Housing: More Affordable Than You Might Think…

Housing affordability is a debated topic that usually surfaces during periods of high growth in particular areas. Given that Sydney and to a lesser extent, Melbourne, have experienced stronger growth figures recently, the debate has returned to get the advertising material into the columns.

The HIA economics group states ‘… constraints on data availability prevent any measure of affordability from being ideal …’ The HIA-CBA Housing Affordability Index is one of many great tools we use when analysing residential property in Australia that alone do not indicate much but when combined are very useful.

So what considerations exist for residential property affordability?

Price to income ratios, primarily

Price to income ratios give us an indexed proportion of home prices and incomes. These ratios often do not factor in mortgage repayments (affected by debt, equity and interest rates), property sizes, household composition, price distribution, income distribution or demographic shifts.

When adding or subtracting any of the above variables, the entire story on affordability shifts. As an example, Sydney has copped some flak for being less affordable than the top tier world cities of New York and London. This may be true in some instances, but consider:

  • Sydney apartments are larger. New York City prices are 20 per cent higher and London prices are almost double those of Sydney’s on a ‘per square metre’ basis!
  • Australia’s mortgage interest rates are significantly higher than they are in the United States.
  • Australia is one of the most urbanised countries in the world, meaning that demand is highest in major cities, pushing premiums on these areas.

The story doesn’t change on a national scale either. Sampling a few countries on Global Property Guide illustrates the importance of knowing the full story. Canada, France, Hong Kong, Singapore, Switzerland, United Kingdom and Unites States are just some of the countries that demand a higher price per square metre rate than Australia.

Again, considering any of these factors alone when coming to conclusions on Australia’s residential property market isn’t a smart move. In fact, gaining even a workable perspective on these more intricate functions of the Australian residential property market is the full time job of a group of analysts equipped with a whole lot of data.

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