Utilising quarterly household income data from the Australian National University, CoreLogic has developed quarterly measurements of the ratio of property prices to annual household income. This data is extremely valuable when looking to measure housing affordability. The measure is available at a number of different geographies from SA2 regions (generally about the size of a suburb or group of suburbs) all the way up to GCCSA (capital city and rest of state) regions. When looking at the analysis it is important to note that a higher ratio means housing is less affordable and a lower ratio indicates better affordability.
Note that CoreLogic will be releasing a range of affordability indicators over the coming months, including rental price to income ratio’s and the proportion of household income required to service a mortgage.
With property prices varying greatly between each of the capital cities it is interesting to note that the variation in household incomes is nowhere near as large. In March 2016, Hobart had the lowest median dwelling price at $337,250 and Sydney had the highest median price at $775,000. Meanwhile, household incomes range from as low as $1,175/week in Hobart to $2,118/week in Darwin. Obviously the differences in property prices and incomes impact on housing affordability, so let’s take a look at each of the capital cities and the ratio of prices to income over time.
In March 2016 the ratio of house prices to annual household income in Sydney was 9.8 and for units it was 7.2. Both property types are currently recording a record-high ratio. 12 months ago these ratios were recorded at 8.9 for houses and 6.8 for units. Note that the data goes as far back as September 2001 and at that time the ratios were recorded at: 6.0 for houses and 5.7 for units.
The ratio of property prices to annual household income in March 2016 for Melbourne were recorded at: 7.7 for houses and 6.1 for units. The ratio for houses is currently at a record high while for units it peaked at 6.6 in December 2010 and March 2011 indicating an improvement in affordability for units since that time. In March 2015, these ratios were recorded at 7.2 for houses and 6.0 for units. Affordability has deteriorated over the year for each property type however, detached housing affordability has deteriorated much more rapidly than units. In September 2001 the ratios were recorded at: 4.6 for houses and 4.8 for units.
Unlike Sydney and Melbourne, the ratio of property prices to household income is falling in Brisbane, indicating improving housing affordability. In March 2016, the ratios were recorded at 6.1 for houses and 4.9 for units. 12 months earlier the ratios were recorded at 6.1 for houses and 5.1 for units. Brisbane housing was at its least affordable in September 2008 when the ratio of prices to household income were recorded at: 6.7 for houses and 5.7 for units. In September 2001 the ratios for Brisbane were recorded at: 3.7 for houses and 3.8 for units.
The ratio of property prices to household income for Adelaide peaked in December 2010 at 7.1 for houses and 5.9 for units. In March 2016 the ratios were recorded at 6.5 for houses and 5.1 for units. Affordability changed little over the year with the ratios recorded at 6.5 for houses and 5.3 for units in March 2015. In September 2001, the ratios were recorded at 3.9 for houses and 2.9 for units.
With Perth property prices falling, the ratio of prices to household income is also improving. In March 2016, the ratio of prices to income was recorded at 6.0 for houses and 4.7 for units and a year earlier the ratios were 6.3 for houses and 5.1 for units. At its peak in June 2007 the ratio of house prices to household income was 7.4 and for units the peak of 6.3 was recorded in December 2007. In September 2011 the ratios of property prices to household income were recorded at 3.7 for houses and 3.3 for units.
Although Hobart has the cheapest capital city property prices it is not the most affordable capital city housing market. In March 2016, the ratio of property prices to household income was recorded at 5.8 for houses and 4.7 for units compared to 5.9 and 4.4 respectively a year earlier. At its least affordable the ratio of prices to income was recorded at 6.5 for houses in September 2010 and 5.2 for units in March 2011. In September 2011 the ratios were recorded at 3.1 for houses and 2.5 for units.
Based on a ratio of property prices and household incomes Darwin is currently the most affordable capital city housing markets with ratios of 5.2 for houses and 4.2 for units. Affordability is improving in the city as property prices fall with these ratios recorded at 5.5 for houses and 4.3 for units a year earlier in March 2015. At their peak over the September and December quarters of 2010 the ratio of house prices to income was 6.0 and the ratio for units was 4.7. In September 2001 these ratios were recorded at 3.2 for houses and 2.7 for units.
In Canberra there is a divergence in results with houses becoming less affordable while affordability for units is remaining unchanged. In March 2016, the ratios of prices to income were recorded at 5.8 for houses and 4.0 for units compared to 5.5 for houses and 4.0 for units a year earlier. Canberra houses are at their least affordable level on record while units were their least affordable in December 2010 when they had a ratio of 4.4. In September 2001 the ratios for Canberra were recorded at 3.6 for houses and 2.7 for units.
Outside of Sydney, Melbourne and Canberra housing affordability is improving with each capital city having a current ratio which indicates affordability has been worst in the past. The problem is that almost 2 out of every 5 Australians live in either Sydney or Melbourne and these two cities have also been the epicentres of employment and economic growth over recent years. Deteriorating housing affordability in Sydney and Melbourne impacts on significantly more people than deteriorating housing affordability elsewhere around the country.
This measure of affordability provides a high level overview of the relative housing affordability across the capital cities, but it is important to remember that geographically across each city the affordability story can be dramatically different. Furthermore, this analysis does not take into consideration interest rates which can make housing affordability more affordable. While interest rates are undoubtedly a consideration for buyers, they must also consider that interest rates can fluctuate dramatically over the life of a mortgage.