Australian House Prices Continue to Soar Amid Affordability Crisis

Australia’s persistent property price inflation, despite rising interest rates, continues to pose a formidable challenge to housing affordability. It’s an evolving problem that has prompted financial journalist Greg Jericho to suggest an update to the classic adage: the real certainties in life now are death, taxes, and rising house prices.

Data from the Bureau of Statistics showed property prices in most states increased in Q1 2023, despite an anticipated slowdown. In the same period, taxation statistics revealed a historic development: for the first time since 1993-94, more property investors reported profits than losses. Jericho identified this trend, particularly in the face of rising interest rates, as one reason why housing prices appear resilient to market changes.

However, this doesn’t paint the full picture. Analysis by property technology firm HtAG Analytics reveals that rising home prices and interest rates have pushed housing affordability to dire levels. Using their “years to own” metric, HtAG estimates homebuyers might spend up to 144 years to fully repay their mortgages. Sarah Petty, reporting for HtAG Analytics, notes that houses are the least affordable in New South Wales, Victoria, and Tasmania, where it would take an average of 42, 39, and 38 years to fully own a home, respectively.

“There can be a situation where prices may not be that high but wages in that locality are below the city average… the affordability metric will actually be higher,” Alex Fedoseev, co-founder of HtAG Analytics, explained.

The disparity between rising housing costs and stagnating wages is causing a significant shift in homeownership dynamics. Since June 2020, average household disposable income has risen 8%, while property prices nationwide have risen 26%. The result is a widening gap that may ultimately lock an entire generation out of the housing market.

According to Jericho, had Sydney’s median property price risen in line with household incomes since June 2020, it would now be $954,000, rather than the actual $1.15 million — a significant $196,000 difference.

Sarah Petty further elaborates on the discrepancy, “Rapidly increasing home prices and rising interest rates mean homebuyers may now need to spend up to 144 years to pay off their mortgages.”

High prices, particularly in suburbs with a large cohort of renters, contribute to an imbalance in the property market, supporting rental properties and maintaining elevated house prices2. On the other hand, affordable areas such as Mount Isa in Queensland would only take 3.5 years to fully own a property.

Hayden Groves, president of the Real Estate Institute of Australia, attributes the continuous price increase to a lack of supply and has called for action on the Housing Australia Future Fund2. Groves warned, “Affordability will continue to deteriorate before it gets better, and that could be as late as 2025, 2026.”

The balance between wages, house prices, and affordability is a complex, multi-faceted issue that needs immediate action. If left unchecked, the certainties in life might not only be death, taxes, and rising house prices, but a society increasingly strained by housing inequality.

References:

Greg Jericho, “Forget death and taxes, the real certainty in Australia is rising house prices”, The Guardian. https://www.theguardian.com/business/grogonomics/2023/jun/15/forget-death-and-taxes-the-real-certainty-in-australia-is-rising-house-prices 

Sarah Petty, “Cost of living: Houses now take 40+ years on average to pay off in parts of Australia https://www.realestate.com.au/news/cost-of-living-houses-now-take-40-years-on-average-to-pay-off-in-parts-of-australia-htag-analytics/