Is it harder to buy a house in 2023? Findings of a new report
It’s the question that usually leads to talk of interest rates and smashed avocado on toast – do Millennials or Boomers have it harder when it comes to buying a house?
Well, a post shared on social media this week settles the debate.
The post, which includes a graph originally published by the Reserve Bank of Australia, reveals it used to take an Aussie household earning an average income just over two years to afford a house in 1985.
When comparing housing affordability in 2023, there’s a stark difference.
“Today it is much, much harder to save a deposit than it was 30 to 40 years ago when house price to income ratios were much lower,” Angus Moore, a Senior Economist from PropTrack, told news.com.au.
In fact, according to PopTrack’s latest housing affordability report, released on Saturday, an average-income household will need to save 20 per cent of their income for more than five and a half years to save a 20 per cent deposit on a median priced home.
In 1985, it would have taken just over two years.
When it comes to paying off a mortgage, the report found an average income household needs to spend about a third of their income on mortgage repayments to buy a median-priced home.
In 1985, Aussie households would only need to fork out a fifth.
Another sign Millennials are doing it tougher is the drop in the number of affordable houses.
The report found housing affordability is now at its “worst level” in three decades. Households earning a median income of just over $105,000 are only able to afford roughly 13 per cent of homes.
Three decades ago, in 1995, they could afford 31 per cent. Mortgage rates and increased house prices are driving the decline.
“Over the past two years, we went from a period of relatively good affordability in 2020 and 2021 amid very low interest rates, compared to now where interest rates have risen as quickly as we’ve seen since the 1980s. And that’s driven mortgage repayments up very substantially, and it means far fewer houses are affordable, right across the income distribution,” said Mr Moore.
Low and middle income earners are unsurprisingly at a major disadvantage, with the report finding households earning $64,000 per year only able to afford three per cent of homes.
Where you live in Australia also narrows your prospects.
Housing affordability is toughest in New South Wales, Tasmania and Victoria. A typical-income household is able to afford just seven per cent of homes sold in NSW.
However, in Western Australia, housing affordability is at its highest. A typical income household able to afford 22 per cent of homes in the state.
“Five years ago, Western Australia was actually the least affordable state in Australia in the height of the mining boom …. But since then, prices have actually grown pretty slowly in WA, and it’s now quite an affordable state relative to others,” said Mr Moore.
While being able to afford a house will “remain pretty tough for a while”, Mr Moore said it’s not all bad news for Millennials or those looking to buy a property in the future.
“We’re probably not going to see the sort of interest rate increases that we’ve seen over the past year and a half, which means we’re not going to see affordability deteriorate as quickly as it has in the past 18 months to two years,” he said.
“We are also seeing incomes growing which will start to offset higher mortgage costs. But it is going to be a slow process.”
While he said government schemes such as the First Home Loan Deposit Scheme can provide some relief to buyers, building more homes where people want to live is ultimately the best solution.
“It is the only sustainable long term way to improve housing affordability,” he said. “The fact that we’re at the worst level we’ve seen in at least three decades really highlights the importance of doing that.”