According to the 14th Annual Demographia International Housing Affordability Survey, Sydney, with a 12.9 Median Multiple*, bagged the title of the second least affordable city in the world, on the heels of Hong Kong that has retained the crown for years. Sydney also ranks fourth on the UBS Global Real Estate Bubble Index that lists markets at the worst housing bubble risk.

unaffordable housing market

Did you know Sydneysiders are paying up to 13 times their income to purchase a house in Sydney?

Currently, the median house price in Sydney stands around $800,000 while your dream home in Melbourne comes slightly cheaper at $680,000. In general, the average mortgage size has touched half a million across the country.

A snapshot of the Australian housing market

The 14th Annual Demographia International Housing Affordability Survey cited above gives some interesting insights about the Australian real estate market. As per the survey, Australia ranks third in the list of most unaffordable real estate markets that is topped by China.

According to the survey, there is no affordable property market in Australia with a Median Multiple of less than three. Of the 22 property markets in Australia considered in the survey, two are moderately unaffordable, five are seriously unaffordable and fifteen are severely unaffordable according to the survey results.

Dr Donald Brash, talking about the unaffordability crisis in Australia, said that “Australia is perhaps the least densely populated major country in the world, but state governments there have contrived to drive land prices in major urban areas to very high levels, with the result that in that country housing in major state capitals has become severely unaffordable.”

Senator Bob Day pointed out that the distortion in the housing market resulting from the supply-demand imbalance is enormous and affects every other area of a country’s economy. He said that “New home owners pay a much higher percentage of their income on house payments than they should.”

Some experts beg to differ

According to data submitted by CoreLogic, while affordability is certainly a challenge in Australia, the figures are not as bad as reported by Demographia. As per CoreLogic data, Sydney dwelling prices are nine times more than household incomes (in contrast to 13 times as reported by Demographia).

The reason for the difference in figures lies in the fact that CoreLogic compares household incomes to the price of Australian apartments and houses, while Demographia compares incomes with only house prices.

Certainly, the figures seem to be quite gloomy for home buyers in Australia. But low mortgage interest rates have worked in a way to counter the effect of rising house prices by making it more affordable to finance a home. Compared to a variable rate of up to 9 percent in 2007, it is possible to find a rate as low as 3.56 percent today. Thus, even though the property prices were not as high in 2007, home buyers were unfortunately paying more interest due to the high interest rates.

It is true that, as individuals, we cannot control the property prices. But it is a fact that low-interest rate home loans can make housing much more affordable for buyers. Given the low cash rate of 1.5 percent maintained by the RBA for the longest time and the low interest rate home loans flooding a highly competitive mortgage market, home buyers can find a savvy home loan that can make their expensive home a little easier to ‘own’, by saving them money in interest payments over the next 25 years or so.

Besides, prospective home buyers must look beyond their backyard while purchasing a home. Often, it could be a good idea to rentvest your way into the market – a strategy adopted by many youngsters to find their feet on the property bandwagon.

In short, by planning your purchase well, you can still afford your dream home in Australia. Apart from your own research, take guidance from local real estate experts to understand the real value of a house before purchasing it. You can always speak to a mortgage broker to save time and money on your home loan apart from comparing broker pre-negotiated home loan deals here to get the best possible rate on your mortgage.


By Vidhu Bajaj,
HashChing Content Writer


* Median Multiple refers to median house price divided by median household income and is a figure regularly used for evaluating housing markets




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