Australia | Nov 15 2007
By Chris Shaw
Housing affordability in Australia has emerged as an important issue in the current election campaign, St George Bank noting Australia-wide affordability is now at record lows.
But as the bank points out household balance sheets are actually in better shape than the housing and loan affordability numbers suggest as there has also been significant improvement in asset positions as household wealth has benefited from gains in the stockmarket.
Using the ratio of median family income to average loan repayments as a measure, home loan affordability has fallen more than 8% for the year so far while the portion of monthly household income required to meet loan repayments has risen to 36.2% from 23.6% over the past decade.
This is not a great surprise given established house prices have risen more than 11% over the past year and averaged an annual price increase of 9% over the past decade, but in the bank’s view it does hide some factors that need to be considered when affordability is being assessed.
Firstly, location is having a big impact on affordability levels as capital and coastal cities have seen strong demand, while supply has failed to keep up. This effect is even more pronounced when detailed data within cities is taken into account, as the bank points out inner city prices have risen strongly while prices in outlying suburbs have been far more reasonable.
Rental vacancy rates at their lowest for the decade confirms the undersupply of houses in capital cities, while the increase in rents this is generating is impacting on affordability by making it even more difficult for first homebuyers in particular to save a sufficient deposit.
This is impacting on the financial position of households, as the bank notes private sector household credit growth has averaged 15.7% over the past decade while household disposable income has risen just 5.7% over the same period.
This has resulted in the household debt to disposable income ratio rising from 74.6% in June 1997 to 161.2% as at the end of June this year, but as the bank notes the ratio of household debt to total assets has been relatively stable over same timeframe.
The reason is the biggest increase in debt has been in higher income households, which supports the view higher household debt levels are not necessarily a problem as it is generally occurring in households that are better placed to cover the debt, which is a significant contrast to the problems in the US housing market that are stemming from households having insufficient income to meet repayments.
In other words, the bank concludes while it is true housing affordability has fallen, household balance sheets are actually in much better shape than most official measures of affordability would indicate.
