Chronic collapse of property affordability hits locals hard, deters foreign buyers

The cost of housing is slipping further out of reach for the average Australian, with affordability worsening to such a degree that even relatively wealthy foreign buyers are baulking at the high prices.

In a damning indictment on the ability for the average Aussie to afford a home today, modelling shows only 10 per cent of the housing market would be genuinely affordable without the median income earner plunging into mortgage stress (whereby more than 30  per cent of income is needed to service a loan).

This is a massive and lifechanging shift for millions of prospective home owners. Just over two years ago, in March 2022, 40 per cent of Australian homes were affordable for the median income household.

It now takes a combined family or individual’s income of $172,000, which only a quarter of Australian households earn, just to access the bottom 50 per cent of the housing market.

The end result is that more people are thrown unwillingly into the rental pool, where they receive no respite from the rising cost of putting a roof over their head.

A record high 33 per cent of total income is now needed for the median income household to service the median rent.

The disturbing deterioration in housing affordability was revealed by modelling from ANU POLIS Centre for Social Policy Research and CoreLogic published Wednesday (20 November).

Australia’s latest gross median household income level was around $101,000 per year as at September 2024, up from $98,500 a year earlier. This equates to a 2.8 per cent rise over the past year, which is well below the 8.5 per cent rise seen in the median dwelling value and the 9.6 per cent increase in rents over the same period.

The median weekly rent value in Australia was $642 per week in September 2024, and the median dwelling value was $807,000.

The median dwelling value to income ratio is now up to 8.0, up from a 20-year average of 6.7 and equal to the record highs set in early 2022.

“Assuming an annual saving rate of 15 per cent per annum, it now takes the median income household 10.6 years to save a 20 per cent deposit for the median value dwelling,” the report noted.

“Assuming current average mortgage rates for owner occupiers, a 20 per cent deposit and a 25-year loan term, more than half of the median household income is required to service a new home loan (50.6 per cent).”

Most Australians hold the majority of their wealth in owner‑occupied housing and superannuation, and over the last two decades the distribution of housing wealth has become more unequal, according to the Productivity Commission.

Three state capitals have done more than any other to fuel this inequity that has eventuated from the chronically worsening affordability.

Perth, Adelaide and Brisbane property prices rose more than 65 per cent between March 2020 and October 2024, far higher than the capital gains seen in Sydney (29.1 per cent), Hobart (27.7 per cent) and Melbourne (9.9 per cent).

But Sydney remains the least affordable market in which to buy. Its much higher median property price means the raw dollar value increase disproportionately impacts wage earners there who are on stagnant incomes.

The biggest deterioration in housing affordability since March 2020 has been in Adelaide, where the median dwelling value to income ratio rose from 5.9 to 8.9.

“Adelaide is now the second-least affordable capital city by each of the purchasing metrics, with 56.2 per cent of income required to service a new mortgage, and almost 12 years to save a 20 per cent deposit,” the report noted.

“Adelaide is now also the least affordable market to rent in, with 34.6 per cent of income required to service median rent.”

In Brisbane, buyers can forget about buying a property for the city’s median dwelling value ($883,000) unless they want to dedicate 52 per cent of their income to the mortgage. In Perth, the average time required just to save a deposit is almost a decade, the highest level since the height of the mining boom in 2008.

A silver lining for those who already own property in the most affordable suburbs is that their properties have outpaced the rate of capital growth of the higher end of the market. But the flipside is that these are the very properties becoming further out of reach of lower income and first home buyers.

Foreign investors put off by unaffordability

Foreign buyers of Australian property contribute to the rental pool and are a significant plank in the federal government’s plan to build 1.2 million new homes in five years.

But a $1.3 billion hole has been blown out of that ambitious target, with the Foreign Investment Review Board (FIRB) revealing Tuesday (19 November) that overseas buyers spent that much less on residential property than the previous financial year.

While China has retained its mantle as the largest source for approved residential real estate investment proposals in the June quarter, even those buyers are becoming thinner on the ground.

The FIRB said in Q4 of FY2023-24, both the number and value of approved residential real estate investments from all countries fell, to 1,199 (down from 1,428 in prior quarter) with a total value of $1.4 billion (down 22 per cent from $1.8 billion).

China was the largest source for approved residential real estate investment proposals by value ($0.4 billion), followed by Hong Kong ($0.1 billion), Taiwan ($0.1 billion), Vietnam ($0.1 billion), and India ($0.1 billion).

Daniel Ho, Group Managing Director, Juwai IQI, said the boom days of foreign property investment in the mid-2010s were consigned to history.

“Foreign homebuyers in Australia now have a new and unexpected complaint: affordability.

“They are starting to sound a lot like local buyers.

“Foreign buyers pay much more to purchase and to hold property in Australia than local residents and citizens; they have extra taxes, fees, and duties that local buyers don’t have to worry about.

“Even the interest rates they pay on their mortgages are higher because they can’t borrow from the big four banks.

“On a million-dollar loan, a typical foreign buyer would have to pay at least $1,300 per month more than a local buyer.

Statistics from Juwai IQI enquiry data suggest Melbourne is still the top destination for mainland Chinese buyers, followed by Sydney, Perth, Brisbane and Adelaide.

“The median property price of Chinese buyers in Australia is $730,000, and 98 per cent of buyers indicated they were purchasing for their own use, so the offshore investor that was so common in 2014 to 2018 really no longer exists.”

Peter Li, General Manager, Plus Agency, said foreign buyers are hesitating because of the high costs for the FIRB application fee and of foreign buyer stamp duty.

“Once they own the property, they find themselves paying high interest rates to the private lenders who finance their purchases, and on top of that land tax.

“They have the wealth to purchase the property, but Chinese buyers in particular often need a mortgage because they sometimes can’t move money overseas quickly.

“Another reason foreign buying activity is dropping is that many buyers of foreign origin have gotten their Australian residency already; they are no longer FIRB buyers but purchase and live here like any other resident or citizen.

“Three years ago, one out of five mainland Chinese purchasers we worked with had to go through the FIRB process, but now it’s only around one in 12.

“These buyers have very distinct areas to buy.

“They don’t really buy outside your well-known Chinese suburbs like Chatswood, Lindfield, and Burwood,” he said.