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Housing affordability falls for fifth consecutive quarter

7 February 2003

Housing affordability in Australia has fallen 5.2 per cent in the past three months. Affordability has now been declining continuously since September 2001.

Continuing rises in house prices, up 6 per cent over the quarter, was the key driver in declining affordability, according to the Commonwealth Bank / Housing Industry Association Housing Report. House prices rose in all States.

One of the leading indicators on the relative price of housing, the Housing Report uses Commonwealth Bank lending data to measure the ratio of average household disposable income to the qualifying income required to meet payments on a typical dwelling.

Home loan repayments on a typical first home mortgage increased by 1.4 per cent and now absorb nearly one quarter of the average household income.

Sydney experienced the biggest decline in affordability over the quarter, followed by Adelaide, Brisbane, Hobart and Perth, with Melbourne remaining relatively stable. In the twelve months since December 2001, Brisbane experienced the greatest decline in affordability.

Other key points include:

  • Biggest decline in housing affordability (State): South Australia 12.4%; ACT 10.7%; Western Australia 8.4%; Victoria 7.1%; Queensland 5.9%; Tasmania 4.5%; NSW 1.4%
  • Average monthly loan repayment (capital city): Sydney $2,427; Melbourne $1,660; Brisbane $1,319; Adelaide $1,136; Perth $1,070; Hobart $779
  • Average monthly loan repayment (rest of state): NSW $1,245; Western Australia $1,092; Queensland $1,062; Victoria $1,058; South Australia $823; Tasmania $640

According to Hugh Harley, Group Executive, Retail Banking Services, Commonwealth Bank, the continuing decline in affordability comes at a time when there are some signs of a cooling off in the property boom.

"While Australia hasn't seen home loan affordability improve for 15 months, housing is still at more achievable levels than it was in the late 1980’s and early 90’s.

"It appears the housing cycle has reached maturity. With a relatively stable interest rate outlook and some steam coming out of the market, we are unlikely to see the same deterioration in affordability over the coming year compared to the last year.

"As always, buyers should exercise caution in making any major decision such as buying a home and take into account all the fluctuations that can occur with such a major investment. Over the long-term, home ownership has been a solid way to build wealth," said Mr Harley.

HIA Chief Economist, Simon Tennent said, "Strong house prices adversely affected affordability over the December quarter and as we head into 2003, it is unlikely that housing affordability will improve in the short term.

"With the current stable interest rate environment, house prices are expected to continue to creep up.

"A significant driver on house price inflation has been the current restrictions on the availability of land in many capital cities. The HIA calls on the various State governments to carefully assess their land release programs to ensure that there is adequate supply and to avoid unnecessary bottlenecks.

"It is also now timely to be looking closely at the increasing burden of fees, taxes and charges levied on housing and new residential development, as a means of improving affordability, particularly for those families on low incomes," said Mr Tennent.

The Housing Report highlights that Hobart is Australia’s most affordable city, followed by Perth, Adelaide, Brisbane, Canberra, Melbourne and Sydney.

The Commonwealth Bank/Housing Industry Association Housing Report has been issued each quarter since December 1984. The report uses lending data from the Commonwealth Bank - Australia’s largest home lender, with more than 1.1 million home loan customers.