Home ownership hurdles: 2023 sees soaring costs, sinking affordability

Housing affordability has plummeted on three fronts in 2023, with simultaneous rises in rent values, housing values and interest rates putting home ownership further out of reach for many.

According to the ANZ CoreLogic Housing Affordability Report, the number of years it takes to secure a 20 per cent deposit at the median income level has risen back up to 10 years nationally for the median property value of $747,424.

The proportion of income required to service a new home loan also climbed significantly, up to 46.2 per cent nationally, compared to 29 per cent in March 2020.

There was also a further departure in affordability between house and unit values, which remain at elevated levels of 28.6 per cent.

ANZ Senior Economist Adelaide Timbrell said before the pandemic, the decade average difference between house and unit values nationally was 7.3 per cent.

“The time to save a 20 per cent deposit has only shifted by around two months nationally for units since the onset of COVID-19, while for houses the time to save has blown out by almost two years,” she said.

“This presents a clear shift for those hoping to enter the housing market, as units have stayed within a reasonable price range for new home buyers, while houses have become more out of reach.”

The regional housing market has also returned to an upswing and affordability metrics are now more in line with capital city markets than they were before the pandemic.

In March 2020 it took about 7.5 years to save a 20 per cent deposit for a regional home, but at the start of September this year, that had increased to 9.7 years.

The proportion of income required to service a mortgage on a regional property has also blown out from 25.4 per cent pre-pandemic, to 44.7 per cent this year.

CoreLogic Head of Australian Research Eliza Owen said the regional Australian dwelling purchase price has sustained a 44.4 per cent rise in dwelling values since the start of Covid, compared with a 26.4 per cent uplift across the capital city home market.

“Regional Australia is often thought of as a more affordable alternative for housing, a way to reduce housing costs by compromising distance to major employment hubs,” she said.

“The Covid boom in regional migration and values means it’s really not that much more affordable now, and there’s very little difference in the combined regional and capital city affordability metrics.”

The increase in national housing values throughout the year can be attributed to several factors, including “unusually high” net overseas migration, which reached a record of 454,000 over the year to March 2023.

Advertised stock levels were also persistently low, remaining 22.9 per cent below the historic five year average, while expectations that the cash rate may be at, or near its peak also contributed to rising housing values.

Tight rental markets also drove investor purchases higher, with nationally advertised rent values climbing 81 per cent in the past 12 months.

Rental affordability has also dropped, with the proportion of income required to service rents on a new lease rising from 29.4 per cent in 2022 to 31 per cent this year.

In 2024, housing affordability will likely be shaped by interest rates, housing demand and the state of the construction sector.

There will likely be an extended pause in the cash rate before a slight easing towards the end of the year, which would ease mortgage repayments but could put upward pressure on home values.

Renters are expected to react to higher housing costs by moving and reforming share houses.

New listings have been rising in 2023 but the delivery of new stock in 2024 will be hampered by a lack of dwelling approvals this year.

“In 2024, housing affordability is likely to get worse before it gets better,” Ms Owen said.

“Dwelling supply will continue to be strained by the high interest rate environment, which has reduced approvals and potential for new housing development in 2024.

“Demand will probably be the only thing that can adjust in the short-term, so we may see the average people per household rise.”

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