Interest rates keeping housing affordable

Rapidly rising prices have led to a downturn in housing affordability around Australia, a new report reveals.

What’s more, a mass exodus away from the cities has meant that housing is becoming less affordable more quickly in regional areas.

Nevertheless, the HIA Affordability Index* also shows that housing is still more affordable than it has been in the past 20 years.

The most significant deterioration in affordability in the capital cities occurred in Hobart, with an 18.7 per cent decline in 2020/21. This was followed by Darwin (down by 13.0 per cent), Canberra (10.2 per cent), Adelaide (8.7 per cent), Brisbane (6.3 per cent) and Perth (5.5 per cent). Affordability in Sydney and Melbourne declined by just 3.3 per cent and 3.8 per cent respectively.

Across the regions, regional New South Wales saw the biggest decline in affordability in the nation, down by 22.8 per cent over the year. This was followed by regional Tasmania (down 13.6 per cent), regional Queensland (10.3 per cent), regional Northern Territory (8.6 per cent), regional South Australia (8.1 per cent), and regional Victoria (6.5 per cent).

Regional Western Australia saw the smallest decline, with affordability declining by just 0.6 per cent for the year.

HIA Economist Tom Devitt said that over the past two decades, housing affordability has been a greater challenge in Sydney and Melbourne than the rest of the country.

“Yet since the pandemic began it is the rest of the country that has seen a faster deterioration in affordability”, he said, adding that it is not surprising given the rapid exodus of population out of Sydney and Melbourne to other states and regions.

“The number of people who left Sydney and Melbourne in the last year was tens of thousands more than the number of people who arrived. In addition to this, Sydney and Melbourne suffered disproportionately from the closure of international borders and the associated loss of overseas migrant, student and tourist arrivals.

“This is why the deterioration in housing affordability was most acute outside of Sydney and Melbourne.

“Despite this deterioration, housing is still broadly more affordable than the average of the past 20 years, due to the record low interest rates making it easier to service a typical mortgage”, Devitt concluded.

*HIA’s Affordability Index is calculated on a quarterly basis and takes into account the latest dwelling prices, mortgage interest rates and wage developments.