Affordability down as rates rise: HIA

By Adrian Suljanovic

27 June 2023 

Housing affordability is on the decline as interest rates continue to climb, the HIA has found.

According to the Housing Industry Association’s (HIA) Affordability Index report, the index fell by 1.1 per cent in the March quarter of 2023 when compared to the previous quarter, making Australian housing 25 per cent less affordable than it was prior to the COVID-19 pandemic.

The index calculates each of the eight capital cities and regional areas quarterly while considering the latest dwelling prices, mortgage interest rates and wage developments.

Across the capitals, the index saw the largest decline in Perth, which fell by 2.2 per cent during the March quarter.

Following this was Sydney, down by 1.9 per cent, Melbourne (1.3 per cent), Adelaide (1.3 per cent), Darwin (1.1 per cent), and Canberra (0.8 per cent).

However, Hobart was the only capital that registered an improvement in affordability, rising by 1.3 per cent, while Brisbane registered almost no change to its index.

Regionally, the most significant deterioration was observed in South Australia, which was down by 3.7 per cent during this period, followed by regional Northern Territory (3.6 per cent), regional Western Australia (3.3 per cent), regional NSW and Queensland at 1.1 per cent, and Victoria down by 1 per cent.

Once again, Tasmania recorded the only improvement, with the index rising by 0.6 per cent for the state’s regional areas.

HIA deputy managing director for policy and industry Jocelyn Martin stated it now requires 1.6 average incomes to service the typical new mortgage, compared to 1.2 incomes recorded in 2019.

“Housing affordability poses a major challenge across the country, and the issue is paramount on the policy agenda of all levels of government.

“It is crucial to identify policies that would work and those that would not, and it begins with a supply-and-demand balance,” Ms Martin said.

Ms Martin added that housing affordability “simply gets worse” when housing supply falls short of demand and that rising interest rates “are only part of the story”.

“This makes measures that do not increase the number of homes, such as convoluted planning processes and the heavy burden of taxation, likely to fail.

“The Australian government has spoken widely about a plan to pass legislation, ‘The Housing Australia’s Future Fund Bill 2023’, which aims to improve the quality of housing data, improve forecasting of housing demand, and collaborate with states and territories to improve the supply of housing,” Ms Martin added.

Ms Martin further stated that a significant investment into public housing stock by state and federal governments isn’t going to be enough to increase the supply of new homes to meet demand.

“The HAFF Bill [Housing Australia Future Fund Bill] 2023 isn’t going to solve the acute rental shortage this year, but it does begin a pathway to accountability for each tier of government and will assist in restoring balance,” concluded Ms Martin.