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‘Unprecedented’: Housing crisis gets even worse as affordability plunges

Economists believe interest rates have peaked, but it's not time to bank on cuts just yet.

Economists believe interest rates have peaked, but it's not time to bank on cuts just yet. Photo: TND

Australia’s housing crisis has become even worse as soaring rents and near-record low vacancy rates combine with higher interest rates to squeeze millions of people who don’t own property.

That’s the latest from the Real Estate Institute of Australia, which has tracked further declines in affordability for would-be buyers and renters over the June quarter, despite recent falls in national property prices.

The analysis, published on Wednesday, reveals higher interest rates are making mortgages less affordable, while rents also continue to rise amid near-record low vacancy rates post-COVID.

REIA’s president Hayden Groves said the proportion of Australia’s average income required to pay the median national rent is now 22.9 per cent – a 0.4 percentage point rise since March.

Meanwhile, the proportion of this income needed to service the average mortgage is now 38.4 per cent, up 2.7 percentage points in the period.

“Over the quarter, rental affordability improved in Victoria, but declined in all other states,” Mr Groves said on Wednesday.

“Housing affordability has declined in all states and territories over the past year, with New South Wales having the largest decline (down 5.7 percentage points).”

The data came less than a day after separate SQM research found Australia’s rental crisis has hit “unprecedented levels” after vacancies fell 0.9 per cent in August to their lowest since 2006.

There were just 32,948 residential properties available to rent nationwide, down 3793 since July.

“All capital cities are recording double-digit rental increases over the past 12 months,” SQM managing director Louis Christopher said.

Housing crisis worsens

The latest figures on the housing market paint a worrying picture for households who don’t own property, despite hopes that recent falls in house prices would make it easier to get a mortgage.

REIA’s latest data shows the effects of rising interest rates on mortgage affordability are more than offsetting the subsequent decline in property prices, making it even harder for households earning average incomes to get onto the property ladder, despite headline prices being lower.

At the same time, rent prices are also soaring, rising 2.6 per cent on average across Australia’s capital cities over the past week, SQM said.

“The national housing rental crisis has further deteriorated to unprecedented levels,” Mr Christopher said.

“Asking rents continue to rise across the country at a red-hot pace.”

One factor pushing up rents is declining rental availability, with the number of properties available plummeting as landlords take houses off the market or shift them to short-term rentals through airbnb.

Mr Groves said that an ongoing undersupply of housing more generally is also contributing.

“Supply-chain challenges, rising building costs and labour shortages mean the pipeline of new homes for sale and rent will remain under long-term average levels,” Mr Groves said.

Housing wealth falls

Home owners are feeling the pinch as rising interest rates push the housing market into a correction phase, with official figures on Tuesday showing the collective value of Australia’s houses is starting to decline.

The total value of Australia’s housing wealth fell from a record $10.14 trillion to $9.98 trillion over the June quarter, according to ABS figures.

This decline was caused by a $18,900 fall in average property prices.

But the fall was only a slight decrease, with housing wealth still much higher than the $7.27 trillion value posted before the pandemic began.

Moving forward experts expect that while house prices will continue to fall in 2023-24, values will remain above their pre-COVID levels.

“Price falls are already looking like they’re starting to bottom out in Sydney and Melbourne,” housing economist Andrew Wilson said.

“We could speculate that we are approaching the bottom already.”

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