By Robert Carry

Affordability deteriorated for the second straight quarter as house prices recovered from their modest falls over the previous 18 months, a new joint report from Commonwealth Bank and the Housing Industry Association (HIA) report has revealed.

According to the First Home Buyer Affordability Report, housing affordability slipped by 3.3% in the September quarter but was still at a level 35.7% ahead of the corresponding period of last year. HIA senior economist Ben Phillips said demand for homes picked up during the quarter thanks to low interest rates, the First Home Owner Boost, and improving news on domestic and global economic prospects.

He continued, "Affordability remains much better than it was. However, the outlook for affordability is not a good one. Interest rates are on the way up, the first home buyers boost is being wound back, and progress in reducing the structural barriers to increasing new housing supply is slow."

Phillips added an increase in the level of new home building would have to happen over the coming years if a return to the "woeful" affordability levels seen in 2007 and 2008 was to be avoided.

"The necessary boost to the economy provided by a strengthening housing  construction sector is under threat from increased regulation, a slow and increasingly restricted building approvals process, and the same debilitating problems related to land supply, new home taxation, and skilled labour shortages that afflicted the industry last cycle," said Phillips.