Homes in Australia are less affordable, particularly in Sydney and Melbourne

Homes in Australia are less affordable but there are wide variations across the country with price growth having an effect in some locations.

The latest affordability index from the Housing Industry Association (HIA) fell by 2.9% in the June quarter to 79.7 as an interest rate cut was negated by house prices rising and sluggish earnings growth.

HIA chief economist Harley Dale said that during the second quarter of 2015 affordability deteriorated by 3.6% in capital city markets, driven by Sydney and Melbourne and described this as ‘a stark contrast’ to a 2.7% improvement for regional Australia.

Compared to the second quarter last year, capital city affordability worsened by 0.6% while in regional Australia affordability saw a 5.2% improvement.

‘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, exposes the folly of sweeping generalisations which refer to an Australian housing boom,’ said Dale.

‘That is simply not what is occurring. ‘In many parts of Australia the extremely low interest rate environment is delivering historically favourable affordability conditions. It is against this backdrop that authorities have escalated their requirements for the rationing of credit to residential investors. The risk is that this will obstruct new housing supply, aggravating affordability conditions in markets around Australia,’ he added.

Meanwhile the latest HIA new home sales report, a survey of Australia’s largest volume builders, recorded its fifth rise in six months in June 2015. Total seasonally adjusted new home sales increased by 0.5%.

Dale said that detached houses drove the modest increase in new home sales in June this year, with a 1.7% rise offsetting a 2.9% decline in the sale of multi-units and New South Wales and Victoria continue to display upward momentum in detached house sales, but the other three mainland states are heading in the opposite direction.

A breakdown of the figures shows that detached house sales increased by 3.5% in New South Wales, by 1.5% in Victoria, and by 4.2% in Queensland. Detached house sales fell by 2% in South Australia while in Western Australia sales eased by 0.9%.

Detached house sales increased by 7.9% in New South Wales and 0.6% in Victoria while quarterly sales fell by 7% in Queensland, 10.2% in South Australia and 3.1% in Western Australia.