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20-year analysis shows housing affordability continues to decline but rental affordability stable

The Real Estate Institute of Australia (REIA) has crunched the numbers and found housing affordability has been on the decline for the past two decades and will continue to be an issue if household income does not increase.

REIA’s new report, Housing Affordability Report: the past 20 years, shows that at the start of the 21st century, the weighted average proportion of income required to meet loan repayments has increased from 27.2 per cent to a staggering 35.7 per cent.

REIA President, Adrian Kelly said while housing affordability is on the decline, it was least affordable back in the September, 2008 where 45.8 per cent of income was required to service a loan. However, as property prices climb, it looks set to become a greater issue in the future.

“Go back two decades to March 2002, Australia was at its most affordable at 26.8 per cent of family income required to meet repayments,” he said.

Mr Kelly said that housing affordability has declined in most states and territories throughout Australia, with Tasmania having the largest decrease in housing affordability of 12.7 percentage points. In contrast, Western Australia had the smallest decline in housing affordability at 2.1 percentage points.

“The number of first home buyers was 25,782 in September of 2002 and increased by 67.7 percentage points to 43,226 in June of 2021.

In June of 2009, 50,098 first home buyers entered the market, the highest number during this time and with their borrowing comprising 48.2 per cent of all new loans.

“In contrast, March 2004 had the lowest number of entrants at around 17,250,” Mr Kelly said.

“The number of first home buyers’ average loan increased by a staggering 165.3 per cent, from $169,789 to $450,467.

“Tasmania had the largest increase in average loan amounts to first home buyers of 303.0 per cent while the Australian Capital Territory had the lowest increase of 145.8 per cent.

“However, if policy settings fail to change and without a boost to household disposable incomes through, for example, tax concessions for first home buyers, affordability is likely to get worse as interest rates rise,” Mr Kelly noted.

In June 2001 the cash rate target was 5 per cent and, by June 2021, it decreased to 0.1 per cent – its lowest rate, and a a decline of 4.9 percentage points.

“This is the lowest rate so far this century and lower than its height in 1990 of 17.5 per cent. The highest point the cash rate has been in the past 20 years was 7.3 per cent in mid 2008,” Mr Kelly said.

he continued that over the past 20 years, the proportion of income required to meet loan repayments increased by 8.5 per cent from 27.2 per cent to 35.7 per cent.

Over the same period, family income increased by 112.8 per cent while the average home loan repayments increased by 179.4 per cent. Average home loan amounts have increased from $157,239 to $548,323.

Rental affordability declined marginally over the past 20 years from 22.1 per cent to 23.0 per cent of family income – a marginal decrease of 0.9 percentage points.

Rental affordability was at its most affordable in December 2004 at 21.1 per cent and at its least affordable in March 2010 at 26.3 per cent.

“Tasmania had the largest decline in rental affordability of 9 percentage points. Queensland and Victoria were the only states which rental affordability improved.

“Vacancy rates for Australia were at their tightest in March 2007 at 1.4 per cent with the highest amount of vacant properties recorded in June 2004 at 3.8 per cent,” Mr Kelly said.

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