Housing affordability remains high on the agenda as rents rise

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A HOUSING affordability report released by CoreLogic earlier this month highlights rising house prices across the Tweed and the highest rent to income ratios in the state.

Housing affordability continues to be a major talking point with Premier Gladys Berejiklian vowing to address the issue. According to the report the past five years has seen house prices rise by 19 percent whilst incomes have rose by only 9.2 per cent.

Low mortgage rates have fueled increased demand for housing, whilst rising house prices have increased the deposit required to purchase a home.

Another factor identified from the report is poor returns for investors from other options such as cash, bonds and commodities. According to the Australian Bureau of Statistics investors comprise 47 per cent of mortgage demand nationally and in NSW investors make up more than 55 per cent of new mortgages.

The report also identified stamp duty as a barrier for entering the housing market as well as a lack of decentralisation forcing people to live close to a major city or centre.

Housing affordability is a complex issue and the report identified that a solution requires cooperation from all levels of government.

“Clearly, addressing the issue of housing affordability is a complex task which is multidimensional, multidisciplinary and requires the cooperation of local, state and federal governments as well as the private sector,” the report reads.

“What is particularly required is a coordinated housing policy coupled with a strategy that blends land release, zoning changes, infrastructure development and decentralising employment opportunities into areas where housing costs are substantially lower.”

The CoreLogic Housing Affordability report looks at four areas that impact affordability; the ratio of dwelling prices to annual household income, proportion of household income required to service a mortgage, to save a 20 per cent deposit and to pay the rent.

Richmond-Tweed report

Price to income ratio

The price to income ratio is the ratio of property prices to annual income with a higher number indicating reduced affordability. Figures above a ratio of 5 are considered to be severely unaffordable.

As of September 2016, the price to income ratio in the Richmond-Tweed region was 8.6. Only two regional areas within NSW were higher, the Central Coast at 8.8 per cent and Southern Highlands 8.9. This figure is much higher than the national average of 6.9 and there are parts of Sydney that are more affordable than the Tweed with Sydney City and Inner South having a ratio of 8.4 and Sutherland 8.6.

This figure has been rising during the past 16 years with regional NSW having a ratio of 4.2 in 2001 (current ratio is 6.6).

Proportion of household income required for a 20 per cent deposit

The percentage of income required to save a 20 per cent deposit in the Richmond-Tweed area was 171 per cent. This is well above the national average of 139 per cent and again there are parts of Sydney that are more affordable including Outer Sydney and the City and Inner South at 167 per cent.

The percentage has also been rising with households in regional NSW needing 84 per cent in 2001 (currently 133 per cent).

Proportion of household income required to service an 80 per cent LVR mortgage

A large proportion of household income is required to service an 80 per cent LVR mortgage with a figure of 45 per cent. Again this is well above the national average of 37 per cent and there are parts of Sydney that have a lower proportion.

In regional NSW this figure has dropped since 2011 where it was 45 per cent, but only 26 per cent in 2001 (current is 133 per cent).

Proportion of household income required to pay rent

The Richmond-Tweed region has the highest proportion of household income required to pay rent in the entire state. The figure is a whopping 40 per cent, which is 11 per cent above the national average. In Sydney the figure varies from 24 to 35 per cent depending on location.

This is the only figure for regional NSW that has reduced when in 2004 it was 32 per cent and is currently 30 per cent.

National report

Price to income ratio

As of September 2016, the national price to income ratio was 6.9. Houses were higher at 7.2 and units 6.4. These figures are significantly higher than 15 years ago when the national ratio was 4.3 (4.2 for houses and 4.8 for units). The recent slowing of median price growth has seen both measures fall a little from their recent peaks.

Proportion of household income required for a 20 per cent deposit

To save a 20 per cent deposit requires 138.9 per cent of a household’s income in September 2016. Houses require143.2 per cent and units 128.9 per cent. In September 2001 it took 85.9 per cent of a household’s income to purchase a home, with figures of 83.4 per cent for a house and 95.7 per cent for units. The data shows that as property prices have continued to surge it has become increasingly difficult to save for a deposit.

Proportion of household income required to service an 80 per cent LVR mortgage

To service an 80 per cent LVR mortgage a household spend 36.8 per cent of their income. Houses required a higher figure of 38 per cent with 34.2 per cent for units. In September 2001 it took only 26.8 per cent of household income to service a mortgage with a figure of 26 per cent for a house and 29.8 per cent for units.

Proportion of household income required to pay rent

Renters spent 29.0 per cent of their household income on rent in September 2016. There has been little change in the proportion of household income required to pay rent.