Australian households spend twice as much of income on mortgages than five years ago, report shows

Servicing a new mortgage eats up 45% of a median household’s pre-tax income, up from 26% in September 2020, the analysis reveals

The average Australian household needs to dedicate nearly twice as much of their income to paying their mortgage than they did five years ago, according to a new report.

The latest findings from property research firm Cotality come as the Albanese government comes under increasing pressure to find ways to accelerate the supply of new homes to ease price pressures.

Servicing a new mortgage eats up 45% of a median household’s pre-tax income, up from 26% in September 2020, the analysis shows.

At the centre of the national housing affordability crisis – Sydney – the Cotality report showed the average household needs to dedicate 68% of their income to paying an average new mortgage for a house, and 39% of their before-tax pay for a mortgage on a unit.

Australian home values have climbed by about 50% since the start of the pandemic, Cotality’s head of research, Eliza Owen, said.

“This surge was fuelled by pandemic-era monetary stimulus and record-low interest rates that supercharged borrowing capacity and demand, even as housing supply lagged well behind household formation,” Owen said.

Soaring demand crashed into supply-side limitations, as builders struggled to cope with building costs and planning bottlenecks.

Over the past five years, the median home price climbed at two-and-a-half times the pace of an average Australian household’s income.

The median, pre-tax household income has lifted by a solid 20% to $104,390 since September 2020, but lagging far behind the 54% jump in the median dwelling value to $860,529.

That has left the national home value-to-income ratio at a record 8.2 in September, according to the report, a substantial worsening from 6.5 in March 2020.

Average weekly rents over the same period have jumped by a nearly identical 53%, showing the squeeze facing Australians trying to save for their first home while struggling with soaring rental costs.

While rental affordability has also deteriorated, it has not been as dramatic, at least in terms of the national average. The average portion of income required to pay rent has climbed to 33%, from 26% five years ago.

The report showed regional Queensland had the most unaffordable rents, with households on average incomes outside Brisbane having to dedicate 39% of their pre-tax pay to lease a home.

Housing affordability had been gradually improving in the decade leading up to the pandemic, but the exodus from the cities during the early years of the health crisis put a rocket under property prices outside the capitals, the report shows.