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Housing affordability woes might impose extra costs

Housing affordability woes might impose extra costs

Australia’s present housing affordability woes could not just impact first home buyers, but the business sector as well, according to new research from CoreLogic Australia.

CoreLogic has calculated the cost for first home buyers to enter property markets around the country, and the results show that even in the more affordable areas, it would take much more than just giving up avocado toast to save up the necessary funds for a deposit and related expenses.

Crunching the numbers:

CoreLogic starts its calculations with the 25th percentile house prices for Australia’s capital cities, to better reflect the more affordable end of the housing market where first home buyers are most likely to establish themselves.

Next, CoreLogic calculated the cost of a 5% deposit on home loans to purchase these properties, as no-deposit home loans are largely things of the past, and 5% is one of the smallest minimum deposits available from many lenders at the moment.

Of course, buying a home means paying for more than just the loan itself. CoreLogic also included the cost of stamp duty in each state (keeping in mind that some states have stamp duty exemptions below specific price thresholds), to paint a more complete picture of the cost to first home buyers.

One expense NOT included in CoreLogic’s figures is Lender’s Mortgage Insurance (LMI) – the cost of insuring the home loan provider against loss in the event that a borrower defaults on their loan. LMI is typically required for any home loan with a deposit lower than 20% of the loan value.

Using the RateCity LMI Calculator, we’ve added our estimates of this expense to CoreLogic’s figures, and come up with the following results:

City25th percentile price for houses, April 2017 (CoreLogic)5% deposit + stamp duty (CoreLogic)LMI (RateCity)TOTAL
Sydney$666,000$59,033$23,368$82,401
Melbourne$475,000$24,023$15,433$39,456
Brisbane$390,000$20,543$12,671$33,214
Adelaide$337,500$32,921$10,965$43,886
Perth$403,000$20,572$13,093$33,665
Hobart$275,875$23,096$7129$30,225
Darwin$370,000$26,057$12,021$38,078
Canberra$525,000$41,357$17,057$58,414

Please note that totals are estimates only and may not reflect current market conditions. LMI calculated using the RateCity LMI Calculator, using 25th percentile price from CoreLogic and a 5% deposit. Please read the calculator’s assumptions and disclaimers.

What this means for first home buyers and businesses

According to CoreLogic head of research, Cameron Kusher, one of the biggest challenges facing first home buyers is the fact that wages and household incomes aren’t rising at the same kind of rate as property prices around Australia:

“Over the 12 months to April 2017, Sydney dwelling values have increased by 16.0% and Melbourne values are 15.3% higher.  At the same time, modelled household income data from the Australian National University (ANU) indicates that over the 12 months to March 2017 Sydney household incomes have increased by a comparatively lower 4.6% and Melbourne household incomes are 2.7% higher.”

Kusher goes on to describe how  the unaffordability of housing in Australia’s capital cities could potentially make an impact on Australian businesses in the years to come, as young people are slowly priced out of Australia’s commercial hubs, leaving businesses struggling to attract young talent in their operating areas.

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