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Regional housing affordability is deteriorating faster than capital cities

The HIA’s Affordability Index was calculated for each of the eight capital cities and regional areas on a quarterly basis, taking into account the latest housing prices, mortgage interest rates and wage developments.

“Housing affordability has deteriorated over the past year as house prices rose faster than the capacity of the typical household to repay a mortgage,” HIA economist Tom Devitt said.

“Affordability deteriorated across all states and territories, including both the capital cities and their surrounding regions.

“Over the past two decades, housing affordability was a greater challenge in Sydney and Melbourne than the rest of the country. Yet since the pandemic began it is the rest of the country that has seen a faster deterioration in affordability.”

Mr Devitt explained this was not a surprising result, given the “rapid exodus of population out of Sydney and Melbourne” to regional areas or interstate.

“The number of people who left Sydney and Melbourne in the last year was tens of thousands more than the number of people who arrived. This is not unusual for Sydney but was a uniquely damaging development for Melbourne,” he said.

“In addition to this, Sydney and Melbourne suffered disproportionately from the closure of international borders and the associated loss of overseas migrant, student and tourist arrivals.

“This is why the deterioration in housing affordability was most acute outside of Sydney and Melbourne.

“Despite this deterioration, housing is still broadly more affordable than the average of the past 20 years, due to the record low interest rates making it easier to service a typical mortgage,” concluded Mr Devitt.

The most significant deterioration in affordability in the capital cities occurred in Hobart, with an 18.7 per cent decline in 2020/21.

This was followed by Darwin (down 13 per cent), Canberra (down 10.2 per cent), Adelaide (down 8.7 per cent), Brisbane (down 6.3 per cent) and Perth (down 5.5 per cent).

Affordability in Sydney and Melbourne declined by just 3.3 per cent and 3.8 per cent respectively.

Across the regions, regional New South Wales saw the biggest deterioration in affordability in the nation, down by 22.8 per cent over the year.

This was followed by regional Tasmania (down 13.6 per cent), regional Queensland (down 10.3 per cent), regional Northern Territory (down 8.6 per cent), regional South Australia (down 8.1 per cent), and regional Victoria (down 6.5 per cent).

Regional Western Australia saw the smallest deterioration, with affordability declining by just 0.6 per cent for the year.

Sustainable success for regional areas

Further research from AHURI by researchers from the University of Sydney and Harvard University found population growth in these sectors was not solely going to support the survival of regional areas.

The research highlighted the importance of infrastructure, transport, and telecommunications infrastructure in sustaining employment and population in regional areas, according to the lead author of the research, Professor Nicole Gurran from the University of Sydney.

“A clear message to emerge is that population and economic growth are not on their own sufficient to drive sustainable and balanced employment outcomes, and that ‘success’ should be measured more broadly, by also looking into liveability, environmental impacts and the social impacts of growth,” Professor Gurran said.

“The shift to the regions could be the precursor to a rebalancing of Australia’s settlement and population growth. But it needs to be planned for, with the current housing crises in the regions something that needs to be worked through to ensure that the long-term benefits of a more balanced urban and regional settlement pattern can be sustained.”

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