Housing affordability in Sydney just hit a 'critical level'

Photo by Joosep Martinson/Getty Images

Housing affordability in Australia worsened in the June quarter of this year, according to new research released by Australia’s Housing Industry Association (HIA) released today.

And in Sydney, the nation’s largest and most expensive city, affordability, or lack thereof, hit what the group deems to be a “critical level”.

We’ll get to exactly what that means in a moment. There is, after all, more to Australia’s housing market than just Sydney.

Nationwide, the HIA’s Affordability Index — a gauge that uses a range of data including wages, house prices and borrowing costs to provide an indication of the affordability of housing — fell 0.3% during the June quarter, thanks largely to a steep increase in Australia’s median house price which jumped 9.1% to $540,200 from a year earlier.

A fall index indicates that affordability worsened from a quarter earlier.

“The growth in house prices in the quarter outstripped the growth in wages resulting in the deterioration in affordability,” the group said.

Here’s how affordability based on the HIA measure currently stands across Australia’s city and regional areas.

Source: HIA

The HIA said the national deterioration was driven by just two cities — Perth and Sydney — with affordability actually improving in all other capitals over the same period.

“Of the capitals where affordability worsened, the biggest deterioration was in Perth (-1.3%) and Sydney (-0.7%),” the HIA said.

“The Perth deterioration in affordability appears to contradict the soft conditions in that market but the fall in average wages in Perth in the quarter outweighed the positive impact on affordability from the falls in home prices.”

However, they were partially offset by improved affordability in all other capitals.

“The largest improvement occurred in Darwin (+4.3%), followed by Adelaide (+2.9%), Hobart (+1.6%), Brisbane (+1.0%), Canberra (+0.8%) and Melbourne (+0.8%),” it said.

The small improvement in Melbourne may raise a few eyebrows, especially as prices in the city are growing faster than any other capital right now, according to CoreLogic, although the HIA noted that affordability in the city was still down 6% from the same quarter a year earlier.

And, in Sydney, the group said that affordability had deteriorated to a point never seen before, at least in its index.

“Affordability in Sydney has now declined past a critical level,” it said.

“Acquiring and servicing a mortgage on a house in Sydney now requires more than two standard Sydney incomes.

“Sydney is the only market to have achieved this outcome in the 15-year history of this report.”

According to the 2016 census, the median personal income for an individual living in Sydney region stood at $719 per week.

NOW WATCH: Money & Markets videos

Want to read a more in-depth view on the trends influencing Australian business and the global economy? BI / Research is designed to help executives and industry leaders understand the major challenges and opportunities for industry, technology, strategy and the economy in the future. Sign up for free at research.businessinsider.com.au.