Housing Affordability: Which states are potentially headed for mortgage stress?

Belinda Punshon 7 March 2016

Housing affordability which states are potentially headed for mortgage stress

While things look bleak for NSW and VIC home buyers, the ACT comes out on top as the most affordable state or territory to buy real estate, with just 19.9% of household income required to service mortgage repayments.

The Adelaide Bank/Real Estate Institute of Australia (REIA)’s December quarter Housing Affordability report found that rising home loans are catalyst behind the deteriorated affordability of housing in Australia. As NSW and VIC have average mortgage sizes greater than $400,000, it’s no surprise that both states require in excess of 30% of family income to stay on top of mortgage repayments-- a figure that spells potential mortgage stress.

The report reveals some concerning truths for Australian home buyers. Described as a "national tragedy" (given the current low-interest rate environment), it showed an overall decline in housing affordability based on the proportion of household income required to meet mortgage repayments.

NSW takes the title as the least affordable location for home buyers, followed by VIC and QLD. The proportion of income required to meet mortgage repayments in NSW increased by 1.4 percentage points to 39.4% from December 2014 to December 2015. This is 7.0 percentage points above the Australian average.

Find out how your state stacks up against the rest.

Proportion of family income required to meet mortgage repayments

State/TerritoryDecember 2014December 2015
NSW36.2%39.4%
VIC33.4%34.6%
QLD28.4%27.6%
SA27.8%27.1%
WA26.1%24.0%
TAS25.9%23.7%
NT28.1%21.2%
ACT20.4%19.9%
Source: Adelaide Bank/REIA Housing Affordability Report, December quarter 2015

While housing affordability remains a national issue, it appears that rental affordability has remained steady.

Over the December quarter 2015, rental affordability remained stable with the proportion of income required to meet rent payments sitting at 24.6%, down 0.2 percentage points compared to the corresponding 2014 quarter.

NSW, SA, WA and the NT recorded improvements in rental affordability. The largest decline was seen by TAS, followed by VIC and QLD.

Once again, NSW is the least affordable location to rent a property. The proportion of income required to meet rental payments is 27.9% which is 3.3 percentage points above the national average. The ACT remains the most affordable location to rent a property with the figure at 16.8%.

Proportion of family income needed to meet rent payments

State/TerritoryDecember 2014December 2015
NSW28.2%27.9%
VIC22.6%23.5%
QLD23.3%23.7%
SA22.6%22.4%
WA23.0%20.6%
TAS27.0%24.6%
NT33.4%26.8%
ACT17.1%16.8%
Source: Adelaide Bank/REIA Housing Affordability Report, December quarter 2015

State by state re-cap

New South Wales (NSW)

NSW remains the least affordable location in which to buy a home in Australia. The state recorded the greatest decline in housing affordability when compared to the 2014 December quarter.

The proportion of family income required to meet mortgage repayments increased 1.4 percentage points to 39.4% which represents an increase of 3.2 percentage points compared to the corresponding quarter of 2014.

Despite this, NSW recorded an improvement in rental affordability with the proportion of income required to meet median rent payments falling 0.2 percentage points over the December quarter.

First home buyers constitute 11.6% of the state’s owner-occupier market, which is the lowest level across the nation.


Victoria (VIC)

VIC showed a decline in housing affordability with the proportion of household income required to meet loan repayments up by 0.6 percentage points to 34.6%. Compared to the December quarter, this figure is up 1.2 percentage points.

Rental affordability also worsened over the quarter with the proportion of income required to meet median rents going up by 0.5 percentage points to 23.5%. The figure increased by 0.9 percentage points

when compared to the December quarter of 2014.

First home buyers made up 16.1% of VIC’s owner- occupier market and in the last quarter of 2015, the average loan to first home buyers was $356,267. This is an increase of 1.6% over the quarter and an 11.0% increase when compared to the corresponding quarter of 2014.


Queensland (QLD)

QLD housing affordability remained unchanged during the December quarter but improved when compared to the corresponding 2014 quarter.The proportion of income required to meet home loan repayments fell 0.8 percentage points during the twelve months to December 2015 and is 27.6%.

However, rental affordability worsened over the quarter and also when compared to the December quarter of 2014. The proportion of the median family income required to meet the median rent increased by 0.3 percentage points to 23.7%.

The average loan size for first home buyers increased 1.5% during the quarter and was also up by 4.0% compared to the December quarter of 2014.


South Australia (SA)

SA recorded a decline in housing affordability with the proportion of family income required to service loan repayments increasing to 27.1% - an increase of 0.2 percentage points. However, compared to the December quarter of 2014, the figure dropped 0.7 percentage points.

Rental affordability improved in South Australia with the proportion of income required to meet rent payments fell 0.8 percentage points to 22.4% over the quarter. Compared to the December quarter of 2014, the figure decreased by 0.2 percentage points.

The average loan size to first home buyers increased 4.8% to $271,833  when compared to the 2014 December quarter.


Western Australia (WA)

WA experienced a decline in housing affordability with the proportion of family income required to meet mortgage repayments. The figure was up 0.2 percentage points. However, compared to the December quarter of 2014, the figure fell 2.1 percentage points which represents an improvement.

Rental affordability in Western Australia improved. The proportion of income required to meet the median rent fell by 2.4 percentage points when compared to the previous year.

The average loan to first home buyers fell by 0.2% over the quarter but increased 1.0% to $335,733 compared to the 2014 December quarter.


Tasmania (TAS)

TAS saw the biggest jump in the number of first home buyers across the nation.

Housing affordability in TAS declined during the quarter with the proportion of income required to meet home loan repayments rising 0.7 percentage points to 23.7%. However, this represents a 2.2 percentage point drop compared to the previous year which marks improved affordability.

Rental affordability in Tasmania declined with the proportion of income to meet median rents at 24.6% which is a 0.5 percentage point increase over the quarter. The figure decreased by 2.4 percentage points compared to the previous December quarter.

At $235,467, the average loan size increased 0.2% compared to the corresponding 2014 quarter.


Northern Territory (NT)

The NT saw the best improvement in housing affordability. Over the December quarter, the proportion of income required to meet loan repayments went down from 24.9% to 21.2%. The figure fell 6.9 percentage points compared to the previous year.

In terms of rental affordability, the NT also recorded an improvement. The proportion of family income required to meet the median rent fell by 1.1 percentage points to 26.8%. The NT recorded the largest annual improvement with the figure plummeting by 6.6 percentage points compared to the previous 2014 December quarter.

The average home loan fell by a staggering 15.4% to $319,049 when compared to previous corresponding quarter. This was the only drop in the average loan size across the nation.


Australian Capital Territory (ACT)

The ACT comes out as the winner for home and rental affordability.

The ACT recorded a decline in housing affordability with the proportion of income required to meet home loan repayments increasing by 0.6 percentage points over the December quarter. However, this represents an annual improvement with the figure falling by 0.5 percentage points.

Rental affordability in the ACT remained unchanged over the quarter with the proportion of income required to meet the median rent at 16.8%. Compared to the December quarter of 2014, the figure fell by 0.3 percentage points – an improvement in rental affordability.

During the final quarter of 2015, first home buyers made up 16.5% of the ACT’s owner-occupier market and the average loan for first home buyers was $348,633. This is a 14.8% jump when compared to the previous corresponding quarter.

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