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Unravelling Property Affordability via the “Years to Own” Metric

As property prices have continued to soar across Australia in the past 3 years, prospective homebuyers are grappling with the intimidating task of affording a home. Many Australians face an overwhelming challenge when it comes to buying property in their desired area. In this comprehensive guide, we will unravel property affordability in Australia, examining the “years to own” metric as a critical component in understanding the current affordability levels across the country.

When it comes to property investment, having a thorough understanding of the market is essential for making well-informed decisions. One valuable metric to consider is the “years to own” measure, which estimates the number of years it would take to completely own a property given the current house prices, interest rates and median family income. This metric serves as a useful indicator of property affordability. In this article, we will explore the “years to own” measure in detail, examining how it varies across different property types, states cities and LGAs in Australia.

What is the “Years to Own” Metric?

The “years to own” metric is a measure of property affordability, estimating the number of years it would take for a homebuyer to fully repay their home loan. This is based on a standard 30-year mortgage term at current interest rates and median family income. The metric assumes that households contribute 50% of their wages to mortgage repayments. A higher “years to own” value indicates lower affordability, with values above 30 years signaling a concerning threshold as it suggests that borrowing capacity is exceeded.

For property investors, this metric is especially important as it provides an estimate of the time it would take for properties to be fully owned based on socioeconomics of an area.

Suburbs with high “years to own” values are likely to experience downward pressure on house prices, as locals may struggle to afford purchasing houses as prices rise and incomes lag. However, there are other market variables that may still push the prices up even in low affordability markets.

The data used for this analysis includes information on 2 property types (houses and units) across different states in Australia. Each entry in the dataset represents a specific property type within a particular local government area, accompanied by the corresponding “years to own” value.

By comparing the average “years to own” values based on state or territory, LGA, suburb and property type, we gain valuable insights into the affordability landscape across Australian markets. This information aids property investors in strategising their investments by identifying markets with lower “years to own” values that offer better affordability or potential for future growth. Furthermore, potential homebuyers can use this data to make informed decisions on where to purchase a property that best aligns with their financial goals and circumstances.

Visualising the “Years to own” Metric via a Heatmap

The heatmap serves as a powerful tool for monitoring trends, tracking changes over time, and offering valuable insights into the complex landscape of the Australian property market.

Capital Cities: As expected, capital cities typically exhibit higher “years to own” values, reflecting their premium property markets and lower affordability. Sydney and Melbourne are prime examples, where prolonged house price growth has led to significantly longer periods required to own a property.

Regional Variations: The heatmap also highlights significant regional variation in affordability. For instance, rural and regional areas often offer lower “years to own” values, indicating their increased affordability compared to metropolitan areas. This trend can be observed in states such as Queensland and Victoria, where coastal areas exhibit higher “years to own” values, while inland areas show lower values.

While New South Wales exhibits higher “years to own” values overall, Western Australia, Northern Territory, and parts of South Australia experience lower “years to own” values, showcasing higher affordability in their local property markets.

State-Level Trends: The heatmap can also help identify state-level trends in Australia’s property market. For instance, while New South Wales exhibits higher “years to own” values overall, Western Australia, Northern Territory, and parts of South Australia experience lower “years to own” values, showcasing higher affordability in their local property markets.

Property Type Disparity: By comparing the heatmap for houses and units, we can observe that areas with a high concentration of units typically offer relatively lower “years to own” values compared to houses. This is particularly noticeable in densely populated urban centers, where the higher unit supply contributes to increased affordability compared to houses.

The Impact of Economic Factors: Differences in regional economies also play a crucial role in shaping the heatmap’s patterns. For example, employment opportunities and local industries can either increase or decrease the median family income in a given area, impacting the “years to own” metric accordingly. Resource-rich regions such as Western Australia and parts of Queensland, for instance, benefit from higher-income levels due to their strong mining sector, which in turn positively influences property affordability.

While average “years to own” values provide a helpful overview, it’s also crucial to keep in mind that local market conditions can differ significantly within each state. Therefore, a more granular approach to analysing suburbs and local government areas is advisable for property investors and homebuyers to obtain a more accurate representation of affordability and the market potential in their area of interest.

Average Years to Own by State and Property Type

One of the main discoveries from our analysis is the variation in the “years to own” metric across different states and property types.

The chart below illustrates that the average “years to own” varies considerably across states and property types. In most states, houses take longer to own on average compared to units. New South Wales stands out as the state with the highest average “years to own” for both houses and units.

