$200k income needed to buy mid-priced Sydney home

Climbing interest rates and stubbornly resilient home prices after the pandemic property boom have made Australian homes more unaffordable than ever, new research reveals.

Climbing interest rates and stubbornly resilient home prices after the pandemic property boom have made home more unaffordable than ever, research has revealed. Picture: NCA NewsWire/David Crosling

Climbing interest rates and stubbornly resilient home prices after the pandemic property boom have made homes more unaffordable than ever, research has revealed.

As the Greens threaten to block the Albanese government’s $10bn housing fund in parliament, arguing it does not go far enough, a new report by investment bank Jarden estimates that households nationally need an income of $140,000, or 40 per cent above the average, to afford a mid-priced property.

The affordability crisis is worst in Sydney, where a household income of $200,000, or 70 per cent higher than the national average, is needed to comfortably afford to buy a new home.

Households need a gross income of at least $200,000 a year to ‘comfortably’ afford a mid-priced home in Sydney. Picture: NCA Newswire/Gaye Gerard

Jarden chief economist Carlos Cacho said an affordable home was typically defined as chewing up at most 30 per cent of the owners’ gross pay, and his analysis was based on the cost of repaying a mortgage worth 80 per cent of the median property value.

With that benchmark in mind, the typical recent or new buyer household is dedicating a record 43 per cent of their gross pay to paying the mortgage, against just 24 per cent in 2019, he said.

Rent as a share of the average household income has also reached a record, at 30 per cent, against 24 per cent leading up to the pandemic.

With asking rents climbing at double-digit rates, the supply squeeze continues to tighten as migration roars back to life following the Covid-19 lockdowns.

Recent data from PropTrack shows rental vacancy rates fell again in August to reach a record low of 1.1 per cent nationwide.

“Housing affordability for both owners and renters has never been worse,” Mr Cacho said. “This means that unless something changes, the share of lifetime renters will continue to increase, which has important implications for the economy, financial system and society.”

Despite a dozen rapid-fire rate hikes since May last year that have left property prices floundering, home values nationally remain 34 per cent higher than immediately before the pandemic, according to PropTrack.

Increasingly unaffordable homes, as well as societal changes such as young Australians studying for longer, has steadily eroded home ownership rates over the past 50 years.

For example, the home ownership rate of 30 to 34 year-olds was 64 per cent in 1971, but had plunged to 50 per cent by 2021, ­according to Australian Institute of Health and Welfare analysis of census data.

This has also led to a smaller share of households living in the home they own as they approach retirement. Since 1996, home ownership rates for the 50 to 54-year age group has fallen from 80 per cent to 72 per cent.

The new analysis will add further pressure on the Albanese government to implement meaningful reform to return the dream of home ownership into the hands of future generations.

Labor says its $10bn Housing Australia Future Fund, once fully implemented as part of the ­National Housing Accord with the states aimed at freeing up more land and easing regulations, will help pay for 1.2 million well-located and affordable homes by the end of the decade.

But the legislation has stalled in parliament in the face of stiff opposition from the Greens, who are demanding a national rent freeze and more spending on social housing in return for their support.

In the meantime, hope that the Reserve Bank has finished hiking rates, combined with an encouragingly resilient labour market, has helped put a floor under the property market, with prices beginning to climb over recent months despite substantially higher mortgage costs.