The recent release of census data from 2011 provides an accurate assessment of home prices to income, which should put to bed some of the argument surrounding more regular measures.
The first round of the 2011 census results was released recently by the Australian Bureau of Statistics (ABS). As reported in last week’s Property Pulse, when you paired the national median dwelling price in August 2011 to the annual household income it showed that the typical Australian home costs 6.3 times the average annual income, up from 6.1 times in 2006.
The results were significantly different to some intra-census measures, which suggest housing affordability is much worse.
Of course a national idea of the pricing differential is useful at a macro level, however, around two-thirds of all Australian’s live in capital city housing markets. As a result, median selling prices of homes tend to be higher and in turn, the ratio of house prices to household incomes can also be quite different.
There is also quite a substantial difference in the ratios between detached houses and units. This is reflective of the fact that houses tend to be more expensive than units and they remain the housing type of preference for most Australians (75.6% of all dwellings were detached houses at the time of the census).
For houses, back in 2001 they cost as little as 3.2 times the average annual household income in Hobart and Darwin and up to as much as 6.2 times in Sydney and 4.9 times in Melbourne. Across the unit market the ratio was lowest at the same time in Hobart (2.6 times) and Darwin (2.7 times) and greatest in Sydney (6.0 times) and Melbourne (5.3 times).
Ten years later in 2011 houses cost as little as 4.5 times annual income in Darwin and 5.4 times in Canberra up to as much as 6.1 times in Sydney and 5.9 times in Melbourne. The unit market has remained a more affordable alternative, costing as little as 3.6 times annual income in Canberra and 3.8 times in Hobart up to as much as 5.2 times and 5.1 times more expensive in Sydney and Melbourne respectively.
It is perhaps a little surprising that housing isn’t less affordable, especially when you consider that median selling prices have risen between 75% in Sydney and 198% in Hobart over the 10-year period. Similarly median unit prices have increased by between 47% in Sydney and 211% in Darwin compared with growth in household incomes ranging from 46% in Sydney to 83% in Perth. The growth in household income is somewhat helping to curtail a blow-out in the ratio of home prices to household income.
There are a number of other important results from the data:
- House and unit price to income ratios have consistently been highest in Sydney across the three periods analysed.
- House price to income ratios were highest in 2006 within: Sydney (7.7 times), Perth (7.4 times) and Darwin (5 times) while they have remained stable between 2006 and 2011 in Canberra (5.4 times).
- Unit price to income ratios were highest in 2006 within: Sydney (6.2 times) and Perth (6.2 times) while they have remained unchanged between 2006 and 2011 in Brisbane at 5.1 times.
The data highlights that the ratio of home prices to household incomes is high compared with the national average across most capital city markets. This is reflective of the fact that the population tends to congregate within or close to these eight capital cities and as a result competition for housing stock is generally strong and land is more scarce.
Over the most recent five years there has been relatively little movement in the house price to income ratio across the capital cities. In fact, the ratio of median house prices to median incomes has actually reduced in Sydney, Perth and Darwin and remained stable in Canberra, which is an encouraging development. The fact that the ratio hasn’t increased significantly over the most recent five years is reflective of much slower growth conditions in the housing market. It is also reflective of lower levels of growth in household incomes over the past five years compared with the preceding five years. In fact, household income growth between 2006 and 2011 was slower in each capital city than the growth over the five years to 2006 except in Sydney, Canberra and Darwin.
Overall the results show that housing unaffordability isn’t quite as severe as some reports have suggested, particularly in Darwin and Canberra, where income levels are considerably higher than the capital city average. Of course this doesn’t mean that a steep decline in values is imminent, but it does mean the prospects of significant value growth over the coming five years is lower. At best we would expect home values to rise in line with household incomes over the period. If they continue to grow below this level as they have for much of the last two years, housing will continue to become relatively more affordable. The fact that units provide a viable alternative for buyers on a budget suggests that they will continue to grow in popularity and may continue to outperform houses in terms of value growth over the coming period to the next census.
*This article was originally published at Property Observer
I don’t see a very strong case in the argument.
Yes, the average income does move somewhat in line with house price but it’s been distorted by a small group of upper income earners the millions and billionaires. In my opinion, greater number of people are falling behind.
The rise in income can’t keep up with both higher proportion of interest service (because bigger loan is required to buy more expensive house) and rise on other cost of livings.
The rise in income needs to move in congruent with productivity in order for the economy to be competitive and sustainable otherwise business can’t cope and unemployment will rise. This will be difficult to achieve, what should be done also to ameliorate wage pressure is to reform housing policy so housing price will only rise slowly.
Missing from the discussion is the rise in rent. Any rise in rent will severely set minimum wage earners back because their income raise can barely meet with other costs of living.
I saw the Q&A promo or excerpt where Gillard said Labor won’t reform negative gearing because it distorts the market. What a load of bullocks!
Negative gearing is distorting the market. Last time I heard there’s about 800,000 empty houses while rent price is sky rocketing. People only have to put in a couple of receipts to claim tax and leave the house empty for the rest of the year.
They should put forward negative gearing reform to allow, phasing out over 5 years down to 1 investment home only or move to a business if you own more than that, this won’t shock he market but help keeping price rise at sustainable pace. It’s ridiculous the government is subsidising, so called investors to push up house price and make it less affordable to first home owners and renters, and they also have to give more rent assistance to the unemployed.
I don’t think Labors have anything to lose by proposing reform. Most of those against negative gearing reforms already vote LNP, Labor will hardly lose any vote from it. At least if they could articulate a clear vision on housing affordability they can capture a new generation of voters who are looking forward to own their home affordably and tenants.
The problem with this government is it is always on the backfoot defending. It does not articulate an inspiring vision for the country, the nation and the people, give the people hope, make them feel proud and inspired and come together to achieve our goal.
Correction- make it less affordable for first home owners and tenants
Although on the same point negative gearing encourages the so called investors to over leverage and buy at inflated price consequently jacking up rent to cover for loan repayments.
Gee. The most over-priced houses on the planet but all is OK according to a property magazine. Sure.
The article uses the “median annualised household income”, which is the middle income (when they are all lined up from smallest to largest), not the average. Therefore, unlikely to affected by skewness in the income distribution caused by the outliers (the “small group of billionaires”)
Just because it doesn’t fit into the approved narrative of “OMG, house prices are too expensive”, doesn’t make it bad research.
Scott, I did see the comparison using median data but the argument in part conflated with average income also:
“when you paired the national median dwelling price in August 2011 to the annual household income it showed that the typical Australian home costs 6.3 times the average annual income, up from 6.1 times in 2006”.
Regardless whether it is median income or average income, I still think it is skewed based on the rise of the top end over the last 10 years, I’m just speaking from memory whre I read about income I won’t be able to reference.
I don’t think it is bad research, but I don’t see a compelling case. It is also relative to who the readers are, someone who sees that we have the most over priced housing in the world, some young genY who thinks they will never be able to own a house, or someone who already own a house and have the equity to invest more.
I’ve lived in inner Melbourne city and seen house price rising way out paced wage rise. I don’t want us to become like Singapore or Shanghai.