Highest and Lowest “Years to Own” States: New South Wales emerges as the state with the highest average “years to own” values for both houses and units, indicating the lowest affordability. By contrast, Queensland and Northern Territory showcase the shortest “years to own” values, pointing to higher housing affordability in these regions.

Houses vs. Units: Across all states, the average time taken to own a house is consistently longer than that for a unit. This trend highlights the lower affordability of houses compared to units and the appeal of units for first-time homebuyers or individuals with limited budgets.

In states like South Australia and Queensland, the gap between owning a house and a unit is relatively smaller, indicating a more balanced property market. In contrast, New South Wales and Victoria exhibit a larger disparity, demonstrating the dominance of higher-priced houses in those markets.

State-Specific Trends: Each state varies in terms of the differences between houses and units, which can be attributed to distinct local property market characteristics. For instance, in states like Victoria and South Australia, the gap between owning a house and a unit is relatively smaller, indicating a more balanced property market. In contrast, New South Wales and Queensland exhibit a larger disparity, demonstrating the dominance of higher-priced houses in those markets.

Affordability in Relation to Surrounding States: Neighboring states can differ significantly in terms of affordability, like the case with New South Wales and Queensland. As a result, an increasing number of purchasers are considering cross-border property investment or relocation to access better affordability in a nearby state.

Least & Most Affordable Suburbs Over the Past 3 Years

To track how property affordability has evolved over time within the Australian property market, the interactive barchart below dynamically displays the least and most affordable suburbs over the past three years.

This interactive visualisation can help identify trends over time, shedding light on the factors driving these changes and providing a more comprehensive picture of the market. The barchart reveals several intriguing insights regarding the fluidity of property affordability in Australian suburbs.

Here is the description of controls to help you interact with the barchart below:

  • Click on the state or territory name to exclude it
  • Click on “Highest” or “Lowest” to show least affordable or most affordable suburbs

Fluctuations in Affordability Rankings: Over the course of three years, there have been notable shifts in the rankings of the least and most affordable suburbs. These changes can be attributed to a variety of factors, including regional fluctuations in housing prices, which may be driven by alterations in the supply and demand dynamics of the local housing market.

Emerging Areas of Affordability: The barchart race also highlights suburbs that have progressively become more affordable over the years. This can be attributed to a range of reasons, including increased supply, and decreasing house prices. These areas can be of particular interest to investors or homebuyers keen on identifying recovering markets with potential for capital appreciation.

The Influence of Interest Rates and Income: A crucial aspect in the “years to own” metric is the role played by interest rates and median incomes. The barchart race showcases how these factors, combined with housing prices, significantly impact the affordability of various suburbs. As interest rates rise towards 2023 and house price fall in some markets in the same period, suburbs with a higher median income may become more affordable.

Persistently Unaffordable Hotspots: Certain suburbs consistently rank as least affordable, such as those in Sydney and Melbourne, due to persistent high house prices and limited wage growth. These areas may remain out of reach for many homebuyers, limiting opportunities for property investment.

Two common factors contribute to the consistent unaffordability of suburbs with years to own above 100  — high house prices coupled with a prevalence of renters or exclusive locations with generational wealth.

High house prices coupled with a prevalence of units and renters: In these markets, a significant portion of the population is engaged in renting units rather than owning a house. While the majority of household incomes in these suburbs may suffice for renting or owning a unit, they may not be adequate for purchasing houses. This leads to a property market that primarily supports rental properties in units and maintains high house prices.

Exclusive locations with generational wealth: Prime suburbs situated near the water or in upscale locations attract a population with well-established, generational wealth. In these areas, wealth often outpaces wage and income growth for the general population. The high demand for premium real estate from affluent residents drives up prices, making it challenging for individuals with lower or average incomes to afford houses in these neighborhoods.

Over the years researched, the composition of suburbs in the top 10 least affordable markets has shifted due to various factors. As house prices rose and then fell while interest rates increased during the same period, Sydney suburbs have become more dominant in the list of least affordable markets.

