The Housing Industry Association, the voice of the Australian residential building industry, reports that the HIA Affordability Index fell in the June 2015 quarter, signalling deterioration in affordability conditions.
According to HIA Chief Economist, Dr Harley Dale, the positive impact of a second interest rate cut for the year in May was overwhelmed by an increase in the CoreLogic RP Data median dwelling price and the persistence of sluggish earnings growth. The net negative impact of these factors saw the national HIA Affordability Index fall by 2.9 per cent to 79.7 in the June 2015 quarter.
During the June 2015 quarter, affordability deteriorated by 3.6 per cent in capital city markets, driven by Sydney and Melbourne. This was in stark contrast to a 2.7 per cent improvement for regional Australia. Compared with the June quarter last year, capital city affordability worsened by 0.6 per cent, while in regional Australia affordability saw a 5.2 per cent improvement.
Harley Dale notes that the large differences in the results for the capital city Affordability Index and its regional counterpart, together with the variation in outcomes between capital cities, expose the folly of sweeping generalisations, which refer to an Australian housing boom. On the contrary, the extremely low interest rate environment is delivering historically favourable affordability conditions.
Harley Dale explains it is against this backdrop that authorities have escalated their requirements for the rationing of credit to residential investors. However, this can lead to new housing supply being obstructed, aggravating affordability conditions in markets around Australia.