2021 a death blow for Aussie housing affordability

ANZ-CoreLogic has released its 2021 housing affordability report, which shows that the barriers to buying a home in Australia has worsened materially following rapacious price growth and a sharp rise in the time taken to save a deposit:

The national dwelling value to income ratio reached a record high 7.7 in the June quarter 2021. The ratio is sitting above the decade average of 6.3, and is up from 6.4 in the September 2020 quarter, when housing values had been mildly dampened by national stage 2 restrictions in response to COVID-19.

Growth in the value to income ratio has been sharper across houses than units, leading to the widest gap in the ratio on record between houses and units. Between March 2020 and June 2021, the value to income ratio for Australian houses has increased from 6.7 to 8.1, while the ratio for units nationally has increased from 6.2 to 6.8…

Based on households saving 15% of their gross annual income, it would take the typical household a record high 10.2 years to save a 20% deposit for an Australian dwelling at the end of June quarter 2021. Record high savings periods are required across both Australian houses (10.8) and units (9.0).

The time taken to accumulate a deposit is a particularly important component of housing affordability for first home buyers…

Unlike indicators of barriers to enter the housing market, mortgage serviceability has not blown out to record highs through the current upswing. This is due to the very low mortgage rate environment.

While not at record highs, the portion of income required to service a mortgage nationally has increased since the housing market bottomed out through the September 2020 quarter…

The portion of income needed to service a new mortgage on Australian units was 32.8%, up from a recent low of 29.1% at the end of the September 2020 quarter…

Through the June 2021 quarter, median dwelling rents remained lower than the portion of income required to service a mortgage at 29.4%, despite this being the highest percentage on record. Over the past decade, median rent costs have averaged 28.1% of median income, and the latest reading has risen from a recent low of 26.8% in the September 2020 quarter…

The report also shows how home ownership has fallen over the years. Basically, the younger you are, the less likely you are to own a home:

Home ownership rates fell across all age groups over the past three decades. Whether you were born in the mid-to-late 50s and you’re now heading into retirement, or are a potential first home buyer born in the late 1980s, the likelihood that you own your own home is lower than for those just 5-10 years older and significantly lower than if you were born three decades earlier. But the declines have been the largest for younger people in the typical first home buyer ages between 25 and 34 years. The 2016 census showed that 50% of 30-34 year olds owned their own home, down14pptfrom 64% in 1971. A similar drop was evident for 25-29 year olds, where home ownership dropped from 51%to 37%over the same period.

When we talk about ‘housing affordability’, the focus should really be on the ability of first home buyers to enter the housing market and pay-off their homes. Their situation has gotten objectively worse, as evident by:

  • The long-term decline in home ownership among under 35s;
  • The huge deposit required to obtain a mortgage;
  • The big rise in the ‘bank of mum & dad’; and
  • The casualisation of the work force, rising labour underutilisation, and low wage growth.

While it has never been cheaper in aggregate to service a mortgage, it has also never been more expensive to save for a deposit or pay off the loan.

Because inflation and wage growth are low, and house prices are high, mortgage debts will not be ‘inflated away’, and it will take the typical home buyer many decades to repay their loans.

This means that many Australians will now carry mortgages deep into their retirement.

Unconventional Economist
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  1. Its amazing how long we can misallocate investment for and still have few consequences. I recall at the height of the Japanese bubble, mortgages were inter-generational, so we got a long way to go. Hope everyone’s eating cake, cause I had two this morning!

  2. The 5% Deposit scheme is the work around for this. We can continue down the path of perpetual Cut Teh Rates.

    Might just need a little more tax payer money to protect the banks at some stage.

      • APRA *could* intervene on amortisation as a means to control prices. For mine, I think the maximum amortisation should be 25 years. If they did so it’s going to pull the market down fairly effectively and reduce risk.
        I repeat they *could* but they obviously don’t wanna!

  3. and pretty much no one is brave enough to point at the fact the situation is caused by the very policies this site has advocated. (please do not respond with the MP(LOL) nonsense)

  4. I have a client who said said she did 2 open homes at the weekend (8 days ago) and had zero people show up.

    She had another agent call her to see how she was went and this agent did 8 open homes the same weekend and also had zero people show up.

    So Darwin – 10 open homes and no interest at all.

    I also received an invite by text to an open home in a nice suburb with champagne and nibbles.
    Never had one of those before and it seems like signs of desperation.

    • The champagne and nibbles thing happened in the street I used to rent in. I thought it was a massive wank. So did my neighbour who gave the agent a spray and told her to leave him alone. Haha

    • I’m in the market, retiring to oz after 12 yrs os, and agents are emailing me reducing their price estimates. Maybe it’s a tactic…

    • This is great news. Others reported same for Sydney a week or two ago. There have been five or six houses for sale in my small Canberra suburb lately. Bit of a shift.

  5. when some thing costs too much its UN-affordable
    the word affordability is redundant in this debate. The term UN-affordability should be grafted onto it.
    its done……… cooked.
    And yes it has miles to go. No where near enough people living in tents and cars. When we get a skid row like LA, we’ll know we’ve made it. Then it’ll be another 10 yrs.
    There’ll be no correction without a good old credit crash

    • Jumping jack flash

      Who uses their own money to buy houses any more? Its all debt. Banks will give you as much as you need to buy the house you want as long as you’re eligible for it. Price is only relevant up to the point where it is used to determine how much debt you need.

      Therefore the most important aspect of being able to buy a house is not really the price, it is the eligibility for the amount of debt you need to be able to pay the price.

      Say a house was priced at $1.6m, some may say that was severely unaffordable but you go to the bank and the bank says, “sure, no problems, here’s the debt you need” and hey presto what was originally thought to be unaffordable is suddenly affordable, thanks to being eligible for the amount of debt required to pay the price.

      So while debt is used primarily to buy houses the focus should never be on the prices of the houses it should be on the eligibility for the debt

      • The other problem is the tax system enables someone to put Sweet F.A. down (or even less “real money” with equity mate) and use insane amounts of leverage at an egregiously advantageous tax rate – on top of the toxic combination of low rates, pathetic interest rate buffers, high debt to income limits and off the charts migration.

        Make a motza! Sell tents and caravans.

  6. Jumping jack flash

    They can just abolish deposits, they are unnecessary and cause more problems than they’re worth.

    There’s no risk as long as enough new debt is squashed into the market to ensure prices rise enough, and quickly enough to generate the required equity.

    Early super access and the homebuilder grants exposed massive pent-up demand for houses which is only suppressed due to deposits. Debt eligibility isn’t an issue in any of these cases, its just the deposit.

    Abolish the deposit and all this demand would flood into the market raising prices immensely and solve all the problems that removing deposits might cause, naturally.