Housing Affordability

Data from the recently-released 2011 Census show a rapid increase in the cost of housing in Western Australia since 2006. This will not come as a surprise to renters or those who have entered the housing market in recent years. In late 2007 I managed to get a room in a nice, recently built three bedroom, two bathroom share house in Victoria Park for $90 a week ($100 a week after they put the rent up). These days you’d be sharing a room for that sort of money. Housing costs have definitely gone up. And to prove it, I present the table below:

Figure 1: Median Rent, Mortgage Repayments and Income, Western Australia, Nominal Dollars

 

Weekly Income

Weekly Rent

Share of Income

Monthly Mortgage Repayments

Share of Income (annualised)

2006

1,064

170

16%

1,213

26%

2011

1,415

300

21%

1,950

32%

Change

33%

76%

61%

Annualised

5.9%

12.0%

10.0%

Source: Census 2011, Australian Bureau of Statistics

 

As can be seen, the average weekly rent grew by 12.0% per year on average, double the rate of growth in median weekly income (5.9% per year). The median monthly mortgage repayments averaged 10.0% growth per year. This rapid growth in housing costs in excess of income growth means a fall in affordability, by definition, really. The ratio of rent to income increased from 16% to 21% between the two censuses (censi?). Mortgage repayments went from 26% to 32% of income (calculated by converting both to an annual figure).

So, what is causing this? The short answer – supply and demand. The population of Western Australia grew by an average of 2.7% per year between 2006 and 2011, faster than in any other state (Queensland was next at 2.1% per year and the national average was 1.6% per year). In addition to a growing population, incomes grew rapidly as well, albeit not as fast as housing costs. So that’s a lot more people, with more money to put into their home loans and to demand rental accommodation. New accommodation can only be built so quickly to cater for all these new bodies and their fatter wallets. In fact, there seems to have been little response in housing approvals in response to all these new people and all this new money coming into the state. Building approvals have basically gone nowhere over the past ten years, as shown in this WA Treasury economic note. In fact, if anything, approvals have gone backwards.

Stepping back from the numbers for a moment, it‘s also worth remembering that these measures of the WA housing market are going to be dominated by conditions in Perth, where three quarters of us live, and Perth is growing up. Developers now have to go quite far out from the centre to find suitable sites for large-scale greenfield developments. Inner-city infill requires a building to be demolished, development approval gained and a new structure built (in the teeth of fierce community opposition if the new development is more than two storeys high). If that new structure is a block of flats, say, then construction isn’t going to be cheap. So as Perth grows, one would expect housing costs to increase. And housing does tend to be more expensive in bigger cities.

A quick look at rents and mortgage repayments in Perth’s big brothers and sisters shows lower affordability in all three of Sydney, Melbourne and Brisbane. Sydney’s median rent is $351 a week (Perth: $170), and the median monthly mortgage repayment is $2,167 (Perth: $1,950). Melbourne has the same median weekly rent as Perth, but on a median income that is 6% lower. In Brisbane, the median rent is $325 a week and the median monthly mortgage repayment is $1,950 (the same as in Perth), but the median income is $1,400 a year less than in Perth. So, is housing affordability in WA likely to get better? Based on these comparisons, possibly not.