In most capital cites housing affordability is about 25% worse than it was just 18 months ago
That it was expected makes it no less shocking. The huge surge in housing loans early last year always meant property prices were going to take off. But it still takes your breath away when the latest residential property price data from the Australian Bureau of Statistics shows that prices across the nation rose a record 24% last year.
If the graph does not display, click here
Prices grew fast in Sydney, of course. Sydney has been ground zero for the housing boom, but not the city with the fastest price growth.
Last year property prices in Brisbane rose 28%, while in Canberra they went up 29% – both faster than the 27% growth in Sydney. But Hobart took the prize for the hottest property market. In 2021, property prices there rose 30%.
As has been the case since the market took off in the second half of 2020 once the government HomeBuilder program began to take hold, the boom came in houses rather than apartments and flats in most capital cities.
But so hot is the Hobart property market right now that the prices for houses and apartments have both risen more than 40% since June 2020:
If the graph does not display, click here
The good news (such as it is) is that prices have not risen by more than they did.
Given the link between property prices and housing finance growth, the recent surge was completely expected – and yet it appears to have peaked at a level not too far above what occurred during the Global Financial Crisis (GFC) stimulus period, despite home loans now growing by a great deal more:
If the graph does not display, click here
Because the growth of home loans has fallen in the past six months, that should mean that the crazy explosion of property prices across the country will moderate. But take note: we are just talking about a slowing of the growth. Property prices across the country are still expected to keep rising strongly.
If the relationship between home loans and property prices holds, we should expect an annual rise in prices to slow from the current 24% to just below 15% by June this year – but that would still be among the fastest growth this century:
If the graph does not display, click here
So shocking is the property market right now that we don’t even need to talk about annual or quarterly growth to grasp just how insane things are.
Consider Brisbane.
Since 2012 and the end of the GFC, house prices there grew at a pretty steady rate of around 4% a year, give or take a percent. That is of course faster than wages grew during that time, but it is not at a level that you would think unsustainable.
Had you been thinking about saving up for a house in Brisbane in June 2020, you could have thought that given the median price for a house was then $547,000 you could reasonably budget for such a house costing around $587,000 in 18 months’ time.
And then the market exploded:
If the graph does not display, click here
$587,000? Yeah, nah. Try $765,000.
Median house prices now bear little resemblance around the country to what they did a year and half ago.
In Sydney the median house price is $1.3m and Canberra is now the second most expensive market, with its median price also breaking through $1m for the first time:
If the graph does not display, click here
Since the middle of 2020 residential prices have on average risen 28.4%, while at the same time wages have risen just 2.9%.
Since 2012 average household disposable income has risen 30%, while property prices have risen 82%:
If the graph does not display, click here
This of course has absolutely destroyed any sense of housing being affordable for a median household.
It’s always tricky to work out median household income, given the different types of households. But for a couple with one child, which is often when people are looking to move out of an apartment or buy their first home, the median household disposable income is roughly equivalent to the average male full-time earnings plus a third of average women total earnings.
That would give such a household in Sydney a gross income of around $120,000.
That means the median house price in Sydney is now 10.8 times that of the median household income, compared with just over six times in 2012:
If the graph does not display, click here
Affordability is not as bad elsewhere (because prices are nowhere near as high) but for all cities except Perth and Darwin, housing affordability is worse now than it ever has been.
In most capital cites, housing affordability is around 25% worse than it was just 18 months ago.
Given the truly stagnant wages growth and the extreme stimulus directed towards the housing market, that combination may not be surprising, but it remains truly shocking.
