Housing Affordability At Its Lowest On Record

Last year’s third interest rate rise coupled with an ongoing shortage of housing has sent housing affordability to its lowest level on record.

The December quarter 2006 HIA/Commonwealth Bank Housing affordability index is at its lowest since the index was established in 1984 with an average Australian first home buyer now needing in excess of 30 per cent of their disposable income to service minimum monthly payments on a new mortgage.

Australia’s peak building industry body, HIA, said that while this is alarming enough, the index also shows that for the first time in history, Perth first home buyer housing is now less affordable than Sydney.

HIA’s Executive Director of Housing and Economics, Mr Simon Tennent, said that it is patently obvious that the correction in housing markets and subsequent improvement in affordability predicted 2 years ago is way off the mark.

 “The combination of rising prices over the quarter and the triple whammy of higher interest rates has pushed housing out of reach for an increasing number of households who are also facing sharp increases in private rents,” he added.

“The case for a rethink on housing affordability and a targeted all-of-government approach to address the problem has never been more compelling.”

Key Points:

The HIA/Commonwealth Bank First Home Buyer Affordability Index fell by 5.5 per cent in the December 2006 quarter and was 15.5 per cent lower than a year earlier.

This is the fourth consecutive decline in affordability and is the result of a 4 per cent rise in the median first home price, as well as the combined effect of three interest rate rises announced by the Reserve Bank over 2006, the last of these being in November.

The monthly loan repayment needed on a typical first-home mortgage rose from $2,194 to $2,332, an increase of 6.3 per cent. Mortgage payments now account for 30.7 per cent of total first home buyer income, up 1.7 percentage points on the September quarter. As a proportion of disposable income, the ratio was up by 1.8 percentage points.