Sydney housing unaffordable on median full-time income

Having a stable and regular income is no longer enough to comfortably enter the housing market anywhere in Sydney, according to a new study. It predicts the situation will be dire until at least the next decade for anyone on a single standard income.

The research by Dr Mustapha Bangura from the University of Technology Sydney (UTS) and UNSW Sydney Professor Chyi Lin Lee, found that there is nowhere in Greater Sydney where someone on the New South Wales (NSW) median part-time or full-time income can afford to buy a property. Instead, income supplements, like existing wealth or significant cash gifts from family, would be needed to purchase a property and afford mortgage repayments. 

The study, published in the journal Cities, is the first study to examine the link between housing affordability and employment contracts.

"In the next five to seven years, there is nowhere in Greater Sydney where the mere reliance on NSW median income, whether full-time or part-time, would make entry to the housing market possible," said Dr Bangura.

"Due to the level of unaffordability in the market, prospective homebuyers on NSW median income would need income supplements like cash gifts from a family member, often referred to as the 'Bank of Mum and Dad', or gains from investment in other assets.

"If a prospective homebuyer on NSW median income eventually enters the market, it will impact their budget on other essentials including social and recreational activities, generating housing-induced poverty," he said.

Incomes insufficient to afford housing

Income is a critical component of housing affordability and varies significantly depending on the type of employment.

Due to the changing dynamics of the job market and other social factors, more part-time employees are entering the workforce. In Australia, the proportion of part-time employees grew from 20.6 per cent in May 2020 to 23.6 per cent in May 2021, according to the Australian Bureau of Statistics..

“As more part-time contracts are offered to working households, their earnings are impacted, affecting their chances of entering the housing market,” Professor Lee said. “This suggests that employment contract type is crucial for housing affordability analysis, which is somewhat overlooked in the existing literature.”

For the study, the researchers developed an affordability index based on the likely mortgage repayment of a prospective homebuyer according to the market value of properties, having a 20 per cent deposit, the average housing lending rate, and a loan period of 30 years. They then looked at which areas of Sydney were affordable on median part-time and full-time earnings based on a cost-to-take-home pay ratio of 30 per cent – widely considered the threshold for housing affordability.

They found that nowhere in Sydney was affordable based on the 2021 NSW weekly median income, for part-time employees on $600. Part-time earners in almost all parts of Sydney could not buy a property even if they spent their entire salary on housing.

Though the 2021 median income for full-time employees was higher at $1500 per week, nowhere in Greater Sydney was affordable. Some strata dwellings (usually apartments and units) in parts of Western Sydney were only slightly above the 30 per cent affordability ratio, though all non-strata dwellings (freestanding houses) were unaffordable.

Housing is unaffordable until at least 2031

The research also forecasts that, without interventions to improve housing affordability, there will still be nowhere in Sydney where a median part-time or full-time income alone can afford to buy a home until at least 2031.

“We assume that the variables used in calculating entry affordability, including income, lending rate, housing price, and loan-to-value, will follow the 2004-2021 trajectory,” Professor Lee said. “We also assume an absence of global events such as pandemics during the projected period.”

Additionally, the research found a direct relationship between housing affordability and proximity to Sydney’s central business district. The closer to the CBD, the more challenging it becomes to enter the housing market.

“The study focuses specifically on Sydney, which may limit the generalisability of the results to other regions,” Professor Lee said. “Using assumptions in forecasting future trends also introduces uncertainty to the projections.”

Need for housing policy interventions

The researchers argue that significant housing reform is needed to prevent the cost of housing from spiralling further out of reach. A combination of supply-side and demand-side policies is needed to make housing more affordable for aspiring homebuyers, particularly those in part-time employment or without access to income supplements.

Supply-side interventions include building more housing, particularly fast-tracking and increasing the construction of affordable homes targeted at low-income households by governments. Another solution is implementing broader inclusionary zoning policies where developers are incentivised, for example, through subsidies, to allocate more units in new developments to those on low and moderate incomes.