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Housing Costs: Housing affordability HOUSING AFFORDABILITY INDEX Source: Commonwealth Bank and Housing Industry Association Housing Report HOUSING INTEREST RATE(a) (a) The housing interest rate is the interest rate applicable on the last working day of the month to standard variable rate loans for owner occupation of large bank housing lenders. It is either the predominant rate or a representative rate (or range of rates) of major banks, although some banks may quote rates outside the range. Source: Reserve Bank of Australia Bulletin
HOUSING AFFORDABILITY INDEX, 1993 Source: Commonwealth Bank and Housing Industry Association Housing Report HOUSE PRICES(a), 1993 (a) House prices are the moving annual median prices of established houses. Source: Real Estate Institute of Australia Ltd Market Facts Monthly Meeting housing needs Factors influencing whether a household is likely to be purchasing or renting are discussed in Housing the population. For a given occupancy status, the proportion of income spent on housing can be used as a broad measure of the ease (or difficulty) that people experience in meeting their housing commitments. However, to the extent that higher housing payments may reflect discretionary savings among home purchasers, care should be exercised in the use of such a measure. In the rental sector, households may choose to pay a higher rent to live close to employment and so reduce travel time and cost. Nevertheless, a comparison of the proportion of income spent on housing for different types of households and levels of income provides insight into those groups most likely to be under financial pressure through housing costs. Between 1982 and 1990, the proportion of income spent on housing increased for both private renters and home purchasers, with home purchasers experiencing the greatest increase. As expected, low income households spent proportionally more of their income on housing than high income households. As well as the cost of housing, affordability is influenced by the level of available income. This may change as the employment status of family members changes, for example, changing from full-time to part-time work or becoming unemployed. It may also change with changes in family composition. Such changes can reduce affordability even though housing costs remain unchanged.
Home purchasers At low income levels, home purchasing couples with dependants spent a higher proportion of their income on home purchase than other income unit types. Between 1982 and 1990 the proportion of their income spent on home purchase increased from 35% to 50%, a consequence of the higher interest rates in the late 1980s. The reduction in interest rates after their peak in 1990 is likely to have eased this situation in subsequent years. Couples without dependants spent a lower proportion of their income on home purchase than other income unit types. At high income levels, average spending on home purchase was much the same at about a quarter of income regardless of income unit type. Another factor influencing affordability for home purchasers is the length of time for which they have been paying their home loan. Older loans are generally easier to service in that the repayments the lender requires usually remain static over the term of the loan while a person's income usually increases with age. Hence, the proportion of income spent on housing generally decreases for older people who have older mortgages. However, flexible home loan arrangements promoted by financial institutions in recent years have affected, and will continue to affect, this pattern. PROPORTION OF INCOME SPENT ON HOUSING BY HOME PURCHASERS
Source: Income and Housing Survey, 1982; Housing Survey, 1988; Survey of Income & Housing Costs and Amenities, 1990 PROPORTION OF INCOME SPENT ON HOUSING BY HOME PURCHASERS, 1990 Source: Survey of Income & Housing Costs and Amenities Private renters Private renters spent a higher proportion of their income on housing in 1982 compared to home purchasers. However, they experienced a smaller rise than home purchasers in the proportion of income spent on housing between 1982 and 1990. At both high and low income levels lone persons spent a lower proportion of their income on private rent than other income unit types. Private renters with low incomes spent just over a quarter of their income on housing in 1982, and this had increased to one-third by 1990. Those with high incomes spent 14% of their income on housing in 1982 and experienced a smaller increase, to 18%, in 1990. In contrast to purchasers, the proportion of income spent on housing by renters generally increased with age. This is a function of rents keeping pace with inflation and incomes compared to loan repayments decreasing in real terms over time. PROPORTION OF INCOME SPENT ON HOUSING BY PRIVATE RENTERS
Source: Income and Housing Survey, 1982; Housing Survey, 1988; Survey of Income & Housing Costs and Amenities, 1990
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