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Over the past 20 years, the average annualised property growth in capital cities is 6.9 per cent and 7.1 per cent across regional Australia, whereas annualised wage price growth has increased by less than half at 3 per cent, according to Domain’s first home buyer report.
The 2022 report revealed that the time taken for a couple aged between 25 and 34 to save for their first home (across capital cities) had increased by 11 months, taking a total of five years and eight months.
Domain’s chief of research and economics Dr Nicola Powell said house prices had “skyrocketed” across the combined capital cities by 101 per cent, over the past decade, and unit prices by 52 per cent.
“This level of price escalation is no easy feat for wages growth to contend with.
“This is further exaggerated when comparing the typical dwelling cost to the average household income.”
On an international scale, housing costs as a share of income are higher in Australia than in most comparable countries, she said.
Mortgage stress
Dr Powell recommends home owners dedicate “less than 30 per cent” of their income towards mortgage repayments to avoid “mortgage stress”.
Entry-houses in Sydney and Canberra are the only areas that sit above this threshold and are deemed in mortgage stress.
For a more affordable approach, entry-units take an average of 18.4 per cent of household income for mortgage repayments across the capitals, taking an average of three years and six months to save for a deposit.
Dr Powell said: “Most measures of affordability show that it’s harder to buy a house than a unit, whether it’s the rate of price growth, price to income ratio, or the affordability of mortgage repayments.”
But, property prices are not the only way to consider housing affordability; calculating “mortgage serviceability is another aspect”.
She said that while low home loan rates have driven price growth, they have also improved the costs of a home loan.
“Low interest rates have helped to somewhat offset higher property prices,” Dr Powell said.
Perth, Darwin and Adelaide ‘most affordable’
Mortgage repayments on an entry-house drain less than one-fifth of income in Perth, Darwin and Adelaide, offering buyers the lightest burden on the household budget.
For first home buyers setting their sights on Brisbane, around 20.8 per cent of household income should be set aside for mortgage payments.
While mortgage repayments as a per cent of income is a “poignant measure of housing affordability”, it will increase as the prospect of interest rate hikes are more likely this year, Dr Powell said.
“As the cost of servicing a home loan is beginning to creep higher, it will slice a larger portion of income as mortgage rates increase.
“This could be offset as the property cycle moves into its next stage with the potential for some cities to see prices fall.”
Saving for a deposit
As property prices have “skyrocketed” in the past two years, the time taken to save has also increased.
Perth marked the quickest savings time at three years and seven months for an entry-house, and two years and six months for an entry-unit, compared to a house deposit in Sydney taking more than eight years to save.
Canberra has overtaken Melbourne in second place, at seven years and one month to save for a deposit.
Hobart had the quickest time to save for an entry-house in 2016, escalating prices over the past five years now make it the fourth-longest time to save out of all the major cities, at five years and 10 months.
While prices in regional towns have seen significant booms, the time taken to save was three years and 10 months, making it more affordable.
The time to save is based on a couple, so those looking to purchase on their own will find the time to save double.
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