‘Just broken’: How much you need to earn to buy a house

The average household income of home buyers has increased to $220,000, a nearly 40 per cent jump from just four years ago.

Almost a third of all home loan applicants now make more than $200,000, at the expense of those less than $150,000, Jarden analysis of Commonwealth Bank data shows.

The average full-time annual income in Australia is $98,098 as of November 2023, based on Australian Bureau of Statistics’ weekly earnings figures.

The average buyer in 2019 had a household income of $160,000.

Jarden chief economist Carlos Cacho said the analysis raised troubling questions about who can afford to buy a home in Australia, despite recent price falls.

“What we’ve seen over the last four years or so is that the share of buyers who make median or below income has decreased from 30 per cent to 18 per cent,” he said. “It’s really been hollowed out. Part of the increase has been due to income growth being relatively strong but even when you adjust for that the shift is well and truly beyond that.”

Property prices across the country have mostly recovered following steep downturns brought on by near-record Reserve Bank interest rate hikes, but the rebounds have concerned economists, particularly when compared to affordability metrics.

The median house price in Sydney is now almost $1.6 million, a record, while Melbourne is below its peak at about $1.05 million. Brisbane ($888,000) and Perth ($742,000) are at records, on Domain data.

Cacho’s analysis noted that those buying were using larger deposits, which indicated that the large cuts to borrowing capacity over the rate-hiking cycle were not affecting affluent buyers.

“It’s been a market that’s been increasingly driven by higher income households and large deposits,” Cacho said. “Partly that can be people who have saved a bit more but in our view it’s mostly from people who have family wealth.

“It’s a situation where there’s a real split down wealth and income lines. It’s becoming a case where the average household can no longer buy the average home.”

Cacho said if the trend continued, it could do fatal damage to national myths about the value of hard work.

“It reduces social cohesion. It was generally seen if you tried and really applied yourself you can achieve it, no matter your starting point. But now unless you come from a family who owns a home or has some wealth, it’s really hard to buy a home.”

AMP chief economist Dr Shane Oliver agreed the trend was concerning. “It’s an unfortunate reflection of where the property market is at present,” he said. “To some degree it’s self-evident because we’ve seen a rise in average loan sizes. So it can’t be lower incomes getting in.

“It’s a reflection of poor affordability. As prices rise in relation to incomes, that squeezes lower income owners and higher income earners can get in.”

Only a small percentage of workers were benefiting, Oliver said.

Axton Finance director and mortgage broker Clinton Waters said he was more regularly dealing with high-income buyers.

“What we see at the coalface is that there is certainly a trend towards those with stronger incomes being approved for mortgage lending,” he said. “We see it as becoming very much a two speed market of those who can afford servicing and those who can’t.

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“Affordability is a broad definition, but to buy a median home in Melbourne, Sydney or even Brisbane you need a sizable mortgage at a relatively large loan-to-value ratio.”

Waters said buyers on lower incomes were not inquiring about their ability to get a loan.

“They don’t call us,” he said. “But my assessment of it is there’s a bit of resignation to the fact that this is unaffordable.”

Carlos said it was unlikely buying a home would become more affordable in the short term.

“Where to from here? It’s hard to see this getting better any time soon,” he said. “Affordability will be improved a bit if and when we see a rate cut by the RBA, but history shows it will probably make house prices go even higher.

“It’s really hard to move the needle with affordability. It’s just broken.”