Jonathan Chancellor is one of our authors. Jonathan has been writing about property since the early 1980s and is editor-at-large of Property Observer.

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Jonathan Chancellor

28 July 2011

Housing unaffordable for at least a decade: AMP

Housing unaffordable for at least a decade: AMP

It will take at least another decade of flat house prices coupled with income growth for the Australian housing market to regain an affordable status, according to the AMP/ National Centre for Social and Economic Modelling income and wealth report.

The report found median house prices grew 147% to $417,000 Australia-wide while median after-tax incomes only increased 50% to $57,000 from 2001 to 2011.

It pushed the price-to-income ratio from an affordable 4.7 to a severely unaffordable 7.3.

In 2001, more than half the suburbs in Australia’s five major capital cities were affordable but now just 4% are affordable, according to the report entitled The Great Australian Dream – Just a Dream?

Not one of the affordable suburbs was in the inner city.

“Sydney’s inner ring takes the dubious prize of the most expensive property market in Australia, with a median price of $685,000,” the report says

“Inner-ring Melbourne is some distance behind as the second most expensive location at $625,000. Brisbane has the most affordable inner-ring suburbs.”

It found that middle-ring suburbs are both cheaper and more affordable than outer-ring suburbs, the most likely explanation being that houses being purchased in the outer suburbs are newer and much larger.

The report concludes that young buyers are experiencing the most housing stress.

It notes first-home buyers – 17% of whom spend more than half their after-tax income on housing – have been forced to buy into a red-hot housing market and crystallised the housing gains of the older generation, who face very little housing stress.

The mortgages of first-home buyers more than doubled over the 10 years, from an average of $131,000 in 2001 to $280,000 in 2011.

Sydney sits as the most expensive to buy a house, with a median price of $510,000, while Hobart is the cheapest, with a $326,000 median price.

A breakdown of housing stress was provided, showing Sydney as the most stressed city on all measures used, with 9.4% of Sydney households paying more than 50% in housing costs, and 11% of lower income Sydney households paying more than 30%.

Tasmania and South Australia are the least housing-stressed states.

Sydney households have the highest proportion of those in severe housing stress, with 9.4% paying more than half of after-tax income on housing costs, compared with 5.3% in Melbourne.

Sydney households face the most housing stress, with 28% spending more than 30% of after-tax income on housing expenses. Perth comes in second at 23% followed by Brisbane (19%), Melbourne (18%), Adelaide (16%), ACT/NT (17%) and Hobart (13%).

Sydney’s median house price is 8.4 times the median income. Melbourne houses are at 7.9 times the median income, Adelaide at 7.7, Perth at 7.2, Brisbane at 6.7, Hobart at 6.5 and Canberra at 6.2. The median house prices in Canberra, Melbourne and Perth is $485,000, in Darwin it is $454,000, in Brisbane $439,000 and in Adelaide $385,000.

The report notes Australia exhibits neither crisis levels of debt nor a housing over-supply problem, so to achieve an affordable housing market, median house prices need to rise more slowly than incomes.

It notes there are early indications that Australian house prices are slowing, but concludes that if median prices remain at current levels and after-tax income continues to grow at trend, it would take nearly nine years for housing to become affordable.

The report found that declining affordability was not confined to the capital cities.

Areas outside of capital cities in four out of Australia’s seven states and territories have experienced the greatest rate of house price growth.

In non-capital city areas, Queensland has the most housing stressed households.

“Although Australia is now one of the most unaffordable developed countries in the world in terms of housing, there are still many people entering the property market or preparing to do so,” Craig Meller, managing director of AMP Financial Services, says.

“While Australian first-home buyers are under the greatest housing stress, this group is finding ways of achieving their goal in different ways.

“Many are choosing to save money by living with their parents longer while others are choosing to buy an apartment instead of a house,” Meller says.

“Our history of determination in the face of adversity is seeing a new generation carve out their financial futures.”