This article is from the Australian Property Journal archive
A STABLE, regular income isn’t enough to comfortably enter Sydney’s housing market, and a new study predicts the situation will remain “dire” for anyone on a single standard income alone until at least the next decade.
The research, by Dr Mustapha Bangura from the University of Technology Sydney and UNSW Sydney Professor Chyi Lin Lee and published in the journal Cities, found that there is nowhere in Greater Sydney where someone on the NSW median part-time or full-time income can afford to buy a property.
According to CoreLogic, the median Sydney dwelling value is now $1.156 million, having grown 1.2% over the past three months and 7.4% over FY24.
Though the 2021 median income for full-time employees was higher at $1,500 per week, nowhere in Greater Sydney was considered affordable, based on a cost-to-take-home pay ratio of 30%, which is widely considered the threshold for housing affordability.
“While we expected the issue of housing affordability to be severe for part-time employment, we found that full-time employees are also significantly affected,” Lee said.
Income supplements, existing wealth or significant cash gifts from family – i.e. the bank of Mum and Dad – would be needed to purchase a property and afford mortgage repayments.
“This highlights the widespread housing affordability crisis and the need for comprehensive policy solutions,” Lee said.
“The major consequence of median incomes not being sufficient to enter the housing market in Sydney is that households relying solely on their earnings will have limited chances of achieving homeownership.
“So, it’s clear the Australian dream of owning a home is becoming increasingly harder to attain.”
The researchers found that nowhere in Sydney was affordable based on the 2021 NSW weekly median income for part-time employees of $600. Part-time earners in nearly every part of Sydney could not buy a property even if they spent their entire salary on housing.
Changing dynamics in the job market and social factors are leading to more part-time employees entering the workforce. Official data shows the proportion of part-time employees grew from 20.6% in May 2020 to 23.6%.
“As more part-time contracts are offered to working households, their earnings are impacted, affecting their chances of entering the housing market,” Lee said, adding that this suggests that employment contract type is crucial for housing affordability analysis.
For the study, the researchers developed an affordability index based on the likely mortgage repayment of a prospective homebuyer according to the market value of properties, having a 20% deposit, the average housing lending rate, and a loan period of 30 years. They then looked at which areas of Sydney were affordable on median part-time and full-time earnings.
Housing unaffordable until at least 2031
The research forecasts that, without interventions to improve housing affordability, there will remain nowhere in Sydney where a median part-time or full-time income alone can afford to buy a home until at least 2031.
A direct relationship was found between affordability and proximity to Sydney’s CBD – the closer to the CBD, the more challenging it becomes to enter the housing market.
First-time homebuyers are often required to adjust their housing preferences and consider less desirable markets to achieve homeownership, hoping to relocate to more desirable areas as their income improves, the researchers said.
There may be increasing polarisation of housing sub-markets where gaps between neighbourhoods continue to grow.
“The situation may also lead to housing-induced poverty, where households might forgo other essential activities to cover housing expenses,” Lee said.
Lee said “significant housing reform” is needed to prevent the cost of housing from spiralling further out of reach, including supply-side and demand-side policies.
Supply-side interventions include building more housing, particularly fast-tracking and increasing the construction of affordable homes targeted at low-income households by governments.
The federal government’s National Housing Accord, which is targeting the delivery of 1.2 million “well-located” homes over five years, officially kicked off this month. Running concurrently is the Housing Australia Future Fund, which aims to deliver 20,000 social and 10,000 affordable homes, and the National Housing Accord Facility, targeting a further 10,000 affordable homes.
The researchers also suggested implementing broader inclusionary zoning policies where developers are incentivised, for example, through subsidies, to allocate more units in new developments to those on low and moderate incomes.
