The recent release of census data from 2011 provides an accurate assessment of home prices to income, which should put to bed some of the argument surrounding more regular measures.

The first round of the 2011 census results was released recently by the Australian Bureau of Statistics (ABS). As reported in last week’s Property Pulse, when you paired the national median dwelling price in August 2011 to the annual household income it showed that the typical Australian home costs 6.3 times the average annual income, up from 6.1 times in 2006.

The results were significantly different to some intra-census measures, which suggest housing affordability is much worse.

Of course a national idea of the pricing differential is useful at a macro level, however, around two-thirds of all Australian’s live in capital city housing markets. As a result, median selling prices of homes tend to be higher and in turn, the ratio of house prices to household incomes can also be quite different.

There is also quite a substantial difference in the ratios between detached houses and units. This is reflective of the fact that houses tend to be more expensive than units and they remain the housing type of preference for most Australians (75.6% of all dwellings were detached houses at the time of the census).

For houses, back in 2001 they cost as little as 3.2 times the average annual household income in Hobart and Darwin and up to as much as 6.2 times in Sydney and 4.9 times in Melbourne. Across the unit market the ratio was lowest at the same time in Hobart (2.6 times) and Darwin (2.7 times) and greatest in Sydney (6.0 times) and Melbourne (5.3 times).

Ten years later in 2011 houses cost as little as 4.5 times annual income in Darwin and 5.4 times in Canberra up to as much as 6.1 times in Sydney and 5.9 times in Melbourne. The unit market has remained a more affordable alternative, costing as little as 3.6 times annual income in Canberra and 3.8 times in Hobart up to as much as 5.2 times and 5.1 times more expensive in Sydney and Melbourne respectively.

It is perhaps a little surprising that housing isn’t less affordable, especially when you consider that median selling prices have risen between 75% in Sydney and 198% in Hobart over the 10-year period. Similarly median unit prices have increased by between 47% in Sydney and 211% in Darwin compared with growth in household incomes ranging from 46% in Sydney to 83% in Perth. The growth in household income is somewhat helping to curtail a blow-out in the ratio of home prices to household income.

There are a number of other important results from the data:

  • House and unit price to income ratios have consistently been highest in Sydney across the three periods analysed.
  • House price to income ratios were highest in 2006 within: Sydney (7.7 times), Perth (7.4 times) and Darwin (5 times) while they have remained stable between 2006 and 2011 in Canberra (5.4 times).
  • Unit price to income ratios were highest in 2006 within: Sydney (6.2 times) and Perth (6.2 times) while they have remained unchanged between 2006 and 2011 in Brisbane at 5.1 times.

The data highlights that the ratio of home prices to household incomes is high compared with the national average across most capital city markets. This is reflective of the fact that the population tends to congregate within or close to these eight capital cities and as a result competition for housing stock is generally strong and land is more scarce.

Over the most recent five years there has been relatively little movement in the house price to income ratio across the capital cities. In fact, the ratio of median house prices to median incomes has actually reduced in Sydney, Perth and Darwin and remained stable in Canberra, which is an encouraging development. The fact that the ratio hasn’t increased significantly over the most recent five years is reflective of much slower growth conditions in the housing market. It is also reflective of lower levels of growth in household incomes over the past five years compared with the preceding five years. In fact, household income growth between 2006 and 2011 was slower in each capital city than the growth over the five years to 2006 except in Sydney, Canberra and Darwin.

Overall the results show that housing unaffordability isn’t quite as severe as some reports have suggested, particularly in Darwin and Canberra, where income levels are considerably higher than the capital city average. Of course this doesn’t mean that a steep decline in values is imminent, but it does mean the prospects of significant value growth over the coming five years is lower. At best we would expect home values to rise in line with household incomes over the period. If they continue to grow below this level as they have for much of the last two years, housing will continue to become relatively more affordable. The fact that units provide a viable alternative for buyers on a budget suggests that they will continue to grow in popularity and may continue to outperform houses in terms of value growth over the coming period to the next census.

*This article was originally published at Property Observer

Peter Fray

Fetch your first 12 weeks for $12

Here at Crikey, we saw a mighty surge in subscribers throughout 2020. Your support has been nothing short of amazing — we couldn’t have got through this year like no other without you, our readers.

If you haven’t joined us yet, fetch your first 12 weeks for $12 and start 2021 with the journalism you need to navigate whatever lies ahead.

Peter Fray
Editor-in-chief of Crikey