Property value-to-income ratio hits peak: ANZ, CoreLogic

A report on housing affordability from ANZ and CoreLogic has outlined an analysis based on median income data from ANU against property statistics from the research specialist.

It has found the national dwelling value-to-income ratio reached a record high of 7.7 in the June quarter, above the decade average of 6.3 and up from 6.4 in the September 2020 quarter, when housing was impacted by COVID restrictions.

The ratio was sharper for houses than for units, leading to the widest gap on record between the dwelling types. For houses, the ratio had risen from 6.7 to 8.1, while units experienced a more moderate increase from 6.2 to 6.8.

Excluding the regions and focusing on capital cities, the dwelling value-to-income ratio was recorded at 8, the highest reading on record. The report noted the combined capital city ratio had trended consistently higher since the September quarter last year.

As at June, the median dwelling value across the combined capital cities was $727,427, a 52.1 per cent premium on the equivalent median value across regional Australia.

Sydney had the highest value-to-income ratio of any region, at 10.1, followed by Melbourne and regional NSW, which both had a ratio of 8.5.

But as there was a trend of increased migration out of the capital cities, dwelling values across regional Australia rose by 18.1 per cent between March 2020 to June 2021, against a lift of 11.2 per cent in combined capital city values.

In regional Australia, the median dwelling value-to-income ratio was 6.8. The ratio for houses went from a record low of 5.7 in the September 2020 quarter to a record high of 5.7 in June 2021.

Units similarly went from a low of 4.9 in September quarter last year to a high of 7 in this past June quarter.

However, there are further property rises expected against household income in the coming months, as Australian house values rose a further 6.8 per cent in the four months to October, while units increased 4.8 per cent.

Between the end of March 2020 and June 2021, CoreLogic data has suggested national median housing values rose by 12.6 per cent.

Over the same period, ANU income modelling has suggested that the median household income rose by 0.2 per cent.

“With housing values increasing faster than household incomes, each of the ANZ-CoreLogic housing affordability metrics have deteriorated at the national level,” the ANZ and CoreLogic report stated.

Based on households saving 15 per cent of their gross annual income, it would now take the typical household a record high of 10.2 years to save a 20 per cent deposit for an Australian dwelling, as at the end of June.

For houses, saving a 20 per cent deposit would require a time frame of 10.8 years versus a nine-year period for units.

Across capital cities, the average time frame needed to save a deposit picked up to 10.7 years, which included an 11.7-year period for houses and nine years for the median value unit.

The report expressed concerns for first home buyers, noting “it can be most challenging to get on the first run of the property ladder”.

“While ABS lending data suggest FHB activity surged between June 2020 and January 2021, the number of monthly FHB loans secured has since trended down, falling 22.8 per cent between the end of January to August 2021,” the white paper said.

“It is likely that FHB demand was largely concentrated through a period of overlapping government incentives. As prices continue to surge, FHB demand is likely to continue declining.”

It also pointed to declining rates of home ownership, with Australian Bureau of Statistics (ABS) data showing home ownership fell to 66.2 per cent in the year to June 2018 – in contrast to a rate of 68.3 per cent in 2007-08, and 70.3 per cent in 1997-98.

While the CoreLogic and ANZ analysis was based on households saving 15 per cent of their income, ABS national accounts data suggested the household savings rate surged to 22 per cent through the June 2020 quarter (against a previous decade average of 6.7 per cent). Consumption patterns had shifted amid lockdown conditions.

However, unlike the other metrics, mortgage serviceability has not blown out to new highs due to the low rate environment, although it has risen.

The portion of income required to service a new mortgage on a median dwelling value nationally was estimated to be 37.1 per cent by the end of the June quarter – above the decade average of 34.7 per cent, and the highest since March 2012.

The portion of income needed for a mortgage on a unit was 32.8 per cent, up from a low of 29.1 per cent during the September 2020 quarter. Meanwhile, for detached dwellings, mortgage serviceability was 39.3 per cent of income, up from a low of 32.4 per cent in the September 2020 quarter.

[Related: Prime home loan arrears continue decline: S&P Global]