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Australia's housing affordability myth busted

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Despite rising interest rates and property prices, housing affordability in Australia is not as bad as widely believed, a recent report has showed.

According to Rismark National Dwelling Price-to-Income Index, housing affordability has not deteriorated; in fact, it has improved slightly over the past six years.

Rismark found that over the past six years, home prices have held between 3.7 times disposable incomes and 4.3 times incomes over the past six years. Household disposable income rose 44% since the end of 2003 while the median home price has lifted 41%, from $270,000 to $380,000. This means in December 2003, Australian dwelling prices were 4.2x disposable incomes, which is effectively where they remain today according to Rismark.

Christopher Joye, Managing Director of Rismark International, said the fact that there has been no discernible increase in Australian house prices relative to disposable incomes since the end of the last boom in 2003 is one important explanation for the exceptionally resilient performance of Australia's housing market during the GFC.

"In contrast to claims that Australian house prices are 7-8x incomes, Rismark's National Dwelling Price-to-Income Index implies that the true ratio across all regions and all property types is around half this estimate. This suggests that Australian housing is not as expensive as is commonly believed," said Joye.

Craig James, chief economist with CommSec noted that over a much longer span of time, housing affordability has weakened. For example, from 1993 to 2001, housing affordability held between 2.5-3.1 times disposable incomes.

"Home prices accelerated between 2001-2003 while incomes didn't keep pace, but over the past six years, housing affordability has been little changed," he said.
"The result doesn't mean that housing affordability may not have weakened in some cities and for various occupation and demographic groups, but in a broad macro sense, it is clear that the myth that Australian home prices have become dramatically less affordable in recent years has been busted."

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