Homeownership is requiring Australians a bigger portion of their incomes, reflecting a continued deterioration of affordability on the back of rate hikes and supply woes.

The latest Housing Industry Association (HIA)’s Affordability Index showed that it now requires 1.6 average incomes to service the typical mortgage over the March 2023 quarter, lower than the 1.2 figure in 2019.

The recent 1.1% decline in the affordability index makes Australia 25% less affordable than it was before the pandemic.

Most capital cities witnessed a fall in their respective affordability indices, with Perth leading with a 2.2% decline.

This was followed by Sydney, Melbourne, Adelaide, and Darwin, which posted drops between 1.1% and 1.9%.

Canberra’s affordability also weakened while Brisbane maintained its current index reading.

Only Hobart showed improvement, hitting a 1.3% gain in its affordability index.

A separate report from PropTrack identified the top suburbs where homebuyers will still be able to manage and service mortgage repayments despite the rate hikes.

Fisherman Bay in regional South Australia is considered the suburb with the most serviceable mortgage repayment for houses while Mosman Park in Greater Perth is for units.

HIA deputy managing director for Policy and Industry Jocelyn Martin said housing affordability poses a major challenge across the country, and the issue is paramount on the policy agenda of all levels of government.

“It is crucial to identify policies that would work and those that would not, and it begins with a supply-and-demand balance,” she said.

For Ms Martin, the rate hikes over the past year are only a part of the drivers at play deteriorating housing affordability.

“Housing affordability simply gets worse when housing supply falls short of demand,” she said.

“This makes measures that do not increase the number of homes, such as convoluted planning processes and the heavy burden of taxation, likely to fail.”

Ms Martin noted of the Housing Australia’s Future Fund Bill 2023, which aims to improve the quality of housing data, improve forecasting of housing demand, and collaborate with states and territories to improve the housing supply.

“This legislation has been held up in Federal Parliament over the mechanism to fund investment in public housing, and this is delaying changes to policy that will begin to address the failures that are constraining an improvement in the supply of new homes,” she said.

While the legislation is not going to be a solution to the acute rental shortage this year, Ms Martin said it begins a pathway to accountability for each tier of government and will assist in restoring balance.

“It is crucial to identify policies that would work and those that would not, and it begins with a supply-and-demand balance,” she said.

On top if this legislation, there is also a need to reform state government taxes that have forced foreign investors out of the market.

“The impact of these taxes has seen foreign investors withdraw from the Australian market and consequently the number of apartments commencing construction fell to barely more than a third of its peak in 2016,” Ms Martin said.

“Foreign investors do not force up house prices because they cannot buy existing homes — they can only buy new homes and improve the supply of rental accommodation and ease this shortage.”


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