Housing affordability has grown into a major concern for most Australians. In the face of property prices in major metropolitan cities still on the rise, it remains very important to examine the factors that impinge on affordability and find ways of making house buying more accessible.
The following guide will let you know:
- What is happening with housing affordability in Australia
- What affects it
- How you can succeed in the housing market
The Current State of Housing Affordability
See what the current housing market looks like across different states and cities:
Rising Property Prices
Over the last decade, Australia experienced an upward trend in property prices, particularly in metropolitan cities such as Sydney, Melbourne, and Brisbane. This surge has been due to:
- Population pressure
- Supply constraint
- A huge demand for housing units from both local and overseas buyers
During the same period, property prices grow stronger than income increases. This therefore means that the challenge for aspiring first-home buyers is further being extended.
Income vs. Housing Costs
The gap between income and housing prices has increased, reducing the ability of an average Australian to buy a home. Despite just a modest rise in wages, there has been a jump in property prices and hence increased mortgage repayments concerning income.
As a result, the financial burden resulted in a number of households having to spend a greater part of their income to cover housing costs. Moreover, the rapid increase in the cost of living in major cities diminishes disposable income for other consumables.
Regional Disparities
The nature of housing affordability is relatively different across the country. For example, cities such as Sydney and Melbourne are expensive, but regional and small cities provide relatively cheap options.
However, most of the regional towns lack jobs and facilities and hence make the dwellings unviable.
Factors Influencing the Affordability of Housing
What makes housing affordable or expensive throughout the country?
Supply and Demand
Supply and demand in housing are central to determining affordability. Where demand exceeds supply, prices rise. From a supply perspective, this is influenced by:
- Zoning laws
- Construction costs
- The availability of land
In developing policies for urban planning and development, increasing the stock of affordable housing needs to be at the forefront. Strategies include offering incentives to developers to build more moderately priced units and reducing bureaucracy in the processing and approval of housing proposals to ease supply constraints.
Interest Rates
Interest rates have a direct influence on repayments for mortgages. When rates are at low levels, this implies cheaper borrowing, and as a result, this often fuels demand, which pushes property prices upwards.
In contrast, if interest rates rose, this would impact negatively on demand, while at the same time making housing more affordable. Interest rate trends reflect the Reserve Bank of Australia’s monetary policy settings and determine the overall level of housing affordability.
Prospective purchasers will do well by keeping eyes and ears open for interest rate movements and considering any changes that may affect their capacity to borrow or their future repayment obligations.
Government Policies
These include government initiatives and policies, such as first-home buyer grants and stamp duty concessions. While these programs are designed to get Australians into the market, they can also have the negative impact of pushing prices upwards by increasing demand.
Policymakers must therefore find a fine balance between providing homebuyers with assistance without having those homebuyer schemes inflate property prices. Continuous monitoring of such programs is required to establish whether they are realising their intended results and devise necessary changes toward meeting their affordability outcomes.
Economic Conditions
The wider economic conditions have implications on employment rates, inflation, and economic growth. Generally, strong economic performance means periods of good demand for housing, whereas weaker economic performances minimise housing prices.
Economic conditions determine consumer confidence and willingness to invest in property. A period of economic malaise will eventually make potential buyers cautious, thus lowering demand and having the effect of stabilising prices. A high-flying economy keeps demand upwards and pushes the prices up.
Tips on How to Navigate the Housing Market
What can you do when trying to get a good deal on a house?
1. Evaluate Your Finances
Understand your financial situation, work out your income, expenses, and savings to see:
- How much you can borrow
- How much deposit you can make
- How much you can pay each month for your mortgage
Upscore’s mortgage calculators will give you a good estimate of your borrowing capacity and potential monthly repayments. Having a clear view of your financial limits sets realistic expectations and avoids over-extending yourself financially.
Furthermore, if you do a proper budget, there might be occasions when you have a chance to reduce frivolous expenditure and allocate a fund toward the purchase of your dream home.
2. First-Home Buyer Schemes
Look closely at government schemes to help first-home buyers. There is the First Home Owner Grant – FHOG, which is made up of a collection of government schemes, and First Home Loan Deposit Scheme – FHLDS.
Both can reduce the upfront cost of buying a house and the challenge of getting a loan. Hence, it is necessary to learn about the requirements and processes of eligibility and applying for this scheme.
3. Think about Different Locations
While the big cities might be unaffordable, look to regional centres or suburbs that can support more affordable housing. You will have a far better quality of life and much greater scope for growth with the rise of working from home.
This cultural change of working from home has opened up new opportunities to homebuyers, allowing them to prioritise housing affordability and their lifestyle preference ahead of proximity to city centers. Do your research on emerging markets and growth corridors to identify where the best investment areas are.
4. Save for a More Significant Deposit
The more you can put down as a deposit, the less you will need to borrow, and you can escape LMI. You need to strive for at least 20% of the value of the property to stand you in good stead for loan approval and reduce your monthly repayments.
A disciplined savings strategy and investigation into high-interest savings accounts or investment vehicles might see you build up your deposit more quickly. You should also ensure that a regular, fixed amount is automatically transferred directly into your nominated savings account.
Conclusion
The complex nature of the Australian housing affordability issue involves a mix of supply and demand, interest rates, and government policy. While the market is tough at the moment, there are practical steps a person can take to improve their chances of becoming homeowners.
By evaluating their financial position, investigating government programs, and considering other locations, Australians can better navigate the housing market. Increased supply of housing and improved public transport are longer-term solutions that will help to ensure that the problem of affordability is tackled at its source. With the right approach and the necessary resources, more Australians will be able to make their dream of homeownership a reality.
Navigating the housing market means thinking carefully, making informed choices, and being proactive. One’s chances of succeeding will be considerably bolstered through:
- Awareness of the market dynamics
- Utilising all resources
- Considering long-term strategies
