20 years of data confirms it’s getting tougher to pay the mortgage

It’s often the case that we look back with rose-coloured glasses, but when it comes to keeping the head above water while paying a home loan, life really was easier 20 years ago.

Since June 2001, the average proportion of family income required to meet loan repayments increased from 27.2 per cent to 35.7 per cent.

The Real Estate Institute of Australia’s newly released Housing Affordability Report: A 20-year analysis revealed that housing affordability is on the decline.

Even if Australians have not yet reclaimed the dubious title of least affordable moment in the past 20 years — back in September 2009 a staggering 45.8 per cent of income was needed to service a loan — all states are less affordable than two decades ago.

REIA president Adrian Kelly said housing affordability looked set to deteriorate further if governments refused to act.

“If policy settings fail to change and without a boost to household disposable incomes through, for example, tax concessions for first home buyers, affordability is likely to get worse as interest rates rise,” he said.

For those forced into renting by rising house prices and flatlining wage growth, there is the bittersweet comfort that rental affordability was only marginally worse than in 2001.

It declined from 22.1 per cent to 23.0 per cent of family income.

While family income increased by 112.8 per cent, average home loan repayments increased by 179.4 per cent. 

Average home loan amounts increased 248.7 per cent, an increase from $157,239 to $548,323. In March 2002 Australia was at its most affordable at 26.8 per cent of family income required to meet repayments.

In a sign of just how much house prices have soared relative to average earnings, interest rates were three or four times higher than today in the early 2000s when affordability was at its best.

In June 2001 the cash rate target was 5.0 per cent. By June 2021, it decreased to 0.1 per cent, a decline of 4.9 percentage points.

This is the lowest rate so far this century and lower than its height in 1990 of 17.5 per cent. The highest point the cash rate has been in the past 20 years was 7.3 per cent in mid-2008.

Insatiable demand for property is driving the price escalation.

The number of first home buyers was 25,782 in September of 2002 and increased by 67.7 percent to 43,226 in June of 2021.

Subsequently, from 2002 through to 2021, the first home buyers’ average loan increased from $169,789 to $450,467, a 165.3 per cent increase.

Unsurprisingly, the higher loan amounts and decreasing affordability are sending Australians into deeper debt.

At the start of 2001, debt for owner occupied housing was 48.8 per cent of annual household disposable income. By March 2021 this had increased by 51.4 percentage points to 100.2 per cent.

State by state highlights

Housing affordability declined in most states and territories throughout Australia, with Tasmania having the largest decrease in housing affordability (12.7 percentage points).

At the other end, Western Australia had the smallest decline in housing affordability (2.1 percentage points).

Rental affordability was at its most affordable in December 2004 at 21.1 per cent and at its least affordable in March 2010 at 26.3 per cent. 

Tasmania had the largest decline in rental affordability of 9.0 percentage points. Queensland and Victoria were the only states in which rental affordability improved. 

Vacancy rates for Australia were at their tightest in March 2007 at 1.4 per cent and had the highest proportion of vacant properties in June 2004 at 3.8 per cent.

Average mortgages 

- New South Wales: $191,081 in mid-2001; $705,658 in mid-2021

- Victoria: $157,064 in mid-2001; $568,188 in mid-2021

- Queensland: $140,918 in mid-2001; $461,414 in mid-2021

- South Australia: $113,135 in mid-2001; $401,109 in mid-2021

- Western Australia: $139,576 in mid-2001; $430,805 in mid-2021

- Tasmania: $86,878 in mid-2001; $384,525 in mid-2021

- Northern Territory: $126,974 in mid-2001; $393,757 in mid-2021

- Australian Capital Territory: $154,905 in mid-2001; $552,093 in mid-2021

New South Wales

Housing affordability declined in New South Wales by 12.4 percentage points over the past 20 years.

The proportion of income required to meet loan repayments increased from 31.6 per cent in June 2001 to 44.0 per cent June 2021.

Access to the market for first home buyers was at its best in June 2009 when 51.2 per cent of all new loans were from first home buyers.

In contrast, in March 2017, only 13.7 per cent of new loans were from first home buyers. In June of 2021, the proportion of first home buyers increased to 33.6 per cent.

Victoria

The proportion of income required to meet loan repayments increased from 26.5 per cent in June 2001 to 36.2 per cent in June 2021. 

While family income increased 112.1 per cent, average home loan repayments increased 189.8 per cent. Average home loan amounts increased 261.8 per cent, an increase from $157,064 to $568,188.

Renters fared better, with affordability actually improving 0.2 percentage points over the past 20 years.

The proportion of income required to meet rental repayments marginally decreased from 20.5 per cent in June 2001 to 20.3 per cent in June 2021. 

Rental affordability was at its most affordable at 19.1 per cent of family income in September 2005 and at its least affordable at 24.8 per cent in March 2010.

Queensland

Rental affordability also improved for Queenslanders, improving by 0.4 percentage points over the past 20 years. 

The proportion of income required to meet rental repayments decreased from 22.0 per cent in June 2001 to 21.6 per cent in June 2021.

Rental affordability was at its most affordable at 21.1 per cent of family income in June 2020 and at its least affordable at 26.1 per cent in March 2010. By June 2021 rental affordability was at 21.6 per cent.

But for home buyers, affordability declined over the past 20 years by 5.9 percentage points to 32.1 per cent in June 2021.

South Australia

For the Croweaters, the proportion of income required to meet loan repayments leapt more than 10 per cent, from 21.5 per cent in June 2001 to 31.6 per cent in June 2021.

The differential between renting and meeting loan repayments in September 2001 was at -0.8 percentage points, indicating that it was more affordable to meet home repayments than pay median rents. 

The rent buy differential was at its highest point, 18.3 percentage points, during the Global Financial Crisis but by June 2021 it had reduced to 7.1 percentage points.

Western Australia

Western Australia was at its most affordable at 23.3 per cent in December 2001 and the state was at its least affordable at 41.8 per cent in September 2008.

At a 127.5 per cent increase in family income, Western Australia had the highest increase of all states and territories. 

This is in conjunction with the lowest increase in home loan repayments. As a consequence, they had the lowest decline in housing affordability over the 20 years, at 2.0 percentage points.

Tasmania

Tasmania had the highest decrease in housing affordability over 20 years (12.6 percentage points). 

While family income increased 110.0 per cent, average home loan repayments increased 254.6 per cent, the highest for all states and territories.

Average home loan amounts increased 342.6 per cent, an increase from $86,878 to $384,525.

Rental affordability declined 9.0 percentage points over the 20 years, and was also the highest for all states and territories.

The proportion of income required to meet rental repayments increased from 21.1 per cent in June 2001 to 30.1 per cent in June 2021.

Northern Territory

Housing affordability declined in the Northern Territory by 3.1 percentage points over the past 20 years.

The proportion of income required to meet loan repayments increased from 19.9 per cent in June 2001 to 23.0 per cent in June 2021.

Australian Capital Territory

Housing affordability declined by 6.9 percentage points over the past 20 years.

The proportion of income required to meet loan repayments in Australian Capital Territory increased from 19.1 per cent in June 2001 to 26.0 per cent in June 2021.

While family income increased 109.6 per cent, average home loan repayments increased 185.5 per cent.