For example the substantial increase in the “years to own” metric for Strathfield, from 84 to 141 years within a span of 3 years, can be attributed to several key factors:

  • High house prices: Strathfield was already known for its elevated house prices, which has been a contributing factor in the area’s declining affordability.
  • Staggering interest rate increases: A significant increase in interest rates during this period has driven up the cost of borrowing, making it even more challenging for potential homebuyers to afford houses in Strathfield.
  • Mixed socioeconomics: Strathfield presents a mixture of socioeconomic backgrounds, where uneven income growth and disparities may exacerbate the challenge of purchasing properties for a segment of the population. While some households can support the increasing property prices and mortgage repayments, others in the same area may struggle due to financial constraints.

A 4% increase in interest rates ( from 0.1% in April 2022 to 4.1% in June 2023) has significantly impacted homeowners with home loans of above $1,000,000. As a result of this rise, their mortgage repayments could be nearly double compared to what they were paying just a year ago. This substantial increase in financial burden can strain household budgets and impact the overall affordability of homeownership in the current property market.

Sydney is home to the most expensive suburbs, and the increasing interest rates have propelled them to the forefront, outpacing Melbourne and Brisbane locations. This shift in the makeup of the suburbs highlights the varying dynamics of property affordability across the major cities, with Sydney emerging as the key area of concern in the context of housing affordability.

By understanding these trends over time, property investors and homebuyers can make better-informed decisions about where to invest and identify opportunities for potential gains.

Is the Situation Going to Get Worse for Homebuyers?

While it is impossible to determine with certainty whether the situation for homebuyers will worsen or improve, monitoring market trends, interest rates, and government policies can provide invaluable insights into the evolving housing market landscape.

The key driving forces contributing to decreasing affordability in the housing market are suggesting that the situation may get worse before improving.

Potential interest rate increases: As interest rates continue to rise, borrowing costs will increase, making it more challenging for homebuyers to enter the property market.

Continuous wage growth: While wage growth can benefit prospective homebuyers, it might also contribute to raising house prices if it outpaces affordability improvements.

Low unemployment rates: With low unemployment rates, more people have the financial capacity to purchase homes, adding further pressure on property prices.

Low listings and building approvals: A limited supply of available properties due to low listings and a decrease in building approvals can lead to heightened demand, driving up prices in the housing market.

Signs of stabilisation may appear around 2024, assuming inflation is brought under control and interest rate increases pause or reverse to more affordable levels. This change would help alleviate the pressure on housing affordability, providing relief for potential homebuyers navigating the property market.

Comparing Affordability Across LGAs & Suburbs

In summary, the “years to own” metric serves as a valuable tool for understanding property affordability within the Australian property market. Analysing this metric through heatmaps, charts, and tables uncovers notable variations in property affordability across different states, property types, and local government areas, offering crucial insights for potential homebuyers and investors.

However, it is essential to recognise that the “years to own” metric alone is insufficient for making well-informed investment decisions. Many other factors, such as supply and demand balance, employment opportunities, rental yields, and infrastructure development, also play a significant role in determining property value and potential appreciation. Consequently, investors and homebuyers should take a holistic approach, considering a suite of metrics and market indicators in conjunction

To facilitate a more detailed comparison of property prices and affordability across Australia’s diverse local government areas (LGAs), we have created a dynamic, filterable table. It allows investors to analyse data for both units and houses, catering to differing property preferences. Additionally, it offers state and city filter options, as well as a search function to assist users in locating their desired LGA.

AUS Council Areas ( houses )

 

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See Data Dictionary for column descriptions.

Here is the description of table controls to help you navigate the “years to own” data:

  • Property Type Toggle: Seamlessly switch between data for houses and units, allowing you to evaluate affordability and make informed decisions based on varying property types.
  • Councils vs. Suburbs toggle: Effortlessly toggle between Local Government Areas (LGAs) and suburbs data for houses and units, empowering you to assess affordability at different property market hierarchies.
  • State and City Filter: The table allows you to narrow down the displayed LGAs based on your preferred state or city, making it easy to focus exclusively on regions of interest.
  • Search Function: Simply type you desired LGA or suburb and quickly locate relevant data, saving time and effort in navigating the table.
  • Typical Price and Years to Own Columns: For each area, the table displays the typical property price and “years to own” value as of June 2023, providing a snapshot of the current affordability landscape.

By identifying suitable areas based on affordability factors, potential home buyers and investors can optimise their investment decisions, minimising risks and maximising returns. Moreover, current “years to own” data serves as a powerful tool for monitoring trends in property affordability and staying up-to-date with the continuously evolving Australian property market.

1 thought on “Unravelling Property Affordability via the “Years to Own” Metric”

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