Australia | Jan 25 2010
By Chris Shaw
While there is a general perception in the market Australian housing is expensive CommSec chief economist Craig James notes such a view depends on the period of time being assessed, as a new measure shows affordability in the Australian housing market has actually improved slightly over the past six years.
The measure is a new affordability index developed by Rismark Australia that uses data on all property transactions in Australia, meaning it covers both capital cities and regional areas and incorporates data for household disposable income based on the definition of the measure put forward by the Reserve Bank of Australia (RBA).
The data put together by Rismark shows Australian house prices over the past six years have remained in a range of 3.7 to 4.3 times disposable incomes, the measure standing at 4.1 times for the September quarter of last year.
As James notes, rising incomes have played a role with respect to improving affordability as over the same six year period real incomes have risen by 11%, so making a range of goods including housing more affordable. At the same time, Rismark estimates household disposable incomes have risen by 44% since the end of 2003, which compares to a 41% lift in the median home price to $380,000 from $270,000 over the same period.
Taking a longer-term view, affordability has indeed weakened as for the period 1993-2001 Rismark estimates housing affordability held between 2.5-3.1 times disposable incomes before accelerating between 2001-2003, a period of time during which the gains in income levels didn’t keep pace.
While in some parts of the market and for some demographic groups housing affordability in Australia has indeed worsened in recent years, James points out in a broad macro sense this is clearly not the case given the data supplied by Rismark show affordability has held relatively steady since 2003.
House prices and affordability should remain points of interest for the RBA in James’s view as the goal of having housing supply track closely to demand has not changed and affordability plays a role in achieving this aim.
