Affordability: it's all about low income growth

Posted on 13/08/2007  
The latest Housing Affordability Index demonstrates (yet again) why there’s a problem – and it has nothing to do with land supply or stamp duty.

The index data from the Housing Industry Association and the Commonwealth Bank shows that the problem is the widening gap between typical household incomes and the income households need to qualify for the average loan.

From early 2005 to mid-2007 median house prices rose 27% nationally and interest rates increased four times. This meant that the typical monthly payment on a mortgage grew 38% and the qualifying income needed to get the average loan jumped 37%.

But average disposable income grew only 12% in the same time period.

So, with repayments up 38% but incomes up only 12%, there’s a increasingly-yawning gap between the two key factors.

According to these figures, the average mortgage demands repayments of $2,506 a month. To qualify for such a loan, a household needs to earn more than $100,000.

Bear in mind that these figures pre-date the latest interest rate rise, so the situation now is worse than depicted by the latest Housing Affordability Index.

ENDS

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