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Housing Affordability Index; Melbourne overtakes Sydney to become Australia's least affordable city
Topic Started: 24 Nov 2010, 03:43 PM (891 Views)
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Melbourne pips Sydney on housing costs

Simon Johanson
November 24, 2010 - 3:32PM

Melbourne has overtaken Sydney for the first time to become Australia's least affordable capital city in which to buy a home, although overall the housing affordability improved marginally.

A modest cooling in dwelling prices helped bring Australia's housing slightly more within the means of average household budgets during the September 2010 quarter, the Housing Industry Association said. Even so, buying a home is still far less affordable than it was 12 months ago.

Rising borrowing costs and higher home prices bumped Melbourne beyond Sydney on the HIA-Commonwealth Bank Housing Affordability Index affordability index.
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Nationally, housing affordability improved by 3.6 per cent over the quarter due but it still remains 18.3 per cent lower than a year ago.

Australia's housing is among the most over-priced in the world, according to the Economist magazine. Rising interest rates have made it tougher for many with mortgages, particularly with commercial banks adding their own increases to those by the central bank.

Melbourne actually overtook Sydney as the country's least affordable capital in the March quarter following a recalculation by the HIA - a ranking it has held since - according to revised results being made public only today.

HIA economist Harley Dale said a combination of growth in Melbourne house prices and lower average income of the city’s workers compared with those in Sydney saw Melbourne grab the national mantel as the least affordable capital.

Nationally, downward pressure on house prices, though, saw affordability improve by 3.6 per cent over the quarter but it still remains 18.3 per cent lower than a year ago.

The HIA affordability index tracks the relationship between household income and mortgage costs taking into account the price of housing.

"The three interest rate rises in the first half of 2010 have really hit home and housing affordability is once again on a clear downward trajectory," Dr Dale said.

"For aspiring home owners trying to break into the housing market, the short-term outlook is a challenging one," Dr Dale said.

The housing index has shown steadily deteriorating affordability for over a year but in the past September quarter there was some temporary relief, Dr Dale said.

Australian house prices have flat-lined in the second half of this year. Nationally, the median Australian dwelling price in the three months to end September was $406,500. In Sydney, the median dwelling price was $506,000, exceeding Melbourne’s $465,000.

Adelaide improves most

Affordability in Adelaide improved most by 6.3 per cent, followed by Perth at 5.9 per cent and Brisbane 5.4 per cent.

Hobart improved by 1.2 per cent, Melbourne by 1.7 per cent, and Sydney by 1.9 per cent.

By comparison, Canberra deteriorated sharply with affordability dropping by 8.6 per cent.

Outside the capital cities, affordability improved the most in regional Western Australia, Tasmania and Queensland.

Regional New South Wales and South Australia also improved but affordability deteriorated in regional Victoria.

The overall improvement does not include the most recent rate rise by the Reserve Bank this month. All four of the major commercial banks followed with interest rate rises on standard variable mortgages of between 35 and 45 basis points.

It follows a recent report from Fitch Ratings agency suggesting households are showing a "remarkable ability" to withstand increased mortgage payments, with recent interest rate rises hurting only the most vulnerable borrowers.

Those struggling with repayments following three consecutive rate rises to May 2010 were mainly limited to more risky low-documentation loan holders, Fitch said in its quarterly Australian residential mortgage performance report.

More to come

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