One state in Australia where people can comfortably afford property

Data showing what the average Australian earner can afford to buy in each state capital city and state is eye opening.

For over a decade, there have been various reports and academic research papers on how Australia’s capital city housing markets were becoming increasingly unaffordable for the median household.

But there is another question that is just as important: under today’s circumstances what price home could a household earning the median income actually afford?

Assume that they are borrowing at the average payable variable rate, have a 20 per cent deposit and enough spare cash for stamp duty, transfer fees and other transaction costs.

In order to give the households in the scenario the greatest possible purchasing power, we will be looking at two different metrics.

Under the first metric, how much a median earning household could borrow based on the average payable owner occupier mortgage rate and just avoid technical mortgage stress, which is historically defined as spending 30 per cent or more of a household’s pre-tax income on mortgage servicing.

Can average Australians actually afford to buy property in any of our capital cities? Picture: NCA NewsWire / Max Mason-Hubers

Under the second, it will be based on how much one of the major banks would allow the hypothetical households to borrow based on the headline standard for borrowing power.

It’s worth noting that in the scenarios for each individual capital city household, based on the local income conditions, the household would be in technical mortgage stress, expending 34.0 per cent to 35.5 per cent of their pre-tax income on their mortgage.

What can the median household afford?

In the first scenario, households would be expending 29.99 per cent of their gross household income on their mortgage, avoiding technical mortgage stress by the narrowest of margins.

Based on the highest median household income in the nation, which is held by Sydneysiders, the median household could afford a home valued at $583,000.

At the other end of the spectrum in Adelaide which has the lowest median household income of the five largest capital cities, the hypothetical household can afford a $435,000 home. The other capital cities end up somewhere in the middle of these two.

Before we get to the second scenario, which is based on what a major bank is likely to potentially lend, it’s worth noting that this is not the maximum possible amount they could borrow if they were to explore all of their options. There are non-bank lenders and perhaps some banks who would allow the hypothetical household to borrow more, potentially significantly more.

The maximum price home the median earning Sydney household could pursue under these circumstances is a little over $690,000, $611,000 in Melbourne, $588,000 in Brisbane, $497,000 in Adelaide and $595,000 in Perth.

What’s on offer at those prices?

Now that we have a rough idea of what sort of home price budget the median household has under the maximum borrowing power scenario, what exactly can that actually buy them?

To put this into perspective, we contacted Realestate.com.au to see what proportion of homes were within the price range of our hypothetical households in the five largest capital city markets.

In order to provide a bit of a broader representation, there is data for two scenarios, the proportion of current listings for houses with three bedrooms or more that are affordable and the same for units of two bedrooms or more.

Under both scenarios Perth performed the best, with 39 per cent of three-bedroom or more homes being affordable, along with 59 per cent of two-bedroom or more units.

At the other end of the spectrum in Sydney, just 2 per cent of three-bedroom or more houses listed for sale were affordable for the median household, along with 37 per cent of units of two bedrooms or more.

Realestate.com.au also noted that the proportion of homes that are affordable by the median has dropped for the five major capitals in both the house and unit scenarios.

But what if our hypothetical household worked from home and wanted something different and instead decided to walk away from capital city life for a median house in a major regional centre or elsewhere, where could they afford based on their maximum borrowing power.

A move out into some of the most populous regional centres and other cities outside the capitals may seem like a silver bullet at first glance, but once the data is examined on home prices in these areas, the reality gets quite a bit more challenging depending on the state in question.

In NSW in particular, a majority of populous options outside of Sydney were out of reach and of those that were, Orange was a photo finish with its median house coming in only slightly under the maximum affordability limit.

At the other end of the spectrum homes in towns outside of Adelaide were affordable on a capital city income. Queensland also earns something of an honourable mention in these stakes, with four out of six possibilities still affordable on paper.

However, once a welcoming sanctuary from the cost of living in South East Queensland, the median price house in Toowoomba is no longer affordable for the median Brisbane household.

It’s worth noting that this scenario assumes the hypothetical household continues to hold its higher capital city income and that it does not begin to reflect the lower median household incomes seen in regional centres.

Ultimately, there is no silver bullet option for the over 1 million prospective first home buyers who earn around or less than the median income and face housing prices in their home city significantly out of their reach.

For some a move to the urban fringe or the regions may be an option, but with prices far higher than they were prior to the pandemic, that is no longer as viable as it once was.

Tarric Brooker is a freelance journalist and social commentator | @AvidCommentator