CoreLogic’s latest housing affordability report highlighted a subtle improvement in housing affordability based on a ratio of household incomes to dwelling prices.

Nationally, the ratio reduced to 6.81 over the June quarter, down from a record high of 6.84 over the March quarter of 2018. The ratio simply means that for a typical Australian household, the typical dwelling price is about 6.8 times more than their gross annual income. The improvement in affordability is attributable to a subtle rise in household incomes; up 0.3% between the March and June quarter, while dwelling prices slipped 0.2% lower over the quarter nationally based on the change in median selling price.

While the national view on housing affordability is important from a macro perspective, there is an extreme range of housing affordability across the country. Some regional areas, particularly those associated with the mining sector where incomes tend to be high and housing prices have slumped substantially since the end of the mining boom, housing affordability is generally very healthy. For example, in the Western Australian town of Leonora (about 240km north of Kalgoorlie), the median dwelling price is just $45,000 and the median household income is just over $57,000 per annum providing for a ratio of just 0.69. At the other extreme, some of the areas around Sydney (Rose Bay-Vaucluse-Watsons Bay and Castle Hill East) show a dwelling price to income ratio upwards of 20. 

Dwelling price to income measures across small geographic areas highlight the challenge isn’t confined to just the most expensive suburbs. Across Sydney, where the overall dwelling price to income ratio is 9.1, every region of the city shows a ratio higher than 6.1 and almost half (49%) of the areas show a ratio higher than 10. Areas where housing costs are relatively low such as the Outer West and Central Coast generally show a lower income profile which keeps the dwelling price to income ratio elevated even though housing prices are typically viewed as more affordable in these areas. The widespread affordability challenges across Sydney highlight that fixing the affordability issue isn’t as simple as building more roads and highways in order to free up access to lower priced markets – even the areas located a long way from the city centre and key working nodes, with inefficient transport connections are woefully unaffordable in Sydney.  

Affordability pressures are far less substantial in markets like Brisbane (dwelling price to income ratio of 6.0) and Perth (5.9). Despite being Australia’s third and fourth largest cities, housing trends have been much softer in these areas.  Median prices have risen at the annual rate of 3.0% and 0.2% in each city respectively over the past five years while incomes rose at the annual pace of 1.8% and 0.7% over the same period. Only three (1.3%) regions of Brisbane have a dwelling price to income ratio that is 10 or higher while in Perth only six (4.0%) regions have a ratio of 10 or higher.  

With a federal election around the corner, no doubt we will see a lot more discussion around housing; after all housing comprises almost 55% of household wealth across the country and seems to always be a popular topic amongst voters. Let’s hope the debate and policy announcements extend further than the topics of negative gearing and capital gains tax concessions and we see the federal government doing a lot more to work with state and local governments on housing affordability solutions.

CoreLogic Housing Affordability Map