Houses no longer affordable and won’t be for another 10 years, AMP report reveals

Housing has become “severely” unaffordable over the past 10 years, according to a new report conducted by AMP NATSEM, and it will take another decade of flat housing prices and wages growth to reach a position when it becomes affordable again.

The release of the new report comes alongside new housing price growth data from Australian Property Monitors, which confirms the housing market is flat, with Sydney the only capital city to avoid price falls.

The AMP.NATSEM The Great Australian Dream – Just a Dream? report says that median house prices grew 147% over the past 10 years to $417,000. At the same time, median after-tax incomes only rose 50% to $57,000 from 2001 to 2011, meaning the price-to-income ratio grew from 4.7 to a “severely unaffordable” 7.3.

But report author and NATSEM (National Centre for Social and Economic Modelling) principal research fellow Ben Phillips says the bigger issue is that this unaffordability has been spread out across the entire country, rather than being constrained to a few select areas.

“The major finding is that not only has unaffordability increased, but that it’s become just so widespread,” he says.

“There is a regional element here in the report, in that whereas once this was just a Sydney story, the problem is that cities like Wollongong and Newcastle, which were once considered affordable and working class, are now just as unaffordable as Sydney.”

In 2001, it claims, more than half of all suburbs in the country were considered affordable, whereas today only 4% are considered affordable under the house price-to-income ratio.

Sydney is the most expensive city in the country with a median price of $510,000, it found, with Hobart the cheapest at $326,000. In Sydney, the house price-to-income ratio has reached 8.4, with Darwin the most affordable at six times.

Sydney is also the most housing “stressed” city, with 28% of households spending more than 30% of after-tax income on housing expenses, followed by Perth at 23%, Brisbane at 19%, Melbourne at 18%, Adelaide at 16%, ACT/NT at 17% and Hobart at 13%.

Non-capital city areas in four of seven states and territories have also experienced the greatest rate of house price growth. “As a result,” AMP found, “all non-capital city areas are now unaffordable.”

Regional New South Wales is the least affordable region with house prices at 7.9 times the median income.

Phillips says there are a number of factors behind the growth, with houses now 50% larger than they were 25 years ago, but also notes the amount of debt taken up by households has dramatically increased as well.

“Major drivers include that interest rates have remained very low during the last decade, so households were happy to ramp up the amount of debt. We did have a little bit of a bubble situation, with shows like The Block and so on, people got excited over housing.”

“People thought they could make a fortune out of it, but many people are now in a situation where it’s difficult to get into the market at all.”

And those that are in the market are stressed too, the report found, especially first home buyers who spend more than 30% of their after-tax income on housing. Mortgages for first home buyers have doubled over the past 10 years from an average of $131,000 in 2001 to $280,000 in 2011. Those first home buyers are also older, with 37% under 30, compared to 39% in 2001.

AMP financial services managing director Craig Meller said in a statement that with so many Australians under stress because of their mortgages, “many have little funds left over for essentials, let alone a family holiday”.

The report argues that this will only improve if income growth matches house price growth, or exceeds it, over the next 10 years. But Phillips says that isn’t necessarily a likely scenario.

“We’re not suggesting that’s going to be the case, it’s just a projection. That’s how long it would take, because house prices are going to likely get higher, and it’s going to take even longer than that 10 years.”

“However, the housing market does look quite flat, and that will improve affordability. But it’s not going to happen very quickly.”

The latest figures from Australian Property Monitors show the housing market is indeed flat, with every capital city except Sydney recording a decline in prices.

Nationally, the median house price fell 0.6% in the quarter to $546,121, with unit prices also down by 0.8% to $404,753.

Sydney prices grew 0.1% to $644,658, nearly $100,000 above the national median price, while Melbourne recorded flat growth, with units down by 0.7%.

Brisbane house and unit prices fell by 4.9% and 3.9% respectively over the year, with Canberra prices falling 2.8% in the quarter.

Adelaide prices dropped 2.1% to $441,775, Perth prices fell 1.5% to $535,617, while Darwin prices dropped by 3.6% to $593,642.

APM economist Andrew Wilson says despite the results, “the prospect remains… of increased buyer activity emerging through the spring selling season”.