State update: NSW property affordability trends

The shortage of affordable and available rental property for low income households in NSW climbed 38 per cent between 1996 and 2014, McCrindle data shows. This worrying metric (and several others) have prompted the NSW government to announce a housing affordability package to help turn things around.

It's too soon to comment on the material effects of these legislative changes, however, assessing where we are now and forecasting for the future can be equally as helpful for home buyers and renters alike. Let's look at the numbers and unearth the hard facts.

Affordability continues to worsen in NSW

Home ownership rates declined in 87 per cent of neighbourhoods in greater Sydney.

NSW is by far the most unaffordable state in which to buy a home in Australia. The most recent Adelaide Bank, Real Estate Institute of Australia Affordability Report shows that the average household uses 38 per cent of their total income to service a loan. Conventional wisdom says that mortgage stress kicks in when you spend 30 per cent of your income on housing, so that's a worrying statistic.

This high level of unaffordability is already wreaking havoc across Sydney, where buyers are hit worst. In fact, Grattan Institute research found that home ownership rates declined in 87 per cent of neighbourhoods in greater Sydney between 2011 and 2016. These declines have been felt most keenly by those aged between 25 and 54 years of age.

Renting appear remains the more affordable option, and rental affordability actually increased over the last year. The average household spends 28.6 per cent of their income on rent, which is down by 0.3 percentage points from the previous year. The increasing unaffordability of buying a home and the relative affordability of rent are clearly a driving force behind drops in home ownership and a rapidly increasing proportion of renters.

In the face of record housing unaffordability first home buyer rates have been dropping steadily in NSW.

NSW first home buyers face an uphill battle

In the face of record housing unaffordability first home buyer rates have been dropping steadily in NSW. In fact, only 13 per cent of property purchases in the state were first home buyers, with an average loan size of $365,600. The NSW government has put measures in place that should tip the scales in favour of beleaguered first home buyers and while it may be too early to measure their effectiveness - they do show promise.

For one, they've removed stamp duty off homes up to $650,000 - which could save first home buyers as much as $24,740. The government has also taken a number of other measures, such as increasing supply and removing insurance duty on lender's mortgage insurance.

On the other hand, they've also made life a little harder for those who compete with first home buyers. Investors can no longer defer payment of their stamp duties, and foreign investors are now to pay far higher duties - around $70,000 on a $600,000 home.

Units and apartments are also forecasted to decrease in value, by 3.8 per cent in 2018 and 1.4 per cent in 2019.

Prospects for the future of NSW housing

Luckily for NSW residents, and Sydney dwellers in particular, it's not all doom and gloom. CoreLogic RP Data's Monthly Indices show that over the month of August, dwelling values in Sydney stagnated, and that values for detached homes actually decreased by 0.09 per cent.

What's more, the most recent QBE Australian Housing Outlook estimates that next year Sydney house prices will drop by 0.9 per cent, before dropping by 0.5 in 2019. Units and apartments are also forecasted to decrease in value, by 3.8 per cent in 2018 and 1.4 per cent in 2019.

Considering the recent increases in supply and a tougher legislation against property investors, these slight decreases in house prices could continue beyond 2019. A prolonged period of house price decreases would give government legislation and housing supply the chance to catch up with the reality of the market here in NSW, to place further downward pressure on prices.

If that does occur, it's likely that housing affordability will slowly begin to improve in NSW and Sydney over the coming five years. With more government legislation to assist first home buyers and lower income families into homes, this could signal the start of a shift towards a more reasonable and equitable housing market here.

Speculation and forecasting is interesting and often useful. However, your decision to buy should be based entirely on your goals and financial situation, not the contents of speculative reports. With the help of an experienced local agent in the area and the right finance in place, now could be the perfect time for you to get onto the market.