Housing Affordability Tightens as Interest Rates Bite

Housing affordability has tightened across the nation—and it’s only going to get harder.

According to the ANZ-Corelogic Housing Affordability report for the September quarter, the average Australian household needs to spend 43.3 per cent of its income to service a mortgage, up 4.4 percentage points on the previous quarter. That’s the highest it has been in four years.

In Sydney, a record 51.1 per cent of income is now needed to service a mortgage for an average home, up from 47 per cent the previous quarter.

Mortgagees in Melbourne are now paying 42.4 per cent, up 4.3 percentage points over the quarter, while in Brisbane the amount is up 3.3 percentage points to 40.3 per cent.

Hobart has the dubious honour of the second-least affordable market in the nation with 45 per cent of income needed to pay the average mortgage, up 4.1 percentage points.

^{^ Source: ANZ-Corelogic}

Corelogic head of research Eliza Owen said affordability was likely to worsen given that further rate rises were likely.

“Australia’s housing affordability situation has shown signs of shifting from high deposit hurdles to growing interest costs,” she told The Urban Developer.

“We estimate that the median household would now need to expend 43.3 per cent of income servicing a new 80 per cent LVR loan of the national median home, which has surged from 34.5 per cent a year ago.

“Even in areas where the deposit hurdle has come down, rents have generally gone up, making it harder for some people to save up their deposit.

“The main reason for this shift is the rapidly rising cash rate, increasing the funds needed to pay a mortgage even as prices come down.

“It just reinforces that the current market downswing is not about housing affordability, but containing inflation and spending.”

The percentage of income to service rent has also risen in most parts of the nation, up to 31.6 per cent this quarter against 30.9 per cent the previous quarter.

Only Hobart, 34.4 per cent down from 34.7 per cent, and Canberra, 27.3 per cent from 27. 3 per cent, experienced a decline.

However, the drop in housing values has driven the time it takes to save a deposit down from 11.3 years in the June quarter to 10.9 last quarter.

It was down from 13.7 years to 12.8 in Sydney, 11.1 to 10.6 in Melbourne, and 10.8 to 10.1 in Brisbane.