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Housing affordability hits the worst level in three decades

The great Australian dream of home ownership is becoming a nightmare for many families, with new data showing median-income earners can afford just 13 per cent of homes across the country.

The PropTrack Housing Affordability Index found that median-income households earning $105,000 per year, can now only afford to buy 13 per cent of homes, down from 40 per cent between 2019 and 2021.

However, the news was just as bad for higher-income earners.

In the 1990s, income earners in the top 20 per cent could afford about 80 per cent of all homes on the market.

In 2023, those higher-income earners can afford just 50 per cent of homes.

The situation is even more dire for younger Australians, with 25-to-34-year-olds only able to afford fewer than 30 per cent of homes.

With a median home price in excess of $1 million in Sydney, NSW continues to rank as the least affordable state, as it has for most of the past three decades. 

Victorian housing affordability is also deteriorating rapidly and sits below the national average.

Tasmania is also one of the worst locations for affordability after previously being one of the most affordable in 2018 and 2019, prior to prices surging 50 per cent in Hobart, and 70 per cent in regional areas.

While affordability was best in Queensland and Western Australia.

PropTrack senior economist Angus Moore said surging home prices and rapidly rising interest rates have brought housing affordability to its worst level in at least three decades. 

“The situation is especially challenging for lower-income households and first-home buyers,” Mr Moore said.

“Mortgage interest rates have increased extremely rapidly from the record lows in 2020 and 2021, following RBA rate hikes that began in May 2022. 

“This has caused the sharpest increase in mortgage rates since the mid-1980s and has reduced borrowing capacities by as much as 30 per cent for new borrowers. 

“At the same time, existing borrowers, which make up around a third of Australian households, have faced sharp increases in mortgage repayments.” 

He said a typical recent borrower faced repayments as much as 50 per cent higher than in early 2022. 

“In August, home prices rose for the eighth consecutive month,” Mr Moore said.

“This means there are now far fewer homes for which mortgage repayments are affordable than was the case over the past few years. 

“Household incomes have risen since the pandemic and improved labour market conditions have drawn more people into employment and boosted wages growth. 

“However, this has been insufficient to offset higher home prices and, critically, the surge in mortgage rates.”

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Rowan Crosby

Rowan Crosby is a senior journalist at Elite Agent specialising in finance and real estate.