Housing affordability improving but rental costs still at four-year high: REIA

Housing is at its most affordable level since December 2009, but rental payments as a proportion of family are still hovering around four year-highs, according to the latest REIA/Deposit Power report.

The latest report shows that rental affordability has hardly improved since March 2008 – around the outbreak of the GFC – when rents as a proportion of family income increased to 24.7%.

Rents as proportion of family income remain well above the national long-term average since the December 1995 of 22.7% – despite median family income rising over the March quarter by 1.3% to $1,552.

The March quarter report shows the proportion of weekly family income required to meet weekly rent for a three-bedroom house stands at 24.9%, compared with 24.8% in the December quarter and 25.1% in March 2011.

Over the March quarter, the biggest increase in rents as a proportion of family income was recorded in the Northern Territory, where the proportion rose from 22.9% to 24.1%, with smaller increases in WA (20.1% to 20.8%) the ACT (16.5% to 16.7%) and South Australia (26.2% to 26.3%).

South Australia’s rents are amongst the lowest in the country, with the median rent for a three-bedroom house at $325 per week. The median two-bedroom other dwelling rent is $275 per week.

ACT rents are amongst the highest in the country at $470 per week for a three-bedroom house, and $445 for a two-bedroom other dwellings.

Rental affordability improved in Victoria during the quarter (alongside housing affordability), with the proportion of income required to meet median rents decreasing 0.6 percentage points, from 22% in the previous quarter to 21.4%. Compared with the March quarter of the previous year, this figure declined 1.5 percentage points.

Renting in NSW remains the biggest drain on family finances – accounting for 28% of family income, down from 28.8% in the December quarter but up from the 27.7% recorded a year ago.

Tasmania, where incomes are lower, is the second most expensive place to rent at 26.6% of family income, though there has been a noticeable drop from 29.5% a year ago, when it was the most expensive state to rent.

The historically high cost of renting is influencing the behaviour of real estate agents in a challenging operating environment, according to REIA chief executive Amanda Lynch.

Lynch says some estate agents are relying on their management of rental properties as a source of income.

Over the March quarter, the biggest increase in rents as a proportion of family income was recorded in the Northern Territory, where the proportion rose from 22.9% to 24.1%, with smaller increases in WA (20.1% to 20.8%) the ACT (16.5% to 16.7%) and South Australia (26.2% to 26.3%).

South Australia’s rents are amongst the lowest in the country, with the median rent for a three-bedroom house at $325 per week. The median two-bedroom other dwelling rent is $275 per week.

ACT rents are amongst the highest in the country at $470 per week for a three-bedroom house, and $445 for a two-bedroom other dwellings.

Rental affordability improved in Victoria during the quarter (alongside housing affordability), with the proportion of income required to meet median rents decreasing 0.6 percentage points, from 22% in the previous quarter to 21.4%. Compared with the March quarter of the previous year, this figure declined 1.5 percentage points.

Renting in NSW remains the biggest drain on family finances – accounting for 28% of family income, down from 28.8% in the December quarter but up from the 27.7% recorded a year ago.

Tasmania, where incomes are lower, is the second most expensive place to rent at 26.6% of family income, though there has been a noticeable drop from 29.5% a year ago, when it was the most expensive state to rent.

The historically high cost of renting is influencing the behaviour of real estate agents in a challenging operating environment, according to REIA chief executive Amanda Lynch.

Lynch says some estate agents are relying on their management of rental properties as a source of income.

The March quarter REIA/Deposit Power report shows that nationally, the proportion of family income required to meet loan repayments decreased by 0.9 percentage points compared with the previous quarter and now sits at 32%.

This pushed up the REIA Home Loan Affordability Indicator (HLAI) – the ratio of median family income to average loan repayments – to 31.3, its highest point since December 2009, but still well below the long-term average of 38.6.

“Housing affordability is still not at ideal levels, but at least we are now heading in the right direction,” says REIA president Pamela Bennett.

“If other factors continue to trend in the same direction, the interest rate cuts in May, and those announced yesterday should bring further good news for housing affordability next quarter,” she says.

First-home buyer participation in the housing market decreased in the March quarter.

The number of new finance commitments to first home buyers decreased 18.8% to 23,637 compared to 20.2% of buyers in March 2011 while the number of first home buyers, as a percentage of total owner occupied housing commitments, decreased to 18.0% during the quarter, compared to 20.0% in the December quarter 2011.

This proportion is dramatically down from the 30.6% level of the June 2009 quarter.