REIA: Housing affordability in decline, rental affordability stable

author-avatar By on August 30, 2021
REIA: Housing affordability in decline, rental affordability stable

Twenty year analysis from the Real Estate Institute of Australia (REIA) shows housing affordability continues to decline while rental affordability remains stable.

With housing affordability in decline for the last two decades, REIA has outlined in its Housing Affordability Report that it will continue to be an issue if household income does not increase. 

The report shows that since 2001, the weighted average proportion of income required to meet loan repayments has increased from 27.2% to 35.7%. 

REIA President Adrian Kelly said over the same period, family income increased by 112.8% while the average home loan repayments increased by 179.4%.

"Go back two decades to March 2002, Australia was at its most affordable at 26.8% of family income required to meet repayments," Mr Kelly said. 

"Housing affordability has declined in most states and territories throughout Australia, with Tasmania having the largest decrease in housing affordability of 12.7 percentage points.

"In contrast, Western Australia had the smallest decline in housing affordability at 2.1 percentage points. 

"The number of first home buyers was 25,782 in September of 2002 and increased by 67.7 percentage points to 43, 226 in June of 2021."

With affordability declining, Mr Kelly said that policy needs to change to help first home buyers. 

"If policy settings fail to change and without a boost to household disposable incomes through, for example, tax concessions for first home buyers, affordability is likely to get worse as interest rates rise," he said. 

In contrast, rental affordability has remained comparatively steady according to the report. 

"Rental affordability declined marginally over the past 20 years from 22.1% to 23% of family income, a marginal decrease of 0.9 percentage points," Mr Kelly said. 

"Tasmania has the largest decline in rental affordability of 9.0 percentage points. Queensland and Victoria were the only states which rental affordability improved."

First home buyers taking the 'now or never' approach to homeownership

A new report from Genworth Lenders Mortgage Insurance, shows that 91% of prospective first home buyers expect house prices to increase. 

The report shows that 73% are embracing the 'now or never' approach and are seeking to enter the market with a deposit of less than 20% and 56% with less than a 15% deposit. 

Additionally, 77% don't care about the type of home they purchase just so long as they own property.

There has also been a 7% annual uplift in first home buyers (FHB) targeting more affordable properties outside of capital cities, also spurred by the pandemic. 

Genworth Chief Executive Officer, Pauline Blight-Johnston, said that first home buyers find themselves at an "inflection point."

"They're doing everything within their power to avoid homeownership slipping through their fingers in a market where interest rates are low and prices are booming, Ms Blight-Johnston said. 

"It's taking longer to save for a deposit with house prices increasing, and we are seeing more first home buyers circumvent that roadblock by seeking to enter the market with a lower deposit."

In line with the proportion of FHBs planning to buy a property with less than a 20% deposit, four in five indicated a likelihood of using Lenders Mortgage Insurance.

"We’re seeing interest in Lenders Mortgage Insurance increasing, which is no surprise given the research reveals that a deposit of 20% or less is now the pathway of choice for the majority of First Home Buyers," Ms Blight-Johnston said. 


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Lender
Advertised rate Comparison rate Monthly repayment Rate TypeOffsetRedrawOngoing FeeUpfront FeesLVRLump Sum RepaymentAdditional RepaymentsPre-approval
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Rates correct as of September 27, 2021. View disclaimer.


Image by Tierra Mallorca via Unsplash

Disclaimers

The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:

  • The big four banks are: ANZ, CBA, NAB and Westpac
  • The top 10 customer-owned Institutions are the ten largest mutual banks, credit unions and building societies in Australia, ranked by assets under management in November 2020. They are (in descending order): Great Southern Bank, Newcastle Permanent, Heritage Bank, Peoples’ Choice Credit Union, Teachers Mutual Bank, Greater Bank, IMB Bank, Beyond Bank, Bank Australia and P&N Bank.
  • The larger non-bank lenders are those who (in 2020) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.
  • If you click on a product link and you are referred to a Product or Service Provider’s web page, it is highly likely that a commercial relationship exists between that Product or Service Provider and Savings.com.au

Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site.

In the interests of full disclosure, Savings.com.au, Performance Drive and Loans.com.au are part of the Firstmac Group. To read about how Savings.com.au manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.

*Comparison rate is based on a loan of $150,000 over a term of 25 years. Please note the comparison rate only applies to the examples given. Different loan amounts and terms will result in different comparison rates. Costs such as redraw fees and costs savings, such as fee waivers, are not included in the comparison rate but may influence the cost of the loan.

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Aaron joined Savings.com.au in 2021. He is a finance journalist with a keen interest in property, the share market, and improving financial literacy in young Australians.

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