Affordability Slips in Late 2013

Housing affordability eased in December – an aftereffect of the August interest rate cut
Photo: J_Bar

Housing affordability declined slightly in the December 2013 quarter as the positive impact from previous interest rate cuts tapered off, said the Housing Industry Association, the voice of Australia’s residential building industry.

“Those in the housing market or who have been on its cusp of and then entered in recent years have experienced a considerable improvement in affordability,” commented HIA Chief Economist Harley Dale.

“This improvement has been driven by an easing interest rate cycle which now sees borrowing costs at or near record lows.”

“The HIA-Commonwealth Bank Housing Affordability Index eased by 0.5 per cent in the December 2013 quarter as the impact from the last rate cut in August 2013 largely washed through the system,” Mr Dale noted. “The Index was nevertheless still at a level 8.4 per cent higher than what was observed in the December 2012 quarter.”

Source: HIA

“In 2014 we are likely to see further gains in residential property prices, but in an environment of subdued household earnings growth and steady interest rates,” said Mr Dale. “The strong cyclical improvement to affordability for existing participants in the home ownership market has therefore run its course.”

“Addressing the large supply-side impediments to a structural improvement in affordability for all Australians is one of the nation’s most prominent policy challenges,” added Mr Dale.

“Addressing this challenge requires focus from all levels of government and would provide considerable benefit to the Australian economy.”

Source: HIA

In the December 2013 quarter, the HIA-CBA Housing Affordability Index declined in four out the six surveyed capital cities: Hobart (-9.2 per cent); Sydney (-4.4 per cent); Perth (-2.5 per cent); and Brisbane (-1.0 per cent).

Meanwhile, affordability both Adelaide and Melbourne recorded increases of 5.5 per cent during the quarter.

The affordability index for the Australian Capital Territory declined by 1.2 per cent. In most states’ regional areas, the index increased, with rises of: 4.4 per cent in Victoria; 3.5 per cent South Australia; 3.2 per cent in Queensland; and 1.4 per cent in Tasmania.

Meanwhile, the index declined in regional Western Australia (-6.8 per cent) and in regional New South Wales (-3.9 per cent).

The HIA New House Affordability Index registered -0.5 for the December 2013 quarter, indicating that new houses remained slightly less affordable than established houses.

This media release was originally published on HIA.