House prices today are certainly cheaper than they were two years ago during the market boom. However, the question remains — do the impacts of the housing downturn equate to affordability?
One in two Australians believes that housing affordability is the same or better than it was a year ago, according to CoreLogic's Perception of Housing Affordability report. Despite this positive sentiment, tell-tale signs point to the persistent affordability crisis many Australians seem to have already gotten used to.
One of the first reasons is the elevated affordability ratios. The dwelling value-to-household income ratio today is 6.5:1. This means that a typical Australian household spends 6.5 times their gross annual income to buy a median-priced house at $524,000.
"Less than 20 years ago it was 4.5 times. And the privilege of that problem is another. It takes, on average, 8.7 years to save for a 20% deposit. That's a long time; an eighth to a tenth of a lifetime," CoreLogic International CEO Lisa Claes said.
In line with the elevated affordability ratio is the substantial growth in housing costs. Households in Australia spend 35% of their gross annual income to meet mortgage repayments. This is despite the low interest-rate environment. The recent back-to-back rate cuts by the Reserve Bank of Australia and the likelihood of further rate cuts are even expected to make sub-3% mortgages the new normal.
Making matters worse is the anaemic growth in wages. Household incomes have not risen as much as house prices have — over the year ending in June, wages ticked up only slightly higher than inflation.
The limited growth in income has resulted in many Australians struggling to secure a loan and save for a deposit. Claes said Australians are more concerned about securing a home-loan than they were two years ago.
"The rise of this concern comes amid a significant tightening of credit following the implementation of prudential regulations and increased focus on borrower spending behaviour," she said.
One of the most glaring issues in securing a home loan is coming up with a deposit. One in three Australians with an income of less than $50,000 said they would not be able to raise more than a 5% deposit.
Amongst age groups, the CoreLogic report said those belonging in the millennial demographic are the most exposed to risk.
"The fall in housing values hasn't, however, dented their desire to own their own home. We found that 86% of millennials rated homeownership as important. That makes them the most passionate of all generations. More broadly, 81% of all Australians believe it is still important to own a home," Claes said.
The solution to this crisis, Claes said, goes beyond the provision of stamp duty concessions and first-home buyer grants. She said foundational levels such as transport infrastructure to carry people from affordable regions to job hot spots is one of the things governments can do to help improve the housing market.
"Policymakers need to acknowledge that and continue to explore structural, long-term solutions to the affordability challenge," she said.