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Housing affordability in perspective.

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About Macquarie Bank

Housing affordability in perspective

04 December 2003

Research by Macquarie Mortgages and Macquarie Property has shown that housing is still within reach for many Australians.

"The fact is that housing remains affordable in comparison to the late 1980s. Even with the recent increases in interest rates that have pushed up mortgage costs and with rising property values, house buyers must not lose sight of the fact that housing remains affordable in historical terms," said Macquarie's Head of Mortgages, Mike Barrett.

Rod Cornish, Head of Property Research at Macquarie Bank, indicated that housing affordability has certainly deteriorated (see attached graphs), but in all key markets continues to be nowhere near as dire as during the 1989-1991 period when mortgage costs were 83 per cent of the average single person's income in Sydney.

In 1989, the average single male income in NSW was $596 per week, it is now $1096, a rise of 84 per cent. By contrast monthly mortgage payments on what was a median priced house in 1989 ($210,000) were around $2,140 per month based on a 25 per cent deposit. Interest rates at that time were around 16 per cent.

"Today, with a median house price in Sydney of $470,000, monthly mortgage payments are $2,697 based on the same level of up-front deposit relative to wages. A typical mortgage payment is up only 26 per cent while salaries have jumped 84 per cent in our most expensive property market," said Mr Cornish.

"There is no doubt that housing costs have risen significantly, but the current conditions are well short of the type of crisis in housing affordability that typified the 1989-1991 years in key property markets."

Wages growth is one of the key drivers of residential property prices and wages have grown faster than household disposable income. "Since 1990, NSW wages grew two-thirds faster than household disposable income and double the rate of growth since 2001, therefore not taking wages into account highly skews the affordability ratio. Household disposable income includes farm income, people on welfare such as the unemployed, and history shows it grows significantly slower than wages," said Mr Cornish.

"This measure is a realistic way of looking at housing affordability as it is based on the reasonable premise that you must have a job in order to service a mortgage," said Mr Cornish.

Mike Barrett cautioned: "For those looking to buy, they should only borrow what they can afford, based on their current earnings and expenses. Also, it would be prudent to leave a margin for larger mortgage payments as interest rates may rise further in the short term."

Mr Cornish added: "Housing affordability is only one measure when looking at the property market. Other factors to consider include the general economy, migration patterns and demographic shifts, interest rate changes, and the attractiveness and performance of other investment classes."

Housing Affordability

Source: Macquarie Property, ABS, REIA, RBA

Household disposable income vs wages

Source: Macquarie Property, ABS, HIA

For more information, please contact:

Robyn Turner Communications and PR Manager Macquarie Property Tel: (612) 8232 6989