Construction drought squeezes affordability as values rise again

Further contraction in the residential construction pipeline will make it harder for many to get into the property market.

Further contraction in the residential construction pipeline and a short-lived reprieve from price gains will make it harder for many low-income earners to get into the property market, a new affordability report has found.

The report released by community housing provider representative body PowerHousing Australia and property researcher CoreLogic found that despite the average mortgage coming down, potential homeowners were ­feeling little relief, choosing rentals that were proportionately more affordable than homeownership.

Market changes that would usually make it easier for low-­income earners such as social housing tenants, renters, first-home buyers and seniors to buy — lower interest rates, the lowering of the serviceability floor and greater access to credit — are being negated by the value rises.

It has been a year of contrasts in the property market. The slowing pace of the downturn through the first half of the year quickly made way for a V-shaped recovery, with a shallow trough in price changes making way for a sharp rise in values — up more than 5 per cent over the quarter to ­November in Sydney and Melbourne.

This could be amplified by an anticipated shrinking in the number of building approvals, commencements and completions in the pipeline over the next 24 months, which will affect the balance between supply and demand.

Strangled supply generally leads to price gains, eroding any affordability improvements over the past 24 months.

Nicholas Proud, CEO of Power­Housing Australia, said if enough homes were not built to meet population needs, then prices would continue to rise.

“We are seeing a record decline in housing approvals starting to bite and with population growth continuing to run at long-term ­average levels, it may not be long before demand outstrips supply,” Mr Proud said.

One of the few saving graces for low-income earners will be the federal government’s bond scheme, administered through the National Housing Finance and Investment Corporation, which will help community housing providers deliver more homes at lower cost with low-interest loans.

CoreLogic head of research Tim Lawless said affordability had improved in recent years but the comparison between median gross annual household income and median dwelling value showed there was still a challenge. Sydney dwelling values were 8.4 times higher relative to gross annual household incomes and Melbourne values were 7.6 times.

PowerHousing Australia represents 34 of Australia’s largest tier-one and scale-growth community housing providers.