Is Australian Property Unaffordable?

Like any asset, Australian Residential Property (ARP) is ultimately worth what whatever someone is willing to pay for it.

“Look, if housing were unaffordable in Sydney, no one would be buying it” Joe Hockey – 9th June 2015.  

The former Treasurer Joe Hockey copped a massive spray from the media commentators & opposition for his “insensitive” comments on housing affordability but in my opinion, he was simply being Captain Obvious when he further stated…
“If you’ve got a good job and it pays good money and you have security in relation to that job, then you can go to the bank and you can borrow money and that’s readily affordable.” 
And his comments seem to be strongly supported by the latest release (Oct 2015) of the Australian Bureau of Statistics Housing Occupancy and Costs, 2013-14.   The Survey of Income and Housing (SIH) collects data from households all across Australia to measure levels of housing occupancy and costs and how these change over time. Whilst, this survey is probably out of date by the time of release, it does provide us with a very large sample size, therefore giving us a solid indication as to the average costs for housing across Australia.

According to the report the key takeaways are:

  • Housing costs for owners with a mortgage remained steady in real terms between 2011–12 and 2013–14, at an average of $453 a week in 2013–14.
  • On average households spent 14% of their gross weekly income on housing costs in 2013–14. This has not changed since 2011–12.
  • The proportion of gross weekly income that homeowners with a mortgage spent on housing costs actually fell from 18% in 2011–12 to 16% in 2013–14 (likely due to lowered interest rates)
  • Home ownership levels remained steady from 2011–12 to 2013–14, with 67%  of households owning their home, either with or without a mortgage.
  • Of all households, 31% owned their home without a mortgage, while 36% of households had a mortgage secured against their dwelling.
  • The proportion of all households renting remained stable at 31%. Renters, however, saw housing costs rise 4% between 2011–12 and 2013–14 and now spend 20% of their gross weekly income on housing costs.

Whilst, obviously, ARP has been rising in price in places like Sydney & Melbourne over recent years, this has not been the case for example in places like Perth & Darwin. So looking at the ARP we need to understand that it is not one market but rather an amalgamation of markets consisting of 8 states/territories, over 15,000 suburbs, and over 9 million individual properties each with their own point of difference and affordability.
Much of the problem with affordability comes from the way that affordability is either defined &/or measured. So when people talk about housing affordability, they are mostly talking about house prices rather than rents.   As we have seen, from the ABS study above, rents have actually shown to been rising faster than housing affordability.  Furthermore, most of the discussion around Housing Affordability (or lack thereof) is focused on whether (or not) first home buyers can afford a median house in the area.


We have previously discussed the challenges of using “median” house price data, but leaving that argument aside for the moment there are some other points to make here:

  • Most economists use the arbitrary value of 30% of income being applied towards housing costs as a guide to whether or not housing is affordable. However, combining median price data and average income as a blanket tool for determining affordability is flawed… For example, let’s look at the suburb of say Brighton in Victoria with a median price in excess of $2M. Now assuming that we had an Interest Only Mortgage for 80% of $2M at a 5% p.a interest rate, then the interest repayments would be 5% x $1.6M = $80,000 p.a and let’s add in another $5,000 p.a for rates, maintenance, insurances etc. that would bring us to a total of $85,000 p.a which is above the Australian Average Total Full-Time Earnings of $80,282 p.a (source: ABS 6302.0 – Average Weekly Earnings, Australia, May 2015). This means that the suburb of Brighton is unaffordable for the average income earner. Clearly, there are many suburbs that do not function as first home buyer areas, or even average income areas, for that matter. Furthermore, many of the buyers of these upper-end properties are in much higher income brackets, or have other significant financial assets behind them, to be able to afford these properties.
  • Whilst, the media is awash with articles about how the Great Australian Dream of home ownership is being lost, what we are seeing in reality is that some of the newer generations of first home buyers, are not being priced out of the market, but more so priced out of the areas that they really want to live in. I am sure that most first time home buyers would love to live in a large detached house within 10km of a major city CBD but they may need to adjust their expectations. Like the generations before them, you may need to compromise and build your property wealth over time. This may mean taking your first step onto the property ladder by buying a smaller unit in the area you want to live in, or looking further out from the city centres to be in a position to be able to afford the dwelling type you really want.
  • Many first home buyers will have to use two incomes to buy a home in Australia. However, this has been the case for decades now, so any models measuring affordability against a multiple of average individual income is not an accurate model either.


Is Affordability A Case of Australians Not Being Able To See The Forest For The Trees?

I certainly do not want to be accused of being insensitive, or that ARP is not an expensive proposition, but sometimes when discussing emotive issues like housing affordability sometimes a bit of perspective is called for.

Australia is a relatively young and large country. Up until the mid-1900’s balancing supply and demand for a small population on a big land mass was a fairly easy proposition and subsequently there was little price growth till that time. However, couple that more recently, with a growing population who would mostly prefer to live near the major economic capital cities alongside or near the coast, increased regulation and slow response rate regarding urban development, & both  easy and cheap access to credit then it is little wonder that we have seen ARP prices rise.

By world standards, Australian Capital Cities actually enjoy relatively low population densities, benefit from great natural beauty, good weather (forgetting the odd heat wave, flood or bushfire that we are prone too), stable governments (despite the fact that we have had 5 prime ministers over the last 5 years), a well regulated finance sector, direct property ownership laws, and a strong history of price growth. Is it any wonder, that many overseas investors see ARP as an attractive and profitable alternative to their own countries.


Getting Started or Growing Your Portfolio….
So is 2016 the time to buy ARP?

Well like all investment decisions that will depend on your own individual property wealth plan.
We certainly see some new headwinds in the ARP markets for 2016, but as always there will also be some amazing opportunities for those who are well educated, have a property wealth plan, and are ready to take advantage of the numerous opportunities on offer for the savvy property investor in 2016.

Do you meed help with your property plan? 
Then give us a call on (03) 8842 9399, or drop us a line at to see if you qualify for a free, no-obligation, chat about how we may be able to help you grow your wealth in 2016 and beyond.

By | 2017-11-26T02:49:51+00:00 January 5th, 2016|Property Investment|Comments Off on Is Australian Property Unaffordable?

About the Author:

Matt has had a long and varied career which has led him to become a highly sought after Property Mentor. Matt and his team currently have over $150 million worth of property under development, and have successfully taught hundreds of clients how to build a large property portfolio to suit their lifestyle.