Given the doom and gloom surrounding residential construction in Australia recently, it is refreshing for the sector to finally see some reasonably positive news.
In the June quarter, national levels of housing affordability improved by 0.7 points, or 1.1 per cent, according to the latest HIA-Commonwealth Bank Housing Affordability Index.
Compared with the same time last year, affordability levels are up 10.6 per cent (six points), and have now been on the upswing for six consecutive quarters.
Noting that affordability is now at its healthiest level since 2003, Housing Industry Association (HIA) chief economist Harley Dale says now is a good time for those who are financially set to purchase a home to take that decision.
“The recent improvement in affordability is welcome news for those trying to get a foothold into or advance within the housing market,” Dale says. “It is also an encouraging bright spot for an industry that, in terms of current activity, remains a clear area of weakness within the Australian economy.”
The affordability index, a composite index which takes into account median dwelling prices, interest rates and monthly mortgage repayments and average weekly earnings, is a measure of the ability or capacity of households to service their current mortgages.
All else being equal, higher levels of affordability are good news for the residential construction industry as that means prospective home buyers have a greater capacity to service mortgages associated with renovating or building a house.
Even better for the industry is the fact that, whereas previous improvements in affordability were the result of a drop in house prices (and hence a drop in the amount property developers were able to charge for new homes), prices have now stabilised and the latest improvement is instead a reflection of interest rate cuts.
Despite the improvement in affordability, Dale warns that the sector remains in desperate need of urgent structural reform – especially in the area of taxation. The HIA has previously said taxation makes up around four-tenths of the cost of a new home.
In terms of capital cities and regions, low house prices in Tasmania (73.7 on the index) make it the country’s most affordable region, whereas Sydney (46.9) is the nation’s least affordable area.
Affordability improved in the June quarter throughout all capital cities except for Melbourne and Brisbane, and in all regional areas except for South Australia and Western Australia.