Understanding the Housing Affordability Crisis in 2024

The PropTrack Housing Affordability Report 2024 highlights a critical and worsening issue in Australia’s housing market. Affordability has hit record lows, with a sharp rise in property prices and high mortgage rates making it harder than ever for average households to buy a home. Here’s a breakdown of the key findings from the report, along with insights into how these issues are impacting different segments of the population.

Housing Affordability at Record Lows

Housing affordability has reached its worst level on record in 2024, with median-income households now able to afford the smallest proportion of homes since the mid-1990s. For a household earning just over $112,000 a year, only 14% of homes on the market are affordable, down from 43% just three years ago. This sharp decline reflects the combined pressures of higher mortgage rates and continued price growth in the housing market.

Mortgage rates are a key factor in this trend, having risen sharply over the past two years. As of mid-2024, mortgage rates are at levels not seen since 2011, following a series of rate hikes that started in mid-2022. These high rates, coupled with property price increases, have pushed many households out of the market. Over the past year alone, the national median home price has risen by approximately $50,000, further exacerbating the affordability crisis. 

Regional Differences in Affordability

Housing affordability challenges vary significantly across different regions in Australia. New South Wales, Victoria, and Tasmania are the hardest hit, with median-income households in these states facing the most severe affordability pressures. For example, in Sydney, the median house price has soared to $1.5 million, putting homeownership far beyond the reach of many average earners. In Tasmania, median-income households can afford less than one in ten homes sold over the past year. 

By contrast, Western Australia remains the most affordable state. House prices are lower than in the eastern states, and while the market has seen price growth, affordability is still relatively better compared to the national average. This has made Western Australia a popular destination for buyers looking for more affordable housing options.

Challenges for First-Home Buyers

First-home buyers are facing particularly steep challenges in the current market. Even for those who might be able to afford mortgage repayments, saving for a deposit remains a major hurdle. An average-income household would need to save 20% of their income for more than five and a half years to accumulate a 20% deposit on a median-priced home. This long saving period makes it extremely difficult for many first-time buyers, especially those who are also paying rent and covering other living expenses. 

For instance, consider a couple earning the median household income in Sydney. They would need to save around $300,000 for a 20% deposit on a $1.5 million home—an overwhelming task while also managing day-to-day expenses. This challenge is reflected across other major cities, making homeownership a distant dream for many aspiring buyers..

Additionally, first-time homebuyer programs can provide assistance. These programs often include grants or loans to help buyers with down payments. However, the effectiveness of these initiatives varies by region.

Possible Improvements: What Needs to Change?

The report suggests that lower interest rates could bring some short-term relief, but this would not be enough to solve the broader issue of housing affordability. Structural reforms are needed to make a meaningful and long-term improvement in the housing market. One of the most important solutions proposed is increasing the supply of new homes. The Australian government has set an ambitious target to build 1.2 million new homes by 2029, with a focus on well-located, affordable housing.

While this goal is promising, achieving it will require significant policy changes, including zoning reforms to allow for more housing construction in urban areas. Overseas examples show that similar reforms have helped ease housing crises in other countries, but Australia will need coordinated efforts at the federal, state, and local levels to see real progress .

In addition to building more homes, better utilizing the existing housing stock could also help improve affordability. The report highlights the role of stamp duty in discouraging people from moving, which in turn limits the availability of homes for growing families. Stamp duty reform could encourage more homeowners to right-size, making larger homes available to those who need them and easing pressure on the housing market.

Conclusion: Housing Affordability Outlook

In summary, Australia is facing a severe housing affordability crisis, with record-low affordability and significant challenges for households across all income levels. While short-term relief may come from lower interest rates, the long-term solution lies in increasing the housing supply and implementing policy reforms to make homeownership more achievable. Without these changes, homeownership may increasingly become out of reach for many Australians, threatening to erode the cornerstone of the country’s housing market.

Looking ahead, it’s clear that a coordinated national effort will be required to address this issue. The government’s target of building 1.2 million homes is a step in the right direction, but it will take time to see the full impact. In the meantime, first-home buyers and lower-income households are likely to continue facing significant challenges in achieving their dream of owning a home.