Sydney and Melbourne ranked inside top five most unaffordable cities to buy a property

A new study published by international real estate analysts has laid bare the painstaking facts facing first homebuyers in Australia.

You’re probably sick to death of hearing just how bad Sydney and Melbourne stack up next to the world for housing affordability.

In case you needed reminding, another international think tank has laid bare the painstaking facts facing first homebuyers in Australia.

A new report released by the Urban Reform Institute and the Frontier Centre for Public Policy placed Sydney second only behind Hong Kong on a list of the most expensive cities to secure a home.

Melbourne, which has been tipped to overtake Sydney’s population by 2030, came in at fifth behind Vancouver and San Jose.

“There has been an unprecedented deterioration in housing affordability during the pandemic,” author Wendell Cox wrote in the report, which compared incomes to home prices in the third quarter of 2021. “The number of severely unaffordable markets rose 60 per cent in 2021 compared to 2019.”

Demographia International Housing Affordability uses the “median multiple” to rate middle-income housing affordability. The median multiple is a price-to-income ratio, which is the median house price divided by the gross median household income.

“The least affordable market is Hong Kong, with a median multiple of 23.2, followed by Sydney at 15.3, Vancouver at 13.3, San Jose at 12.6 and Melbourne at 12.1,” the report reads. “The most affordable market is Pittsburgh, at 2.7, followed by Oklahoma City and Rochester at 3.3, with Edmonton and St. Louis at 3.6.”

The results came after Aussie home prices rising by just 0.3 per cent in March, a steep decrease compared to the previous two years of market acceleration.

“Those boom conditions seem like they have passed. While housing prices are still going up, it’s at a slower rate and whether prices increase or fall significantly is a question around interest rates and when and how quickly the RBA will increase rates,” PropTrack economist Paul Ryan told news.com.au.

Property Council Chief Executive Ken Morrison said there is a national-level crisis in the current housing market.

“We need to get supply right,” he told Sky News Australia.

The least affordable market is Hong Kong, with a median multiple of 23.2, followed by Sydney at 15.3, Vancouver at 13.3, San Jose at 12.6 and Melbourne at 12.1.

“The federal government’s own forecasts show that housing supply is set to drop by about 35 per cent, just at the time that our population growth is going to restart.”

According to Treasury’s forecasts, Australia’s inflation rate will peak “well below” those of other comparable countries, but will reach 4.25 per cent in the June quarter this year before receding to 3 per cent in the 2022-23 financial year.

“The combination of higher global inflation and a historically tight labour market suggests that domestic inflation risks are tilted to the upside,” the budget papers say.

Treasury predicts monetary policy will “begin to normalise from historically low levels”, with the market “pricing in a tightening cycle from mid-2022 until 2024”. That would mean higher interest rates, and therefore higher mortgage repayments.

There is, however, some good news for people considering taking out a mortgage. The government is spending an estimated $8.6 million to more than double the current number of places available per year under its Home Guarantee Scheme, which dramatically lowers the deposit required to buy a home to just 5 per cent, instead of the usual 20 per cent.

The scheme has three distinct components with annoyingly similar names, so bear with us.

The First Home Guarantee, which is aimed at first homebuyers in major cities, will now have 35,000 places per year.

Sydney is second only to Hong Kong on the world's least affordable cities list.

A newly created Regional Home Guarantee, with 10,000 places, will focus on helping aspiring homebuyers in regional areas.

It will be available to both citizens and permanent residents who have not owned a home for five years. The government hopes that will have the added benefits of encouraging more home construction outside the nation’s capital cities, and encouraging more migrants to live in regional areas.

Finally the Family Home Guarantee, which is targeted at single parents who are either buying their first properties or seeking to re-enter the housing market, will see its allotment doubled to 5000 places.

Beneficiaries of the Family Home Guarantee can buy homes with an even lower deposit of 2 per cent.