent), Qld (90 per cent), Vic (74 per cent) and NSW (61 per cent).

AMP chief economist Dr Shane Oliver said the nation’s rapid accumulation of debt has resulted in households spending more on mortgage repayments.

“Australians have taken on more debt and that has been in order to pay more for houses and they’ve ended up with bigger mortgages than we did in 2002,” he said.

“The household sector has found various ways to deal with that partly by squeezing down on other areas and also working longer hours.”

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Although covering a slightly different time frame (i.e. 2001 to 2011), Canstar’s analysis is broadly supported by the Australian Census, which showed the average amount of household income chewed-up by mortgage repayments increasing from 25.6% in 2001 to 33.7% in 2011 – an increase of 32% (see next chart).

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It’s also interesting to note that the amount of aggregate household disposable income devoted to aggregate mortgage interest repayments was 31% higher in December 2012 (8.0%) compared with December 2002 (6.1%), according to Reserve Bank data (see next chart).

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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.