Housing affordability, house prices, and WA best performance

House prices plateau for 3 years, but record unaffordability

The Australian Institute for Progress has released its latest Housing Affordability Index which uses the available ABS figures, which are current up to Q4 2023. It finds that there was a marginal increase in repayment affordability with the index dropping 2.44 points to 221.32.

The Deposit Affordability Index, which measures the affordability of a deposit also experienced a 2.3 point decline, but was below the peak in Q4 21, reflecting increases in wages from inflation.

The Index can be downloaded by clicking here.

“It is twice as expensive to repay the purchase of a house now than for most of the last 30 years with that increase occurring in just the last 3 years since Q3 2020,” said Executive Director Graham Young.

“While interest rate rises account for much of that, there was also a sudden increase in housing prices, which increased on average by 46% in the three years between Q1 2019 and Q4, 2021.

“This contrasts with a rise of only 58% in the 10 years before 2019.”

Mr Young said that the increase in house prices occurred principally during COVID, so is probably due to the Coalition’s Home Builder grant and the huge amounts of money pumped into the economy during COVID, combined with the inability at that time of people to spend money on luxury items, apart from housing, like overseas travel and motor vehicles.

“We expected houses to fall in price as interest rates increased, making loans more difficult to repay, but this has not been the case.

“This appears to reflect continuing loose monetary policy, excess government borrowing at state and federal level to fund infrastructure and the energy “transition”, plus unprecedented levels of immigration.

“This was an avoidable crisis which will not be unwound as quickly as it was created.”

Mr Young said that the solution was to moderate demand and increase supply.

“The federal government is in control of immigration and could stop the increase in the demand problem overnight, but it is more difficult to cure the demand from immigrants already here.

“The supply problem is in the hands of the states and will not be cured by media releases but by addressing front-loading of taxes for general community goods onto new home buyers, cutting planning regulations and approval times, and providing infrastructure so that green fields developments can be unlocked.

“Crowding-out of domestic construction by state funded construction, using inflated CFMEU wages, is another issue that needs to be addressed.”

Mr Young said it was obvious from the figures that not all states were the same and some states were dealing with affordability issues better than others.

“Long term house prices in Western Australia have increased at only half to a quarter the rate at which they have increased in the other states, reflecting a well-managed economy and planning and development regime.

“As a result it is the most affordable capital city.

“Perhaps the WA premier should be asked to address the next National Cabinet on the housing crisis.”