Regional housing affordability dwindles

Affordability metrics in the combined regional market were considerably more favourable for median-income households compared to capital cities in 2020, according to researchers at ANZ and CoreLogic.

Senior economist at ANZ, Adelaide Timbrell, explained that accumulating a 20 per cent deposit was estimated to take 7.5 years, compared to more than 10 years today.

Additionally, 28.3 per cent of income was required to service rents, compared to more than 30 per cent.

In addition, while around 25.4 per cent was required to service a mortgage in 2020, the Reserve Bank of Australia (RBA) estimated that slightly over 20 per cent of borrowers allocate more than 30 per cent of their income towards mortgage payments, with an estimated lower proportion – around 5 per cent – struggling to cover their mortgage payments and essential expenses due to insufficient income.

However, the pandemic triggered a robust growth in regional dwelling values, driven partly by cities facing lockdowns and the widespread adoption of remote work by many organisations.

Consequently, regional Australia continued to outpace capital cities in terms of value growth.

ANZ data revealed that since the onset of COVID-19, regional Australian dwelling values have surged by 44.4 per cent to October, compared to a 26.4 per cent increase in capital city dwellings.

Although regional home values experienced a slight decline due to rising interest rates, the market appeared to have stabilised in January, witnessing a subsequent 3.5 per cent increase.

Yet, according to CoreLogic’s Regional Market Update for November, regional markets displayed a slower recovery in 2023 compared to their capital city counterparts.

Since reaching its lowest point in January, property values in the combined capitals soared to new record highs, while the combined regional market remained -2.5 per cent below the peak recorded in May 2022.

This trend aligned with the company’s Home Value Index, indicating a slowdown in growth from 1.2 per cent in the previous two months to 0.7 per cent in July.

Despite the rise in property values in regional areas, more city dwellers are relocating to the regions compared to those moving in the opposite direction, according to the Regional Australia Institute and Commonwealth Bank of Australia (CBA).

In the 12 months leading up to September 2023, capital-to-regional migration constituted an 11 per cent share of all relocations, surpassing the 9.1 per cent moving from regions to cities.

Notably, regional NSW became the most desirable location for those leaving capital cities in the September quarter, overtaking regional Queensland.

Looking ahead

Looking ahead, housing affordability will likely depend on several factors, including housing demand and the state of the construction sector.

A promising trend for buyers this year was the increase in properties for sale, Eliza Owen, head of research at CoreLogic noted.

Ms Owen explained that new listings across capital cities remained below average for the 10 months between September 2022 and July 2023, before experiencing an unexpected rise during winter followed by a significant seasonal bump in spring.

“This gradual lift from historic lows offers hope for prospective buyers,” she said.

“Regardless, the deposit hurdle will likely remain the main obstacle for first home buyers in 2024 and beyond.”

[Related: Australians go regional as costs rise]