Housing affordability declines sharply in regions

Figures from the Housing Industry Association (HIA) have revealed that regional areas experienced a larger fall in affordability than the capital cities, with the regional index falling by 3.7 per cent in the December 2020 quarter.

According to the HIA, this has seen it return to the level it was in December 2019.

The HIA Affordability Index, which is calculated for each of the eight capital cities and regional areas on a quarterly basis and takes into account the latest dwelling prices, mortgage interest rates and wage developments, also showed that the index for the capital cities decreased by 2.5 per cent in the December 2020 quarter, representing a deterioration in affordability.

This was driven by declines in affordability in Darwin (4.9 per cent), Brisbane and Adelaide (3.1 per cent), Hobart and Perth (3.0 per cent), Canberra (2.8 per cent), Melbourne (1.4 per cent) and Sydney (0.8 per cent), the figures show.

Despite Darwin leading the declines with its index reading dropping from 134.6 to 128.0, HIA economist Angela Lillicrap said that Darwin “is still considered a very affordable market”.

However, she said that Sydney has continued to be the least affordable market with an index reading of 66.4 in the December quarter, while Melbourne is considered “an extremely affordable” market with an index level of 77.5.

Commenting on the deterioration in affordability in regional Australia, Ms Lillicrap said: “With the onset of COVID-19, consumer preferences have shifted towards detached housing and regional areas.

“Preliminary migration data shows more Australians left the capital cities in each of the first three quarters of 2020 than at any other time since records began in 2001. This involved an acceleration of retirement plans and fewer people moving to urban centres for work or education.

“The slowing in overseas migration will take a number of years to impact the detached housing market. This adverse impact has also been partially offset by the return of expats who are also seeking detached housing.

“As a consequence of this shift in population, house prices in regional areas outperformed the capital cities over the past year.”

Ms Lillicrap also attributed the sharp rise in house prices over recent months to a mismatch between the low supply of property on the market and strong buyer demand.

“As prices continue to rise, more sellers will put their homes on the market. This will help to keep a lid on the sharp price increases that are occurring,” she said.

“It is likely that much of the shift in population will be permanent. When ‘normal’ does return, however, young students and workers will once again move to employment centres in capital cities.”

HIA’s figures on regional Australia have reflected those released by property research group CoreLogic, which recently said that regional markets were up 2.1 per cent over February 2021, while continuing to show a higher rate of capital gain relative to the capital cities, which rose by 2.0 per cent.

The regions also performed strongly during the COVID-19 crisis, home values increased by 9.4 per cent on an annual basis, while the combined capital city index rose by a significantly smaller 2.6 per cent on an annual basis.

[Related: Sellers keen to sell homes but hold off: survey]

Malavika Santhebennur is the features editor on the mortgages titles at Momentum Media.

Before joining the team in 2019, Malavika held roles with Money Management and Benchmark Media. She has been writing about financial services for the past six years.