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The great Australian home dream is crashing out, with affordability at record lows despite the Albanese government’s May budget. Victoria is now the most affordable state in the country for homebuyers, but house hunters face severe challenges due to soaring interest rates.
REA Group’s latest Housing Affordability Report reveals that for a family earning the state’s typical $127,000 income, only 16% of homes sold in the past financial year were within reach without entering mortgage stress. This is particularly difficult for lower-income households, with warnings they may now only afford a studio apartment or an extremely regional home in need of repairs.
The report highlights that across the nation, housing affordability has plummeted to a record low. Homebuyers earning a typical $125,000 a year can now access just 12% of home sales. Outside of Victoria, affordability has reached its bleakest level since the mid-1990s. Even Victoria’s relative affordability has limits: despite recent price softening, interest rate hikes have overwhelmed these gains. For example, in Victoria, only 2% of homes were affordable for households earning $76,000, matching the national average.
Victoria’s affordability advantage stems from lower home prices compared to other states, particularly Western Australia, where wages grew less than home values. However, the situation remains precarious. The average time to save a deposit has increased to about 5.5 years for most households, though first-home buyers using the federal government’s 5% deposit scheme can save closer to 1.5 years.
REA Group economist Luc Redman notes that while Victoria’s affordability is better than the national average, it is still a record low. He attributes this to a combination of factors: population exodus due to lockdowns, investor taxation, and higher supply of new homes. However, he warns that first-home buyers may not benefit significantly from recent changes to investor tax benefits.
The economist emphasizes that the only long-term solution to housing affordability is increasing supply. Without this, affordability will continue to decline. The future outlook depends on whether further interest rate rises will worsen affordability despite ongoing price reductions. The report excludes data for the Northern Territory and Australian Capital Territory.
Source: realestate.com.au
