Housing Affordability Likely To Continue To Deteriorate

Real private residential dwelling construction fell 3.8% q/q in Q4 to be down 3.1% y/y after two quarters of only moderate growth. It fell between Q4 2021 and Q1 2023 apart from Q3 2022’s small rise. Both supply and demand issues are adding to Australia’s housing shortage as the working age population increased 327k in 2023 after +513k in 2022. This is reflected in housing inflation with both rents and prices rising strongly and currently there are no signs the situation is improving.

Australia GFCF dwellings %

Source: MNI - Market News/ABS

• CoreLogic capital city home prices rose 10.4% y/y in February, which is putting further pressure on housing affordability along with higher mortgage rates. With no signs yet of an improvement in supply and population continuing to increase, affordability is likely to continue to deteriorate over 2024 even if the RBA cuts rates.
• There was a strong rise in gross household disposable income in Q4 of 2.3% q/q and 5% y/y but this was not enough to drive an improvement in housing affordability with our HAI deteriorating another percentage point. It is now 44% below trend, a new low since our series began in 1981.
• The pickup in disposable income drove a small improvement in the house-price-to-disposable income ratio. It now stands 7.5% above trend down from 8% in Q3.
• With a shortage of properties, rental vacancy rates are very high and rents are rising strongly as a result. Q4 CPI rents rose 7.3% y/y down slightly from Q3’s 7.6% helped by government rent assistance.
• The ratio of house prices to rents gives an indication of valuation and while housing is not as overvalued as it was during the pandemic it was 11.1% overvalued in Q4 up from 10.5%.

Source: MNI - Market News/Refinitiv