Housing costs have been stable since 1993

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Despite the dramatic rise of home prices over the past few decades, an academic from the Australian National University (ANU) contends that affordability may not have declined as much as we think it did.

In a commentary published on The Conversation, ANU associate professor Ben Philips said housing costs relative to disposable income are largely unchanged, sitting at 17% since 1993 – despite some increase since 2000.

According to CoreLogic figures, the median price of an Australian home stood at $140,000 in December 1997 and has since risen to $540,000 (as of December 2017). It’s an annual increase of 7%, according to Philips, who is part of the university’s Centre for Social Research and Methods. “Relative to disposable income this represents a 68% increase over the 20-year period,” he added.

For Philips, it’s also important to look at actual housing costs relative to income – rather than just house prices. Australia saw higher housing costs between 1984 and 1993 amid weak income growth and higher mortgage rates.

“Since peaking in 1993 costs remained relatively stable with rents increasing modestly over the past 10 years, while mortgage costs declined, Philips said. “Overall, actual housing costs relative to income have remained stable since 1993 at around 16% of disposable income.”

The associate professor stressed the number of changes that have occurred over the past 25 years: interest rates are much lower, living standards have increased substantially for low, middle and high income families and savings rates have also increased – implying that housing costs are increasingly a larger share of expenditure.

Philips said housing stress is also a good measure of housing affordability, utilizing the “30/40” rule. This refers to paying more than 30% of their disposable income on housing costs and also in the bottom and 40% of the income distribution.

After crunching the numbers, Philips found that mortgage stress among homeowners has largely been unchanged since 1988. On the other hand, the figure saw a significant increase among renters.

“While elevated house prices are a concern, the more pressing social problem for Australia remains the lack of affordable rental housing for lower-income families that is close to jobs and services in our capital cities,” he added.

 

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