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How affordable is housing across Australia?

By ,| 5 min read

Even in the midst of a pandemic-induced recession, the housing market in Australia has continued to boom over the last 18 months. But, with house price growth outpacing wage growth, many would-be homeowners and renters are finding it extremely difficult to find affordable housing.

In this article, we'll explain what housing affordability is and how it’s calculated, how it has changed over time in Australia, and the current crisis of housing affordability across our major cities. We also look at what the government is doing about the lack of affordable housing in Australia.

What is housing affordability and why is it important?

Housing affordability is the relationship between housing costs (like property prices, the cost of mortgage repayments including interest, and rent) and household incomes. That is, if house prices and interest rates are high and household incomes are low in a given area, for example, houses become less affordable.

It’s important to look at how affordable housing is because access to housing that people can afford is fundamental to their wellbeing - it even reduces poverty and increases equality of opportunity.

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How is it calculated?

It varies, but it’s usually calculated by comparing housing costs to gross household income. It is often expressed as a ratio of housing costs to incomes. However, measuring housing affordability isn’t straightforward because it includes people looking to buy, people who already own a house with or without a mortgage, people who are renting and people who are looking to rent.

How has housing affordability changed over time in Australia?

Back in the mid-20th century after World War Two, the Australian government set about increasing the housing supply so that more people could buy into the Australian dream - an idea that was becoming more popular at the time.

So, with greater supply, there was a greater stock of housing to keep up with demand from the population. However, in the late 1970s, government policy shifted away from increasing the supply of housing towards inflating demand instead.

Because of this change in policy, housing affordability has been on the decline since the 1980s. In 1990, for example, the average cost of a house was 2.5 times the average household income. Now, the average house costs 5 times the average household income.

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What is housing affordability like in Australia now?

With the average house now costing 5 times the average household income, there’s no doubt that housing in Australia is at its unaffordable peak.

Data from CoreLogic has found that low income earners can afford only 17.6% of residential housing stock in Australia, and even less in capital cities like Melbourne (4.2%) and Sydney (2.9%).

On the other hand, high income earners can afford 85.1% of Australian residential properties. This stark difference between income earners paints a vivid picture of housing affordability in Australia in 2021.

Let’s take a closer look at what housing affordability currently looks like across Australia’s states and territories.

NSW takes out the country’s top spot for unaffordable housing


Ranking as the 3rd most unaffordable housing market in the world in the Demographia International Housing Affordability 2021 survey, it’s no surprise that Sydney epitomises the current state of housing affordability in Australia.

In the 3 months from April to June this year alone, median house prices increased 8.2% in Sydney. Meanwhile, wage growth is moving slowly.

Unaffordable housing hasn’t stopped in the regions. The significant increase in people working from home due to the pandemic has meant many have sought cheaper housing in regional areas, driving up demand and contributing to higher house prices.

In Newcastle for example, research has found 1 in 3 households have an income of less than $48,000, with 30% of households experiencing housing stress. Housing stress occurs when low income households spend more than 30% of their gross income on housing costs.

Victorian market a struggle for renters


Melbourne wasn’t far behind Sydney in the Demographia 2021 survey, ranking as the 6th most unaffordable housing market in the world. And while housing affordability is often discussed in terms of how difficult it is for aspiring homeowners and young people to get into the market, this doesn’t stop with rentals.

Low income households experience rental stress in Melbourne, as with other capital cities around the country. Additionally, even though rent costs have fallen slightly over the course of the pandemic, so too has the average household income, meaning renting is still unaffordable for many.

Hope for housing affordability in Queensland


While still experiencing the general decline in affordability like the rest of Australia, lower income earners are better off in Brisbane than several other major Australian cities.

In Brisbane, low income earners can afford 26.7% of the dwellings in the city, compared to 7.1% in Hobart, for example.

House prices soaring in South Australia


Adelaide also follows the trend for a lack of affordable rentals in capital cities, with the national rental affordability index deeming the city to have moderately unaffordable rents.

As for house prices, Adelaide experienced a 5.4% growth in the median house price in the June quarter of 2021 alone.

Western Australia offers some respite for would-be homeowners

fremantle perth wa street terrace historic

One of the more affordable major housing markets in Australia, Perth only experienced a 1% growth in the median house price in the June quarter this year.

But, if the trend of rising house prices around the nation continues as is, it’s likely Perth won’t be immune to the crisis of housing affordability. Low income earners can only afford 25% of properties in Perth in the current climate.

Tasmania fast becoming out of reach for buyers and renters


Bad news renters: Australia’s southernmost state is the least affordable for renting in the country. The national rental affordability index classifies Hobarts rents as unaffordable.

It isn’t much better for those dreaming of home ownership - Hobart has experienced the second highest growth in median house prices across the country over the last year, at a whopping 28.4%.

Northern Territory housing market more low income friendly


It’s better news in the north of the country, where low income earners can afford 62.1% of dwellings in Darwin.

But house prices are rising rapidly, with the median house price in Darwin rising 22.3% in the last year alone. Median unit prices are even higher than median house prices in Darwin, signalling growth in an area that buyers may usually look to as being more affordable.

Australian Capital Territory leads the way in house price growth

parliament-house-canberra (2)

With the most rapid growth in median house prices out of any Australian city in the last year - 29.2% - Canberra is increasingly becoming a less affordable place to live.

Canberra has become the third Australian city after Sydney and Melbourne where the median house price has tipped over the $1 million mark.

Renters don’t have it much better than home buyers, with rents in the ACT falling into the moderately unaffordable category according to the national rental affordability index.

What is the Australian government doing about housing affordability?

CoreLogic data shows that first home buyers are worse off amid huge median house price growth, because they have to save a deposit to get a home loan, which can be incredibly difficult when house prices are rising faster than incomes.

Government schemes that assist first home buyers to get into the property market are driving demand for housing, which in turn is driving house price increases.

Tax settings for investors like negative gearing and capital gains tax also drive demand, having the same effect on property prices.

Ultimately, the number of Australians who own their own home is far greater than those who have the chance to become first time homeowners. This means the federal government has a hard time implementing policies to keep house price growth down.

However, the First Home Super Saver Scheme, first introduced in the 2017-2018 federal budget and extended in the 2020-2021 budget, is one policy intended to increase housing affordability. The scheme works by allowing first home buyers to make voluntary super contributions, pay lower tax on this super, then withdraw it to put towards a deposit.

The downsizer super contribution, also introduced in the 2017-2018 federal budget, is also intended to increase housing affordability by freeing up houses for younger Australians. This policy lets older Australians deposit the proceeds of a property sale into their super.

It’s hard to say whether these policies have had their intended impact just yet, but an upcoming parliamentary committee inquiry into housing affordability in Australia will likely find out.

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The information in this post is general in nature and should not be considered personal or financial advice. You should always seek professional advice or assistance before making any financial decisions.

Tags: investing, investment, investment property, first home, first home buyer, first property, new purchase, sydney, melbourne, adelaide, housing market report, first home owners grant, south australia, new south wales, victoria, queensland, australian capital territory, northern territory, tasmania, western australia

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