Australian home values rose almost 10 times faster than wages last year, with the market boom pushing the dream of homeownership further out of reach for more Australians.
House prices across the country surged 22.1 per cent last year, according to CoreLogic figures, while wages rose just 2.3 per cent, the latest Australian Bureau of Statistics figures show.
“That’s a massive gap,” said CoreLogic research director Tim Lawless. “[However] even though we haven’t seen such a large gap historically, it’s very common for housing values to rise substantially more than wages have, hence this ongoing worsening affordability.”
CoreLogic modelling shows dwelling values climbed at more than double the annual pace of wages over the past decade, up by an average of 5.5 per cent each year compared with a 2.3 per cent average rise in the wage price index.
While there had been periods where wage growth was the stronger of the two, it had been substantially outstripped by rising home values long term, Mr Lawless said. Dwelling values nationally have almost tripled over the past two decades, up about 194 per cent as of December 2021, while wages climbed about 81 per cent.
Every state and territory recorded a substantially larger lift in property values, both last year and long term. Tasmania had the largest gap in 2021 with dwelling values surging 28.7 per cent – the strongest growth in the country – while wages lifted 3 per cent.
NSW and Tasmania had the largest difference over the decade, with dwelling values increasing more than four and three times faster than wages respectively. They were followed by Victoria and the ACT where values climbed more than two-and-a-half times faster.
Mr Lawless said those already in the property market had seen the benefit of equity accrual, but the substantial difference between property and wage growth had made raising a deposit and funding transaction costs a more formidable challenge for first-home buyers.
“It makes it harder and prospective buyers may need to be more flexible in the housing they aspire to in their first home, potentially turning to apartments rather than houses, they might need to look a bit further afield to the outer suburbs … and a lot more people are looking regionally as well,” he said.
More Australians would also have to rent long term, which would affect household wealth, retirement and rates of homelessness, he said.
HSBC Australia chief economist Paul Bloxham said the fall in interest rates to record lows had been key to the widening gap, with cheaper access to credit enabling households to borrow more money, ultimately driving up property prices at a rate that significantly outpaced sluggish income growth.
Though first-home buyers today have lower borrowing costs, Mr Bloxham said they faced an accessibility or affordability challenge, as they needed to save a larger deposit and take on more debt to get into the market.
Shore Financial chief executive Theo Chambers said many of his first-home buyer clients, who stretch across the east coast, were turning to help from family to get into the market, either via a cash contribution or a loan guarantee.
“The bank of mum and dad is helping a lot … I’d say at least half, say 60 per cent [are getting help],” he said, noting it was even more common in more affluent areas like Sydney’s lower north shore and eastern suburbs.
Buyers had compromised more on their wish lists and borrowed more to keep up with the market, Mr Chambers said, noting record low rates in recent years had made people happy to borrow more – sending debt-to-income ratios climbing. While the majority of the mortgage broker’s clients were still trying to borrow at their maximum, growing talk of rate hikes was making more people think twice.
Mr Bloxham said sluggish wage growth figures suggested the Reserve Bank would not be in any hurry to lift interest rates, and would move gradually when it did. He expects to see two cash rate hikes in the third and fourth quarter, taking the rate to 0.5 per cent by the end of the year, at a cash rate of 1.25 per cent by the end of 2023.
That will cool the housing market, at the same time as wages are hoped to improve. While the gap between property and wage growth would narrow as a result, affordability would still be a challenge, Mr Bloxham said, with first-home buyers facing both high prices and rising mortgage rates.
“If we want to remedy this situation … a lot of the focus needs to be on boosting housing supply,” he said. “That involves more supply in cities, more urban infill, looking at the regulatory environment to allow more land to become available. That’s the sort of direction that policy ought to take to deal with the affordability challenge.”
Mr Lawless said slowing property price growth and potential falls to come, combined with the outlook for higher wages, could narrow the gap and lead to temporary improvement, but that it would take a lot more to address the underlying issues causing poor housing affordability.
In addition to boosting housing supply, Mr Lawless said governments should be reviewing the impact of transactional costs like stamp duty, with many more properties now subject to the highest rates, ensuring infrastructure programs run parallel with population growth, and providing more funding to support those who cannot afford to buy or rent.
Article Source: www.brisbanetimes.com.au