Housing Affordability – Part 1

Median housing prices have been falling in recent quarters, but at PropertyESP we also like to look at the long term trends. We’ve recently been delving into median price trends in the Perth market since electronic recording of property sales data began … back in 1988.

As the Median Sales Prices chart shows, and as many of us who’ve been in the property industry for that long know, residential housing in Perth has undergone a long period of growth in sales prices. And that rise in prices for houses and units has been largely driven by a rise in the underlying value of land. Yes, there have been dips from time to time, but we’ve rarely seen more than two consecutive quarters of decline.

blog 8 median sales price perth graph 1

Source: REIWA. Note: Median prices for 1988-2010 were for the calendar year. From 2011 onwards, quarterly results are provided.

So anyone buying their house to “hold” (or live in) for a decent period of time will have seen the value of their property grow.

This brings us to the issue of housing affordability. We often hear tales in the media of how this steady growth in the price of housing has made property unaffordable for people entering the property market for the first time (first home buyers). Our research has also found that divorced couples having to split the proceeds of the sale of their house so each can buy a new property with only half the value of their investment are also affected. But just how unaffordable has residential housing become?

We decided to do a little back of the paper napkin maths to gain an insight into this.

The 5 yearly Census of Population and Housing provides us with our best measure of median household income per year. Overlaying that on the median sales price chart, we can see that household incomes (the vertical gold bars in the following chart) have also grown over time.

blog 8 household income and sales price

Source: REIWA; ABS Census of Population and Housing

But they haven’t grown as much as housing prices.

Back in 1991, when the median Perth household earned $29,484 per annum, that household could buy a house for $87,500. The median house cost 2.97 times the median household income.

Ten years later, in 2001, the median Perth household earned $46,774 per annum. That year, they could buy a house for $169,000. Whilst that’s a whopping 93% increase in the median house price over 10 years, their incomes have also increased fairly strongly (up 59%). That $169,000 house cost 3.61 times their income. And if they decided to buy a block of land, they could do so for $83,000 … which was 1.77 times their income.

It was the 2001-2006 period that saw property prices really take off. That five year period saw median house prices rise 142% to $410,000. Household incomes didn’t keep pace, with the median income only rising 21% to $56,472. In 2006, the median house price was 7.26 times the median household income.

By 2011, the growth in median prices had slowed, helped by a couple of dips in quarterly trends. And median income had risen 34% to $75,868. Residential property had become slightly more affordable, but it was still expensive compared to 1991. Median house prices were 6.06 times household income, units 5.25 times and vacant lots 3.10 times household income.

blog 8 median sales price

In conclusion: Housing has definitely become less affordable over time.

The next census is due in August 2016. Results won’t be available until the following year, but it will be interesting to see whether the quarterly downward trend continues and where household incomes sit. Will it still be as unaffordable as it was in 2011?

Stay tuned for our next blog post where we discuss key worker housing affordability – once again we will provide a worthy insight.

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