Almost double the average income now needed to service a typical mortgage
Housing affordability across Australia has fallen to its weakest level in more than three decades, according to the latest Housing Affordability Report from the Housing Industry Association (HIA).
The report, released Tuesday, found affordability declined by 4.5% in the March quarter. More than 1.8 average incomes are now required to service a typical mortgage nationally, the worst outcome recorded since HIA began tracking affordability in 1994.
HIA attributed the decline primarily to a persistent shortfall in housing supply rather than recent interest rate movements.
"Australia's housing affordability problem is caused by too few homes," said Tim Reardon (pictured right), chief economist at the Housing Industry Association. "The latest interest rate increases have reduced borrowing capacity, but the underlying driver of poor affordability remains that housing supply has failed to keep pace with population and economic growth."
Reardon said the report's findings also raised concerns about recent changes to housing taxation and self-managed superannuation (SMSF) fund borrowing rules, calling for both to be reviewed.
"The Australian government has acknowledged, and made public, that the changes to negative gearing will reduce housing supply over the coming decade by around 35,000 homes," he said.
"It has now introduced another measure that restricts another source of private capital used to finance new housing, yet no assessment has been released showing what this will mean for future housing supply."
According to media reports, Treasury advised Parliament that approximately 4,300 new SMSF limited recourse borrowing arrangements were established during 2024. "That figure does not tell us how many homes depended on those investors for projects to proceed," Reardon said.
"The loss of one source of investment can affect far more than the individual dwelling ultimately purchased. People create demand for housing. Investment creates supply."
"SMSFs do not create additional demand for housing because they do not live in the homes they help finance. They provide another source of capital that allows new homes to be built."
“Home prices aren’t high because there are too many investors at weekend auctions. This is a symptom of the housing shortage. Rents aren’t rising because there are too many investors owning homes. This also, is a symptom of the problem."
Reardon said the scale of the problem was best understood by considering that Australia was attempting to accommodate approximately 11 million households in just 10 million homes. "What improves affordability is increasing the number of homes available," he stressed.
"Policies that reduce the amount of capital available to build those homes risk making affordability worse. The government has modelled the adverse impact of the negative gearing reforms on housing supply and should provide the same level of transparency on the impact of restricting SMSF investment.
"If Australia is serious about improving affordability, every housing policy should be assessed against one simple question: Will it result in more homes being built?"
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