Housing affordability down 15.6%: Bluestone

Bluestone Home Loans has released its Home Loan Affordability Index for September, which has shown the decline in housing affordability is accelerating.

The index measures the proportion of the average income required for the average home loan repayment and is derived from Australian Bureau of Statistics (ABS) data, with higher index numbers reflecting a higher proportion of the average income required.

Housing affordability as denoted by Bluestone, is reflected in higher index values.

The latest index for the September quarter has revealed a 1 per cent decline in national affordability during the August quarter, compared to a 0.8 per cent decrease in the previous three months.

In the September quarter, the index had climbed to 91.76, up from 90.8 in the August quarter and above the long-term average for four consecutive quarters of 86.9.

Over the 12 months to August, national home loan affordability had fallen by 15.6 per cent, as a result of booming house prices sharply increasing the average loan size required by buyers.

Andrew Wilson, consultant economist at Bluestone Home Loans commented as the index had risen, the number of loans approved had begun to fall.

“Recent strong house price growth has resulted in buyers having to borrow more and, with subdued wages growth and flat interest rates, this has resulted in a higher proportion of incomes required for loan repayments,” Dr Wilson said.

“Stricter lending conditions from financial institutions also place a ceiling on borrowing capacity for buyers which results in reduced demand and lower prices growth.”

NSW and Victoria had recorded the steepest falls in home loan affordability, with annual declines of 20.6 per cent and 17.4 per cent respectively, reflecting recent sharp house price growth in Sydney and Melbourne.

Affordability has slipped across all states during the quarter, with the exception of the ACT, which saw a rise of 1.1 per cent.

The Northern Territory faced the largest quarterly change, a 2.5 per cent fall in affordability, contributing to an annual fall of 4.5 per cent.

Tasmania (-1.7 per cent), South Australia (-1.4 per cent) and Queensland (-1 per cent) also saw sizeable decreases, while Western Australia dipped by 0.3 per cent.

NSW was also the leading state for relative unaffordability, 27.1 per cent higher than the national result over the September quarter.

Victoria on the other hand, was 5 per cent above the average, with all other states falling below.

The NT fell to the bottom of the list, being 30.6 per cent lower than the average.

Western Australia (-30.1 per cent), South Australia (-20.4 per cent), Tasmania (-19 per cent), Queensland (-12 per cent) and the ACT (-10.2 per cent) also were below the national average.

The results have come as the House of Representatives committee on tax and revenue has continued its inquiry into housing affordability.

During hearings last week, researchers added to calls for the government to set a national housing agenda and to assign a minister for housing.

Reserve Bank of Australia assistant governor (economic) Luci Ellis acknowledged that maintaining the cash rate at record lows had pushed up house prices by allowing consumers to service a larger mortgage on the same income.

However, she stated the alternative, a higher cash rate, would have resulted in higher inflation than offshore peers and economic instability.

At the same time, ANZ and CBA have tipped that surges in house prices are set to see some level of reversal in 2023 – with ANZ projecting a 4 per cent fall following a 6 per cent rise across capital cities in 2022.

[Related: House price growth to fall in 2023: ANZ Research]