Regional boom causes affordability pains

Affordability is declining more quickly in the regions and smaller capital cities as rising prices and heightened demand put pressure on buyers.

Affordability in the regions and smaller capital cities fell over the December quarter. Picture: Darren England

Affordability is declining more quickly in the regions and smaller capital cities as rising prices and heightened demand put pressure on buyers.

The Housing Industry Association’s latest affordability index shows regional affordability pulled back 3.7 per cent over the December quarter to levels last seen in December 2019.

Despite this, overall affordability levels — which takes into account home prices, interest rates and wage developments — are well above the average of the past 20 years.

HIA economist Angela Lillicrap said the change in buyer preferences away from big cities through the pandemic was one of the big influencing factors.

“Housing in Australia became less affordable in the December 2020 quarter due to rising house prices and a slight fall in average incomes. Despite the decline, housing is considerably more affordable than the average over the past 20 years,” Ms Lillicrap said. “Preliminary migration data shows more Australians left the capital cities in each of the first three quarters of 2020 than at any other time since records began in 2001. This involved an acceleration of retirement plans and fewer people moving to urban centres for work or education.”

Darwin had the most significant affordability decline over the December quarter, down 4.9 per cent. While it is the cheapest capital city to buy in, with a median of $438,645, prices have risen 13.8 per cent in the past year.

All the smaller capitals have also felt the affordability pinch, with Brisbane and Adelaide down 3.1 per cent, Perth and Hobart falling 3 per cent, and Canberra down 2.8 per cent.

Sydney and Melbourne are considered extremely unaffordable by the index, but only nudged 1.4 per cent and 0.8 per cent lower respectively over the December quarter.

The housing market has been running hot since the end of last year. Ms Lillicrap ­believes this will encourage sellers to test the market, with the additional supply weighing on price growth.

“It is likely that much of the shift in population will be permanent. When ‘normal’ does return, however, young students and workers will once again move to employment centres in capital cities,” she said.