Research company Residex's end of financial year report is warning that affordability is putting a brake on property markets in the eastern capitals.

Residex chief executive John Edwards has calculated that more than 60% of the gross after-tax take-home pay of a typical household in both Melbourne and Sydney would currently be used to purchase a median valued home, assuming current home loan interest rates and a deposit of 20% of the property's value. This, Edwards argues, is constraining markets.

He adds that rentals are constrained by affordability too, and that at these levels there will be pressure on those renting to either reduce expenditure and increase people density in rented properties, or move to more affordable areas.

"All of this points to growth being more likely and of lower risk in the middle to second quartile of the market," said Edwards. "It also suggests that probably the best total and balanced returns are more likely to come from units, which are significantly more affordable in both rental and capital cost terms."

The report also comments that 'it is a long time since we have seen such a strong growth year, with Sydney and Melbourne leading the way. Perth was the worst performer amongst the capitals, possibly due to uncertainty over the Resources Super Profits Tax, and Hobart is the most affordable capital city.

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