Housing affordability in Sydney, Melbourne hits 21st century lowpoint

Paying off the mortgage in Sydney and Melbourne is at it’s hardest since the turn of the century, with housing affordability slumping following 12 rate rises.

Paying off a mortgage in Australia’s two largest property markets is tougher than at any time this century after 12 increases to interest rates in little more than a year, according to research from the Real Estate Institute of Australia.

The industry body’s quarterly Housing Affordability Report has found homeowners nationally are dedicating 44.9 per cent of their household incomes to their repayments in the March quarter after rates soared to 3.6 per cent.

REIA president Hayden Groves said national affordability levels were back on par with the height of the Global Financial Crisis in September 2008, when official rates were about a third higher than they are today.

“Successive rate increases are now intensely apparent in our housing affordability,” he said.

“To put this in perspective, nationally, the average loan repayment increased to $4537 over the March quarter, which is a whopping 35 per cent over the past 12 months. This will, of course, be starker in cities where it is more expensive to buy and bigger loans are needed to secure housing.”

Those in NSW and Victoria are feeling the impact the hardest. More than half (55 per cent) of the household income was dedicated to repayments in NSW through the first three months of the year, while 46.5 per cent was spent on mortgage costs in Victoria.

In South Australia – where the capital city of Adelaide has remained at peak pricing for eight consecutive months – affordability declined 1.1 per cent, the most significant change through the quarter. The report found 41 per cent of income goes to required payments, just below the 41.2 per cent needed in Queensland.

Tasmanian homeowners are spending 42.7 per cent of their income on their homes, although median repayments are the lowest in the country at $1900.

About a third of income is needed in Western Australia (34.5 per cent), the Northern Territory (32.6 per cent) and the ACT (34.6 per cent).

PropTrack’s Home Price Index shows property prices have been steadily rising over the first five months of 2023, surprising some market commentators who were expecting falls in excess of 15 per cent. Instead, prices have risen 1.1 per cent nationally in the three months to July after a total correction of about 4 per cent from the height of the boom.

Home lending has fallen by almost a quarter from last year’s levels, according to the Australian Bureau of Statistics.

Rental affordability fell in all states and territories, except the ACT, where it improved. However, overall levels have slightly improved (up 0.5 percentage points cent) through the quarter since the low point of September 2022, with tenants dedicating 23 per cent of income to rents.