Dec 12, 2017
Michael Matusik

There is a lot of publicity about housing affordability, of late.  This seems to happen when markets change direction or focus.

Here, I am talking about the downward shift in Sydney dwelling values and the subsequent action by some Sydneysiders (and Melburnians) of selling out and moving to more affordable abodes.

Remember, affordability is ‘relative’ and this is especially the case when it comes to investment property.  There are reasons why a regional town’s dwelling values are less than those of a capital city and why a smaller capital’s property prices are lower than Sydney’s or Melbourne’s.

Leaving aside the somewhat insulated drivers behind Sydney and Melbourne’s price spiral in recent years, the great leveller is local household income.

Yes, it is cheaper to buy a dwelling in Brisbane than it is in Sydney, but to many locals, buying or renting in Brisbane isn’t affordable at all.  The same applies to Cairns, Tamworth, Perth or Adelaide.  The list goes on and on.

The aim of this Missive is to ‘unpack’ buying and renting affordability a bit.

Buying affordability 

In our outlook reports, we like to break down buying affordability by major dwelling type:

  • Detached houses: We compare the median detached house price against the median family income, as families are the most common demographic segment that buys a detached house.
  • Attached dwellings: We compare the median attached dwelling price against the median household The household income, rather than family income, is the more reliable comparable when it comes to attached dwelling buyers.

Both are expressed as a ratio of price to income.

Urban planners, like Demographia, say that a dwelling price to household income ratio of 3 or under is “affordable”, 3 to 4 is “moderately unaffordable”, 4 to 5 is “seriously unaffordable” and 5 or over, “severely unaffordable”.

We believe that these yardsticks are way too strict and reflect a world which was far more regimented when it comes to housing finance, employment patterns and working life span.   In time, the financial world might revisit this past, but for now, we believe our benchmarks are more apt.

Our buying affordability benchmarks include:

  • Very affordable – under 3 times dwelling price to relevant income ratio.
  • Affordable – between 3 and 5 times dwelling price to relevant income ratio.
  • Slightly unaffordable – between 5 and 6 times dwelling price to relevant income ratio. Buyers will often compromise and buy a cheaper dwelling.
  • Quite unaffordable – between 6 and 8 times dwelling price to relevant income ratio. Buyers will look to buy elsewhere or continue renting.
  • Very unaffordable – over 8 times dwelling price to relevant income ratio. Often cost prohibitive to enter the housing market.

Renting affordability

Traditionally, 30% of one’s income being paid in rent was accepted as being affordable.  This scale was set in a period before HECS, water rates, high energy bills and internet access.  Also, full-time work was more prevalent then than today and wages typically grew at rates well above inflation.

Today, many renters have less disposable income and due to a variety of reasons, have improved knowledge of rental vacancies and share accommodation arrangements.  Hence, a figure of 20% paid towards rent is a more appropriate rental affordability benchmark.

So, our renting affordability benchmarks are:

  • Very affordable – under 20% of relevant income paid towards rent.
  • Affordable – between 20% and 30% of relevant income paid towards rent.
  • Slightly unaffordable – between 30% and 35% of relevant income paid towards rent income ratio. Tenants will often look to get in a sub-tenant to help pay the rent.
  • Quite unaffordable – between 35% and 40% of relevant income paid towards rent income ratio. Often tenants will move to cheaper accommodation.
  • Very unaffordable – over 40% of relevant income paid towards rent. This is often cost prohibitive and tenants may be forced to leave the area.

Here, we have also used median family income when it comes to detached housing rental affordability and median household income, regarding attached dwelling rental affordability.

Some statistics

Here’s some current statistics – we will let you draw your own conclusions.

Buying affordability:

Sydney              11.2 (houses) and 7.6 (apartments)

Melbourne         8.5 (houses) and 6.3 (apartments)

Brisbane             5.5 (houses) and 5.3 (apartments)

Renting affordability:

Sydney               36% (houses) and 29% (apartments)

Melbourne         23% (houses) and 25% (apartments)

Brisbane             21% (houses) and 23% (apartments)

Queensland affordability

Our two new Queensland market outlook reports provide information for both buying and rental affordability across the state’s 22 major urban areas.

Go here to find out more.  And contact us if you wish to buy more than one report.  20% discounts apply for multiple report purchasers.

Until next time,


Michael Matusik


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