As the pandemic progressed, household sizes declined on average because people worked out they couldn’t really live together, no matter how pressing the need. That placed immediate pressure on rents, but it also appears to have driven a new spike in the average cost of housing, at least relative to household income.
While that is a clear problem for the households concerned – they literally cannot afford a dwelling – it also represents a strategic problem. If the cost of housing is becoming ever less affordable, who will be able to finance the new dwellings?
One avenue may of course be an increase in the proportion of Australians renting, which will bring with it a very different investment model for housing and will likely drive changes in the structure of the housing market.
We can consider this a crisis for households, but also for the nation, where the solution could be long in the making, as we discuss elsewhere in this omnibus edition of Stats Count.
Meantime, at the household level, the ratio of average house loans to average household income remained above 10% in 2022, for the third consecutive year. It moderated slightly, pulling into 10.4% from 10.7% in 2021, but that is cold comfort for most households.
On a similar front, we can take a quick glance at Household Disposable Income growth on a per capita basis and compare that with the property price increases of the last decade.
The chart below shows that the break point between the two came in June 2013, when property price growth diverged from per capita disposable income. Little wonder households struggle to pay mortgages and are grossly more sensitive to interest rate movements than ever before!
In its May 2023 Housing Affordability Report, CoreLogic analysis showed average rental cost growth in 2022 10.2%, which moderated to 10.1% over the year-ended March 2023. Rents are a lot more expensive as well we know, requiring more household income than ever before to service. The national average in March 2023 was 30.8% of average disposable income!
This situation impacts household capacity to pay rents, but also, their capacity to save to buy a dwelling of their own. This is worst in capital cities and appears to be improving in regional areas, according to CoreLogic.
If we adopted a pure market economics approach to this dilemma of affordability, the sure fire mechanism would be to increase supply, to a point where there was too much housing stock for a long enough period of time for the market to adapt.
That seems a long bow though because public sector housing has been declining continually over the past 40 years.
Notably, as the national debate continues, the agenda for public sector housing investment appears to be focussed on a facilitative and incentives role, rather than for a direct building model. Whether that delivers the required volume of housing and ushers in a new era of housing affordability is in the ether.
One thing is certain, most of the big bets are being made on increasing housing supply.
