There may be a glimmer of hope for housing affordability in Australia

Photo: Peter Parks/AFP/Getty Images

Housing affordability improved slightly in the September quarter but remains at historically low levels, according to latest data from the Housing Industry Association (HIA).

In data that may surprise prospective property buyers, the HIA’s Housing Affordability Index showed a small 0.5% improvement in the three months to September. However, it remains 4.4% below the levels of a year ago.

“Housing Affordability has been deteriorating in Australia for decades, particularly in capital cities, as demand for new housing greatly exceeded the supply,” said Tim Reardon, HIA’s Principal Economist.

The figures represent a turnaround from the June quarter, when the index fell by 0.3% and HIA said that housing affordability in Sydney had hit a “critical level“.

According to Reardon, the small improvement in September stems from macro-prudential measures implemented earlier this year to help curb excessive house price growth.

Those measures targeted investors rather than owner-occupiers, as APRA capped the issuance of interest-only loans to 30% of all new loans.

“As a consequence of this intervention it appears that the market has responded with higher mortgage rates for investors and eased rates for owner-occupiers,” Reardon said.

“This has had the unintended consequence of improving housing affordability for owner-occupiers.”

While Sydney remains the least affordable city in the housing market, affordability in Sydney actually edged higher in the quarter along with Brisbance, Adelaide, Perth and Darwin.

Melbourne, Hobart and Canberra showed declines in affordability. This chart shows the recent trends in Sydney, Melbourne and Brisbane:

HIA’s housing affordability index has been produced for 17 years and is based on multiple measures including wages, house prices and borrowing costs. A higher figure in the index means that affordability is increasing.

The latest figures from HIA are broadly consistent with the dynamics seen in other measures, which suggest that after years of rapid growth house prices in Australia’s major markets are starting to cool.

And while annual growth rates for Sydney property remain high, quarterly data from CoreLogic shows that property values in Sydney increased by just 0.2% in the September quarter, comfortably outpaced by Melbourne, Hobart and Canberra:

While macro-prudential regulations may be limiting investor activity, recent housing finance data provided some evidence that more first home buyers are entering the market.

Data for July showed new owner-occupier finance jumped 2.2% to $15.16 billion — the highest level on record — which followed the introduction of stamp-duty concessions in NSW in Victoria.

Under the new measures, stamp duty will be abolished in for purchases of up to $600,000 in Victoria and $650,000 in NSW, with discounts applied for purchases up to $800,000 in NSW.

However, “Sydney retains the mantle as the nation’s least affordable housing market,” Reardon said.

“It still takes twice the average Sydney income to service a mortgage on a median priced home in Sydney while avoiding mortgage stress.”

So despite efforts from regulators and governments to curb speculative activity and boost owner-occupier demand, the familiar themes of stretched affordability and stark contrasts across different state markets remain in place.

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