Housing affordability is now at the worst level on record, according to PropTrack's Housing Affordability Index.
After a year of higher interest rates and home price growth, even fewer households are able to achieve their dream of owning a home.
The decline in housing affordability is a result of continued high mortgage rates at levels last seen in 2011, combined with home price growth equivalent to a $50,000 increase in the national median home price over the past 12 months.
These factors mean that households across different income levels can afford to buy the smallest share of homes on record.
There has been a rapid decline in affordability in just a few years. A median income household – earning just over $112,000 a year – can afford to purchase just 14% of homes sold across the country. That’s a sharp fall from just three years ago, when this figure was 43% of homes.
For full results see the PropTrack Housing Affordability Report 2024.
Housing affordability is at a record low
The PropTrack Housing Affordability Report shows affordability is a significant issue affecting Australians in 2024.
Continued rapid increases in home prices, along with interest rates at the highest levels in the past decade, have resulted in the worst housing affordability conditions on record.
In the 12 months to June 2024, households across the income distribution could afford the smallest share of homes since 1995, when our records began.
Affordability slowly improved in the decade following the Global Financial Crisis and was markedly higher in 2020 and 2021 due to interest rates falling to record lows.
However, following the sharpest rates increase in history from mid-2022 and rise in house prices, buying a home is harder than ever.
Households can afford the smallest share of homes on record
A median (or typical) household, earning just over $112,000 a year, could afford just 14% of all homes sold across the country. This is the lowest share since records began in 1994-95.
This is a significant decline from just three years ago, when a median-income household could afford 43% of homes sold in 2020-21.
You now need to be a high-income household, earning $213,000 a year (in the top 20% of income earners), to be able to afford to buy half of homes sold in Australia over the past year.
Rising incomes since the pandemic have been insufficient to offset increases in home prices and critically, the surge in mortgage rates, for households at all income levels.
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Housing affordability is worst in New South Wales, Tasmania and Victoria
The PropTrack Housing Affordability Index shows that households in New South Wales, Tasmania and Victoria face the toughest housing affordability, while South Australia recorded the biggest decline in affordability over the past year.
With a median house now costing $1.5 million in Sydney, it is no surprise New South Wales is the least affordable state.
Despite lower home prices, Victorian housing affordability is below the national average. A median-income household can only afford 12% of homes sold over the past year.
Tasmania ranks as the second least affordable state, with a median-income household now able to afford less than one in 10 homes sold over the past year.
Western Australia is by far the most affordable state. The opportunity to buy a home remains a key incentive to many making the move west, contributing to rapid price growth over the past year.
Saving a deposit is another big challenge for first-home buyers
Even for those first-home buyers who can afford to make mortgage repayments on their first home, being able to save a deposit (while paying rent) remains a high barrier for many first-time buyers.
An average-income household would need to save 20% of their income for more than five and a half years to save a 20% deposit on a median priced home.
Any Improvement in affordability in sight?
Lower interest rates will ease housing affordability somewhat, and this relief may come as soon as late this year. But meaningful, long-term improvement will require structural changes to the housing market to make more homes available.
Fundamentally, the solution is building more homes, and it has been heartening to see this focus in recent years. The National Cabinet target to build 1.2 million well-located homes is one of the most notable housing policies of recent decades and it has inspired ambitious zoning reforms from some state governments. These types of reforms have had an enormous impact overseas; but it will require a coordinated national effort to enable more construction.
We can also better use the homes we already have. Stamp duties penalise people for right-sizing and making larger homes available for growing families. They also impose a substantial further burden on first-home buyers trying to save a deposit.
Without changes to make housing more abundant, home ownership will cease to be a cornerstone of the Australian way of life.
By Paul Ryan
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